-----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, PbtMJEmTFZDlvj9+GcVIv+bkHI7WSNBU7v7Q0tmSyLtmIAlgSXSKdxOwtOozMYgh I0jfoNqnqKGi0ReTADmc5w== 0000092122-00-000068.txt : 20000328 0000092122-00-000068.hdr.sgml : 20000328 ACCESSION NUMBER: 0000092122-00-000068 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 36 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000327 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-K SEC ACT: SEC FILE NUMBER: 001-03526 FILM NUMBER: 579851 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: 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-K SEC ACT: SEC FILE NUMBER: 001-03164 FILM NUMBER: 579852 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-K SEC ACT: SEC FILE NUMBER: 001-06468 FILM NUMBER: 579853 BUSINESS ADDRESS: STREET 1: 241 RALPH MCGILL BOULEVARD CITY: ATLANTA STATE: GA ZIP: 30308 BUSINESS PHONE: 4045066526 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-K SEC ACT: SEC FILE NUMBER: 000-02429 FILM NUMBER: 579854 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: 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-K SEC ACT: SEC FILE NUMBER: 001-11229 FILM NUMBER: 579855 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-K SEC ACT: SEC FILE NUMBER: 001-05072 FILM NUMBER: 579856 BUSINESS ADDRESS: STREET 1: 600 BAY ST EAST CITY: SAVANNAH STATE: GA ZIP: 31401 BUSINESS PHONE: 9122327171 10-K 1 1999 FORM 10-K =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1999 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 0-6849 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 ============================================================================== Securities registered pursuant to Section 12(b) of the Act:1 Each of the following classes or series of securities registered pursuant to Section 12(b) of the Act is registered on the New York Stock Exchange. Title of each class Registrant Common Stock, $5 par value The Southern Company Company obligated mandatorily redeemable preferred securities, $25 liquidation amount 7.75% Cumulative Quarterly Income Preferred Securities 2 7 1/8% Trust Originated Preferred Securities 3 6.875% Cumulative Quarterly Income Preferred Securities 4 --------------------------------------------------- Class A preferred, cumulative, $25 stated capital Alabama Power Company 5.20% Series 5.83% Series Senior Notes 7 1/8% Series A 7% Series C 7% Series B 6.75% Series J Company obligated mandatorily redeemable preferred securities, $25 liquidation amount 7.375% Trust Preferred Securities 5 7.60% Trust Originated Preferred Securities 6 --------------------------------------------------- Senior Notes Georgia Power Company 6 7/8% Series A 6 5/8% Series D 6.60% Series B Company obligated mandatorily redeemable preferred securities, $25 liquidation amount 7.75% Trust Preferred Securities 7 7.60% Trust Preferred Securities 8 7.75% Cumulative Quarterly Income Preferred Securities 9 6.85% Trust Preferred Securities 10 ------------------------------------------------------ =============================================================================== - -------- 1 As of December 31, 1999. 2 Issued by Southern Company Capital Trust III and guaranteed by The Southern Company. 3 Issued by Southern Company Capital Trust IV and guaranteed by The Southern Company. 4 Issued by Southern Company Capital Trust V and guaranteed by The Southern Company. 5 Issued by Alabama Power Capital Trust I and guaranteed by Alabama Power Company. 6 Issued by Alabama Power Capital Trust II and guaranteed by Alabama Power Company. 7 Issued by Georgia Power Capital Trust I and guaranteed by Georgia Power Company. 8 Issued by Georgia Power Capital Trust II and guaranteed by Georgia Power Company. 9 Issued by Georgia Power Capital Trust III and guaranteed by Georgia Power Company. 10 Issued by Georgia Power Capital Trust IV and guaranteed by Georgia Power Company. Company obligated mandatorily Gulf Power Company redeemable preferred securities, $25 liquidation amount 7.625% Cumulative Quarterly Income Preferred Securities 11 7.00% Cumulative Quarterly Income Preferred Securities 12 ------------------------------------------------------ Depositary preferred shares, each Mississippi Power Company representing one-fourth of a share of preferred stock, cumulative, $100 par value 6.32% Series 6.65% Series Company obligated mandatorily redeemable preferred securities, $25 liquidation amount 7.75% Trust Originated Preferred Securities 13 --------------------------------------------------- Company obligated mandatorily Savannah Electric and Power Company redeemablepreferred securities, $25 liquidation amount 6.85% Trust Preferred Securities 14 Securities registered pursuant to Section 12(g) of the Act:15 Title of each class Registrant Preferred stock, cumulative, $100 par value Alabama Power Company 4.20% Series 4.60% Series 4.72% Series 4.52% Series 4.64% Series 4.92% Series Class A preferred, cumulative, $100,000 stated capital Auction (1993 Series) Class A preferred, cumulative, $100 stated capital Auction (1988 Series) ---------------------------------------------------------- Preferred stock, cumulative, $100 stated value Georgia Power Company $4.60 Series (1954) ---------------------------------------------------------- =============================================================================== - -------- 11 Issued by Gulf Power Capital Trust I and guaranteed by Gulf Power Company. 12 Issued by Gulf Power Capital Trust II and guaranteed by Gulf Power Company. 13 Issued by Mississippi Power Capital Trust I and guaranteed by Mississippi Power Company. 14 Issued by Savannah Electric Capital Trust I and guaranteed by Savannah Electric and Power Company. 15 As of December 31, 1999. Preferred stock, cumulative, $100 par value Gulf Power Company 4.64% Series 5.44% Series 5.16% Series ---------------------------------------------------------- Preferred stock, cumulative, $100 par value Mississippi Power Company 4.40% Series4.60% Series 4.72% Series7.00% Series ---------------------------------------------------------- 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) Aggregate market value of voting stock held by non-affiliates of The Southern Company at February 29, 2000: $14.4 billion. Each of such other registrants is a wholly-owned subsidiary of The Southern Company and has no voting stock other than its common stock. A description of registrants' common stock follows:
Description of Shares Outstanding Registrant Common Stock at February 29, 2000 The Southern Company Par Value $5 Per Share 649,563,507 Alabama Power Company Par Value $40 Per Share 5,608,955 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
Documents incorporated by reference: specified portions of The Southern Company's Proxy Statement relating to the 2000 Annual Meeting of Stockholders are incorporated by reference into PART III. This combined Form 10-K is separately filed by The Southern Company, Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company and Savannah Electric and 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. ==============================================================================
Table of Contents Page PART I Item 1 Business The SOUTHERN System.................................................................................. I-2 Integrated Southeast Utilities....................................................................... I-2 Southern Energy...................................................................................... I-2 Other Business....................................................................................... I-3 Certain Factors Affecting the Industry............................................................... I-3 Construction Programs................................................................................ I-4 Year 2000............................................................................................ I-5 Financing Programs................................................................................... I-6 Fuel Supply.......................................................................................... I-7 Territory Served by the Integrated Southeast Utilities............................................... I-9 Competition.......................................................................................... I-12 Regulation........................................................................................... I-13 Rate Matters......................................................................................... I-15 Employee Relations................................................................................... I-17 Item 2 Properties............................................................................................. I-18 Item 3 Legal Proceedings...................................................................................... I-24 Item 4 Submission of Matters to a Vote of Security Holders.................................................... I-24 Executive Officers of SOUTHERN......................................................................... I-25 PART II Item 5 Market for Registrants' Common Equity and Related Stockholder Matters.................................. II-1 Item 6 Selected Financial Data................................................................................ II-2 Item 7 Management's Discussion and Analysis of Results of Operations and Financial Condition.............................................................................. II-2 Item 7A Quantitative and Qualitative Disclosures about Market Risk............................................. II-2 Item 8 Financial Statements and Supplementary Data............................................................ II-3 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................................................. II-4 PART III Item 10 Directors and Executive Officers of the Registrants................................................... III-1 Item 11 Executive Compensation................................................................................ III-13 Item 12 Security Ownership of Certain Beneficial Owners and Management.......................................................................................... III-30 Item 13 Certain Relationships and Related Transactions........................................................ III-35 PART IV Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................................................................... IV-1
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DEFINITIONS When used in Items 1 through 5 and Items 10 through 14, the following terms will have the meanings indicated. Other defined terms specific only to Item 11 are found on page III-13. Term Meaning AEC........................................... Alabama Electric Cooperative, Inc. AFUDC......................................... Allowance for Funds Used During Construction ALABAMA....................................... Alabama Power Company Alicura....................................... Hidroelectrica Alicura, S.A. (Argentina) AMEA.......................................... Alabama Municipal Electric Authority APEA.......................................... Applicant Prepared Environmental Assessment CEMIG......................................... Companhia Energetica de Minas Gerais CEPA.......................................... Consolidated Electric Power Asia Clean Air Act................................. Clean Air Act Amendments of 1990 Dalton........................................ City of Dalton, Georgia DOE........................................... United States Department of Energy Edelnor....................................... Empresa Electrica del Norte Grande, S.A. (Chile) EMF........................................... Electromagnetic field Energy Act.................................... Energy Policy Act of 1992 Energy Solutions.............................. Southern Company Energy Solutions, Inc. Entergy Gulf States........................... Entergy Gulf States Utilities Company EPA........................................... United States Environmental Protection Agency EWG........................................... Exempt wholesale generator FERC.......................................... Federal Energy Regulatory Commission FPC........................................... Florida Power Corporation FP&L.......................................... Florida Power & Light Company Freeport...................................... Freeport Power Company (Bahamas) FUCO.......................................... Foreign utility company GEORGIA....................................... Georgia Power Company GULF.......................................... Gulf Power Company Holding Company Act........................... Public Utility Holding Company Act of 1935, as amended IBEW.......................................... International Brotherhood of Electrical Workers integrated Southeast utilities................ ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH IPP........................................... Independent power producer IRS........................................... Internal Revenue Service JEA........................................... Jacksonville Electric Authority MEAG.......................................... Municipal Electric Authority of Georgia MISSISSIPPI................................... Mississippi Power Company Mobile Energy................................. Mobile Energy Services Company, LLC NRC........................................... Nuclear Regulatory Commission OPC........................................... Oglethorpe Power Corporation PSC........................................... Public Service Commission RTO........................................... Regional Transmission Organization RUS........................................... Rural Utility Service (formerly Rural Electrification Administration) ii DEFINITIONS (continued) SAVANNAH...................................... Savannah Electric and Power Company SCEM.......................................... Southern Company Energy Marketing, L.P. SCS........................................... Southern Company Services, Inc. (the system service company) SEC........................................... Securities and Exchange Commission SEGCO......................................... Southern Electric Generating Company SEPA.......................................... Southeastern Power Administration SERC.......................................... Southeastern Electric Reliability Council SMEPA......................................... South Mississippi Electric Power Association SOUTHERN...................................... The Southern Company Southern Energy............................... Southern Energy, Inc. Southern LINC................................. Southern Communications Services, Inc. Southern Nuclear.............................. Southern Nuclear Operating Company, Inc. SOUTHERN system............................... SOUTHERN, the integrated Southeast utilities, SEGCO, Southern Energy, Southern Nuclear, SCS, Southern LINC, Energy Solutions and other subsidiaries TVA........................................... Tennessee Valley Authority WPD........................................... Western Power Distribution (United Kingdom) (formerly South Western Electricity plc) iii
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION This Annual Report on Form 10-K includes forward-looking and historical information. The registrants caution that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking information; accordingly, there can be no assurance that such indicated results will be realized. These factors include legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry; the extent and timing of the entry of additional competition in the markets of SOUTHERN's subsidiaries; potential business strategies, including acquisitions or dispositions of assets or businesses, internal restructuring or other restructuring options, that may be pursued by the registrants; state and federal rate regulation in the United States; changes in or application of environmental and other laws and regulations to which SOUTHERN and its subsidiaries are subject; political, legal and economic conditions and developments in the United States and in foreign countries in which the subsidiaries operate; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather and other natural phenomena; the performance of projects undertaken by Southern Energy and other subsidiaries and the success of efforts to invest in and develop new opportunities; and other factors discussed elsewhere herein and in other reports filed from time to time by the registrants with the SEC. iv PART I Item 1. BUSINESS SOUTHERN was incorporated under the laws of Delaware on November 9, 1945. SOUTHERN is domesticated under the laws of Georgia and is qualified to do business as a foreign corporation under the laws of Alabama. SOUTHERN owns all the outstanding common stock of ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH, each of which is an operating public utility company. The integrated Southeast utilities supply electric service in the states of Alabama, Georgia, Florida, Mississippi and Georgia, respectively. More particular information relating to each of the integrated Southeast utilities is as follows: ALABAMA is a corporation organized under the laws of the State of Alabama on November 10, 1927, by the consolidation of a predecessor Alabama Power Company, Gulf Electric Company and Houston Power Company. The predecessor Alabama Power Company had had a continuous existence since its incorporation in 1906. GEORGIA was incorporated under the laws of the State of Georgia on June 26, 1930, and admitted to do business in Alabama on September 15, 1948. GULF is a corporation which was organized under the laws of the State of Maine on November 2, 1925, and admitted to do business in Florida on January 15, 1926, in Mississippi on October 25, 1976, and in Georgia on November 20, 1984. MISSISSIPPI was incorporated under the laws of the State of Mississippi on July 12, 1972, was admitted to do business in Alabama on November 28, 1972, and effective December 21, 1972, by the merger into it of the predecessor Mississippi Power Company, succeeded to the business and properties of the latter company. The predecessor Mississippi Power Company was incorporated under the laws of the State of Maine on November 24, 1924, and was admitted to do business in Mississippi on December 23, 1924, and in Alabama on December 7, 1962. SAVANNAH is a corporation existing under the laws of the State of Georgia; its charter was granted by the Secretary of State on August 5, 1921. SOUTHERN also owns all the outstanding common stock of Southern Energy, Southern LINC, Southern Nuclear, SCS, Energy Solutions and other direct and indirect subsidiaries. Southern Energy acquires, develops, builds, owns and operates power production and delivery facilities and provides a broad range of energy-related services to utilities and industrial companies in selected countries around the world. Southern Energy businesses include independent power projects, integrated utilities, a distribution company, and energy trading and marketing businesses outside the southeastern United States. A further description of Southern Energy's business and organization follows later in this section under "Southern Energy." Southern LINC provides digital wireless communications services to SOUTHERN's integrated Southeast utilities and also markets these services to the public within the Southeast. Southern Nuclear provides services to ALABAMA and GEORGIA's nuclear plants. Energy Solutions develops new business opportunities related to energy products and services. ALABAMA and GEORGIA each own 50% of the outstanding common stock of SEGCO. SEGCO owns electric generating units with an aggregate capacity of 1,019,680 kilowatts at Plant Gaston on the Coosa River near Wilsonville, Alabama, and ALABAMA and GEORGIA are each entitled to one-half of SEGCO's capacity and energy. ALABAMA acts as SEGCO's agent in the operation of SEGCO's units and furnishes coal to SEGCO as fuel for its units. SEGCO also owns three 230,000 volt transmission lines extending from Plant Gaston to the Georgia state line at which point connection is made with the GEORGIA transmission line system. Reference is also made to Note 14 to the financial statements of SOUTHERN in Item 8 herein for additional information regarding SOUTHERN's segment and related information. I-1 The SOUTHERN System Integrated Southeast Utilities The transmission facilities of each of the integrated Southeast utilities are connected to the respective company's own generating plants and other sources of power and are interconnected with the transmission facilities of the other integrated Southeast utilities and SEGCO by means of heavy-duty high voltage lines. (In the case of GEORGIA's integrated transmission system, see Item 1 - BUSINESS - "Territory Served by the Integrated Southeast Utilities" herein.) Operating contracts covering arrangements in effect with principal neighboring utility systems provide for capacity exchanges, capacity purchases and sales, transfers of economy energy and other similar transactions. Additionally, the integrated Southeast utilities have entered into voluntary reliability agreements with the subsidiaries of Entergy Corporation, Florida Electric Power Coordinating Group and TVA and with Carolina Power & Light Company, Duke Energy Corporation, South Carolina Electric & Gas Company and Virginia Electric and Power Company, each of which provides for the establishment and periodic review of principles and procedures for planning and operation of generation and transmission facilities, maintenance schedules, load retention programs, emergency operations, and other matters affecting the reliability of bulk power supply. The integrated Southeast utilities have joined with other utilities in the Southeast (including those referred to above) to form the SERC to augment further the reliability and adequacy of bulk power supply. Through the SERC, the integrated Southeast utilities are represented on the National Electric Reliability Council. An intra-system interchange agreement provides for coordinating operations of the power producing facilities of the integrated Southeast utilities and the capacities available to such companies from non-affiliated sources and for the pooling of surplus energy available for interchange. Coordinated operation of the entire interconnected system is conducted through a central power supply coordination office maintained by SCS. The available sources of energy are allocated to the integrated Southeast utilities to provide the most economical sources of power consistent with good operation. The resulting benefits and savings are apportioned among the integrated Southeast utilities. Reference is made to each registrant's "Management's Discussion and Analysis - - Future Earnings Potential" in Item 7 for information relating to the FERC's final rule issued on December 20, 1999, relating to RTOs. SCS has contracted with SOUTHERN, each integrated Southeast utility, Southern Energy, various of the other subsidiaries, Southern Nuclear and SEGCO to furnish, at cost and upon request, the following services: general executive and advisory services, power pool operations, general engineering, design engineering, purchasing, accounting, finance and treasury, taxes, insurance and pensions, corporate, rates, budgeting, public relations, employee relations, systems and procedures and other services with respect to business and operations. Southern Energy, Energy Solutions and Southern LINC have also secured from the integrated Southeast utilities certain services which are furnished at cost. Southern Nuclear has contracts with ALABAMA to operate the Farley Nuclear Plant, and with GEORGIA to operate Plants Hatch and Vogtle. See Item 1 - BUSINESS - "Regulation - Atomic Energy Act of 1954" herein. Southern Energy SOUTHERN continues to consider new business opportunities, particularly those which allow use of the expertise and resources developed through its regulated utility experience. These endeavors began in 1981 and are conducted through Southern Energy and other subsidiaries. Southern Energy is a global company engaged in electricity generation and distribution, integrated utility operations and energy marketing. Southern Energy is one of the world's largest independent power producers with ownership interests in generating facilities with a total capacity of 28,000 megawatts, of which Southern Energy has net ownership or control of over 14,000 megawatts. In addition, Southern Energy has projects under construction or advanced development in which it will have additional net ownership interests totaling 5,000 megawatts. SOUTHERN has filed with the SEC a request to invest up to nearly $6 billion in Southern Energy's domestic and international business. The current SEC authority is $4.1 billion, I-2 of which $2.7 billion has been invested as of December 31, 1999. For additional information relating to Southern Energy's business strategy, reference is made to Item 7, SOUTHERN's "Management's Discussion and Analysis - Future Earnings Potential" herein. Approximately 60% of the net megawatts of generating capacity currently owned by Southern Energy is located in the United States, with the remainder in England, Germany, the Philippines, China, Brazil, Argentina, Chile, the Bahamas and Trinidad and Tobago. In the United States during 1999, Southern Energy completed the acquisition of 3,065 megawatts from Pacific Gas & Electric Company in California and 1,794 megawatts from Orange & Rockland Utilities, Inc. and Consolidated Edison Company of New York, Inc. in the State of New York. These North American acquisitions, together with acquisitions completed prior to 1999, are a component of Southern Energy's strategy of investing in generating assets which are expected to be linked to Southern Energy's trading and marketing activities. Also in 1999, Southern Energy completed the acquisition of a 9.99% ownership interest in Shandong International Power Development Company Limited which currently owns generating facilities in China with installed capacity of 4,435 megawatts. In 1999, Mobile Energy, an indirect subsidiary of SOUTHERN, and its direct parent filed petitions for Chapter 11 bankruptcy relief in the U.S. Bankruptcy Court for the Southern District of Alabama. For additional information regarding this matter, reference is made to Item 3 - LEGAL PROCEEDINGS herein. See Item 2 - PROPERTIES - "Other Electric Properties - Southern Energy" herein for additional information relating to these and other Southern Energy projects. In addition, Southern Energy is a leading energy marketer in North America through its 60% interest in SCEM, a joint venture between Southern Energy and Vastar Resources, Inc. formed for the purpose of marketing and trading energy and energy-linked commodities, including electricity, natural gas, oil, coal and emission allowances. Southern Energy has also opened an office in Amsterdam, The Netherlands, in order to market and trade energy in European markets. SOUTHERN continues to consider various business strategies and restructuring options to enhance shareholder value with respect to its investment in Southern Energy. Other Business Energy Solutions is focusing on new and existing programs to enhance customer satisfaction and efficiency and stockholder value, such as: Good Cents, an energy efficiency program for electric utility customers; Energy Services, providing total energy solutions to industrial and commercial customers; Heat Pump financing for residential customers; and telecommunications operations and security monitoring for both commercial and residential customers. In 1995, Southern LINC began serving SOUTHERN's integrated Southeast utilities and marketing its services to non-affiliates within the Southeast. Its system covers approximately 130,000 square miles and combines the functions of two-way radio dispatch, cellular phone, short text and numeric messaging and wireless data transfer. These continuing efforts to invest in and develop new business opportunities offer the potential of earning returns which may exceed those of rate-regulated operations. However, these activities also involve a higher degree of risk. SOUTHERN expects to make substantial investments over the period 2000-2002 in these and other new businesses. Certain Factors Affecting the Industry Various factors are currently affecting the electric utility industry in general, including increasing competition and the regulatory changes related thereto, costs required to comply with environmental regulations, and the potential for new business opportunities (with their associated risks) outside of traditional rate-regulated operations. The effects of these and other factors on the SOUTHERN system are described herein. Particular reference is made to Item 1 - BUSINESS - "Southern Energy", "Other Business", "Competition" and "Environmental Regulation." See also "Cautionary Statement Regarding Forward-Looking Information." I-3 Construction Programs The subsidiary companies of SOUTHERN are engaged in continuous construction programs to accommodate existing and estimated future loads on their respective systems. Construction additions or acquisitions of property during 2000 through 2002 by the integrated Southeast utilities, SEGCO, SCS, Southern LINC and Southern Energy are estimated as follows: (in millions) ------------------------------ -------- --------- ---------- 2000 2001 2002 -------- --------- ---------- ALABAMA $ 831 $743 $ 860 GEORGIA 1,244 1,511 1,485 GULF 106 232 90 MISSISSIPPI 84 54 61 SAVANNAH 26 30 36 SEGCO 15 41 69 SCS 30 24 20 Southern LINC 53 27 10 Southern Energy* 578 1,044 1,222 Other 49 134 88 =========================== =========== ========= ========== SOUTHERN system $3,016 $3,840 $3,941 =========================== =========== ========= ========== *These construction estimates do not include amounts which may be expended by Southern Energy on future power production projects or by any subsidiaries created to effect such future projects. (See Item 1 - BUSINESS - "Southern Energy" herein.) I-4
Estimated construction costs in 2000 are expected to be apportioned approximately as follows: (in millions) ---------------------------- ----------------------- ----------- ------------- ---------- --------------------------- SOUTHERN Southern system* Energy ALABAMA GEORGIA GULF MISSISSIPPI SAVANNAH ----------------------- ----------- ------------- ---------- --------------------------- New generation $641 $ - $240 $ 368 $26 $ 7 $- Other generating facilities including associated plant substations 864 442 140 229 17 16 5 New business 372 - 139 176 25 22 10 Transmission 420 10 143 225 16 25 1 Joint line and substation 54 - - 47 7 - - Distribution 289 103 89 73 9 7 8 Nuclear fuel 93 - 32 61 - - - General plant 283 23 48 65 6 7 2 ----------------------- ----------- ------------- ---------- --------------------------- $3,016 $578 $831 $1,244 $106 $84 $26 ======================= =========== ============= ========== ===========================
*Southern LINC, SCS and other businesses plan capital additions to general plant in 2000 of $53 million, $30 million and $49 million, respectively, while SEGCO plans capital additions of $15 million to generating facilities. (See Item 1 - BUSINESS "Southern Energy" and "Other Business" herein.) The construction programs are subject to periodic review and revision, and actual construction costs may vary from the above estimates because of numerous factors. These factors include: changes in business conditions; acquisitions of additional generating assets; revised load growth estimates; changes in environmental regulations; changes in existing nuclear plants to meet new regulatory requirements; increasing costs of labor, equipment and materials; and cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. The integrated Southeast utilities have approximately 5,200 megawatts of combustion turbine generating capacity scheduled to be placed in service by 2002. Approximately 1,400 megawatts of this new capacity will be dedicated to the wholesale market. Southern Energy has approximately 1,000 megawatts of owned capacity under construction. Significant construction of transmission and distribution facilities and the upgrading of generating plants will be continuing for the business in the Southeast. (See Item 2 - PROPERTIES - "Other Electric Properties - Southern Energy" herein for additional information relating to facilities under development.) In 1991, the Georgia legislature passed legislation which requires GEORGIA and SAVANNAH each to file an Integrated Resource Plan for approval by the Georgia PSC. Under the plan rules, the Georgia PSC must pre-certify the construction of new power plants and new purchase power contracts. (See Item 1 - BUSINESS - "Rate Matters - Integrated Resource Planning" herein.) See Item 1 - BUSINESS - "Regulation - Environmental Regulation" herein for information with respect to certain existing and proposed environmental requirements and Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein for additional information concerning ALABAMA's and GEORGIA's joint ownership of certain generating units and related facilities with certain non-affiliated utilities. Year 2000 Reference is made to each registrant's "Management's Discussion and Analysis - Year 2000 Challenge" in Item 7 herein for information relating to Year 2000 issues. I-5 Financing Programs The amount and timing of additional equity capital to be raised in 2000, as well as subsequent years, will be contingent on SOUTHERN's investment opportunities. Equity capital can be provided from any combination of public offerings, private placements, or SOUTHERN's stock plans. Any portion of the common stock required during 2000 for SOUTHERN's stock plans that is not provided from the issuance of new stock will be acquired on the open market in accordance with the terms of such plans. The integrated Southeast utilities plan to obtain the funds required for construction and other purposes from sources similar to those used in the past, which were primarily from internal sources. However, the type and timing of any financings -- if needed -- will depend on market conditions and regulatory approval. Historically the integrated Southeast utilities have relied on issuances of first mortgage bonds and preferred stock, in addition to pollution control revenue bonds issued for their benefit by public authorities, to meet their long-term external financing requirements. Recently, financings have consisted of unsecured debt and trust preferred securities. In addition, future projects undertaken by subsidiaries of Southern Energy, as with existing projects, will generally be financed with an appropriate mix of debt that is non-recourse to SOUTHERN and equity. Short-term debt is often utilized as appropriate at SOUTHERN and the integrated Southeast utilities. The maximum amounts of short-term or term-loan indebtedness authorized by the appropriate regulatory authorities are shown on the following table: Amount Outstanding at Authorized December 31, 1999 -------------- --------------------- (in millions) ALABAMA $ 750 (1) $ 97 GEORGIA 1,700 (2) 636 GULF 300(1) 55 MISSISSIPPI 350(1) 138 SAVANNAH 90(2) 64 SOUTHERN 2,000(1) 1,075 ------------------ -------------- -- ------------------- Notes: (1) ALABAMA's authority is based on authorization received from the Alabama PSC, which expires December 31, 2000. No SEC authorization is required for ALABAMA. GULF, MISSISSIPPI and SOUTHERN have received SEC authorization to issue from time to time short-term and/or term-loan notes to banks and commercial paper to dealers in the amounts shown through December 31, 2003, December 31, 2002 and March 31, 2001, respectively. (2) GEORGIA and SAVANNAH have received SEC authorization to issue from time to time short-term and term-loan notes to banks and commercial paper to dealers in the amounts shown through December 31, 2002. Authorization for term-loan indebtedness is also required by the Georgia PSC. At December 31, 1999, GEORGIA had remaining authority of $376 million expiring December 31, 2000. SAVANNAH received authority from the Georgia PSC for $70 million expiring December 31, 2000. Reference is made to Note 5 to the financial statements for SOUTHERN, ALABAMA, GULF, MISSISSIPPI and SAVANNAH and Note 9 to the financial statements for GEORGIA in Item 8 herein for information regarding the registrants' credit arrangements. I-6 Fuel Supply The integrated Southeast utilities' and SEGCO's supply of electricity is derived predominantly from coal. The sources of generation for the years 1997 through 1999 and the estimates for 2000 are shown below: Oil and ALABAMA Coal Nuclear Hydro Gas --------- ---------- --------- --------- 1997 72% 20% 8% *% 1998 72 18 8 2 1999 72 20 5 3 2000 69 18 7 6 GEORGIA 1997 75 22 2 1 1998 73 22 3 2 1999 75 22 1 2 2000 74 22 3 1 GULF 1997 100 ** ** * 1998 98 ** ** 2 1999 97 ** ** 3 2000 98 ** ** 2 MISSISSIPPI 1997 85 ** ** 15 1998 80 ** ** 20 1999 81 ** ** 19 2000 81 ** ** 19 SAVANNAH 1997 87 ** ** 13 1998 76 ** ** 24 1999 78 ** ** 22 2000 89 ** ** 11 SEGCO 1997 100 ** ** * 1998 100 ** ** * 1999 100 ** ** * 2000 100 ** ** * SOUTHERN system*** 1997 77 17 4 2 1998 76 16 4 4 1999 78 17 2 3 2000 76 16 4 4 ---------- ------- --------- ---------- --------- --------- *Less than 0.5%. **Not applicable. ***Amounts shown for the SOUTHERN system are weighted averages of the integrated Southeast utilities and SEGCO. The average costs of fuel in cents per net kilowatt-hour generated for 1997 through 1999 are shown below: 1997 1998 1999 -------------- ------------- ------------- ALABAMA 1.49 1.54 1.44 GEORGIA 1.32 1.36 1.34 GULF 1.99 1.69 1.60 MISSISSIPPI 1.54 1.62 1.65 SAVANNAH 2.27 2.33 2.20 SEGCO 1.51 1.53 1.77 SOUTHERN System* 1.46 1.48 1.45 - ------------------- -------------- ------------- ------------- * Amounts shown for the SOUTHERN system are weighted averages of the integrated Southeast utilities and SEGCO. See SELECTED FINANCIAL DATA in Item 6 herein for each registrant's source of energy supply. I-7 As of February 11, 2000, the integrated Southeast utilities had stockpiles of coal on hand at their respective coal-fired plants which represented an estimated 25.8 days of recoverable supply for bituminous coal and 54.1 days for sub-bituminous coal. It is estimated that approximately 66.9 million tons of coal will be consumed in 2000 by the integrated Southeast utilities (including those units GEORGIA owns jointly with OPC, MEAG and Dalton and operates for FP&L and JEA and the units ALABAMA owns jointly with AEC). The integrated Southeast utilities currently have 38 coal contracts. These contracts cover remaining terms of up to 12 years. Approximately 26% of 2000 estimated coal requirements will be purchased in the spot market. Management has set a goal whereby the spot market should be utilized, absent the transition from coal contract expirations, for 20 to 30% of the SOUTHERN system's coal supply. Additionally, it has been determined that the inventory targets will be approximately 32 nameplate days of recoverable supply for the heavy burn season between June 1 and September 30 and 25 nameplate days for the remaining periods. During 1999, the integrated Southeast utilities' and SEGCO's average price of coal delivered was approximately $34.77 per ton. In 1999, the weighted average sulfur content of all coal purchased by the integrated Southeast utilities for use in the coal-fired facilities was 0.83% sulfur. This sulfur level allowed the integrated Southeast utilities to remain well below the limits as set forth by Phase I of the Clean Air Act. Phase II sulfur dioxide and nitrogen oxide limits began in 2000. The integrated Southeast utilities have secured sufficient quantities of lower sulfur coal to help meet the more stringent Phase II sulfur requirements in conjunction with the sulfur dioxide allowances banked in Phase I. As more and more strict environmental regulations are proposed that impact the utilization of coal, the fuel mix will be monitored to insure that sufficient quantities of the proper type of coal or natural gas are in place to remain in compliance with applicable laws and regulations. See Item 1 BUSINESS - "Regulation - Environmental Regulation" herein. Changes in fuel prices are generally reflected in fuel adjustment clauses contained in rate schedules. See Item 1 - BUSINESS - "Rate Matters - Rate Structure" herein. The integrated Southeast utilities have renegotiated, bought out or otherwise terminated various coal supply contracts. For more information on certain of these transactions, see Note 5 to the financial statements of GULF in Item 8 herein. ALABAMA and GEORGIA have numerous contracts covering a portion of their nuclear fuel needs for uranium, conversion services, enrichment services and fuel fabrication. These contracts have varying expiration dates and most are short to medium term (less than 10 years). Management believes that sufficient capacity for nuclear fuel supplies and processing exists to preclude the impairment of normal operations of the SOUTHERN system's nuclear generating units. ALABAMA and GEORGIA have contracts with the DOE that provide for the permanent disposal of spent nuclear fuel. The DOE failed to begin disposing of spent fuel in January 1998, as required by the contracts, and the companies are pursuing legal remedies against the government for breach of contract. Sufficient storage capacity currently is available to permit operation into 2003 at Plant Hatch, into 2017 at Plant Vogtle, and into 2009 and 2013 at Plant Farley units 1 and 2, respectively. Activities for adding dry cask storage capacity and for potentially increasing spent fuel pool rack capacity at Plant Hatch during 2000 are in progress. Planning for additional on-site spent fuel storage capacity at Plant Farley is also in progress, with the intent to place additional on-site spent fuel storage capacity in operation as early as 2005. In addition, through Southern Nuclear, ALABAMA and GEORGIA are members of Private Fuel Storage, LLC, a joint utility effort to develop a private spent fuel storage facility for temporary storage of spent nuclear fuel. This facility is planned to begin operation as early as 2003. The Energy Act imposed upon utilities with nuclear plants, including ALABAMA and GEORGIA, obligations for the decontamination and decommissioning of federal nuclear fuel enrichment facilities. See Note 1 to SOUTHERN's, ALABAMA's and GEORGIA's financial statements in Item 8 herein. I-8 Territory Served by the Integrated Southeast Utilities The territory in which the integrated Southeast utilities provide electric service comprises most of the states of Alabama and Georgia together with the northwestern portion of Florida and southeastern Mississippi. In this territory there are non-affiliated electric distribution systems which obtain some or all of their power requirements either directly or indirectly from the integrated Southeast utilities. The territory has an area of approximately 120,000 square miles and an estimated population of approximately 11 million. ALABAMA is engaged, within the State of Alabama, in the generation and purchase of electricity and the distribution and sale of such electricity at retail in over 1,000 communities (including Anniston, Birmingham, Gadsden, Mobile, Montgomery and Tuscaloosa) and at wholesale to 15 municipally-owned electric distribution systems, 11 of which are served indirectly through sales to AMEA, and two rural distributing cooperative associations. ALABAMA also supplies steam service in downtown Birmingham. ALABAMA also sells, and cooperates with dealers in promoting the sale of, electric appliances. GEORGIA is engaged in the generation and purchase of electricity and the distribution and sale of such electricity within the State of Georgia at retail in over 600 communities, as well as in rural areas, and at wholesale currently to OPC, MEAG, the City of Dalton and the City of Hampton. GULF is engaged, within the northwestern portion of Florida, in the generation and purchase of electricity and the distribution and sale of such electricity at retail in 71 communities (including Pensacola, Panama City and Fort Walton Beach), as well as in rural areas, and at wholesale to a non-affiliated utility and a municipality. GULF also sells electric appliances. MISSISSIPPI is engaged in the generation and purchase of electricity and the distribution and sale of such energy within the 23 counties of southeastern Mississippi, at retail in 123 communities (including Biloxi, Gulfport, Hattiesburg, Laurel, Meridian and Pascagoula), as well as in rural areas, and at wholesale to one municipality, six rural electric distribution cooperative associations and one generating and transmitting cooperative. SAVANNAH is engaged, within a five-county area in eastern Georgia, in the generation and purchase of electricity and the distribution and sale of such electricity at retail and, as a member of the SOUTHERN system power pool, the transmission and sale of wholesale energy. For information relating to kilowatt-hour sales by classification for each registrant, reference is made to "Management's Discussion and Analysis-Results of Operations" in Item 7 herein. Also, for information relating to the sources of revenues for the SOUTHERN system and each of the integrated Southeast utilities, reference is made to Item 6 herein. A portion of the area served by the integrated Southeast utilities adjoins the area served by TVA and its municipal and cooperative distributors. An Act of Congress limits the distribution of TVA power, unless otherwise authorized by Congress, to specified areas or customers which generally were those served on July 1, 1957. The RUS has authority to make loans to cooperative associations or corporations to enable them to provide electric service to customers in rural sections of the country. There are 71 electric cooperative organizations operating in the territory in which the integrated Southeast utilities provide electric service at retail or wholesale. One of these, AEC, is a generating and transmitting cooperative selling power to several distributing cooperatives, municipal systems and other customers in south Alabama and northwest Florida. AEC owns generating units with approximately 840 megawatts of nameplate capacity, including an undivided ownership interest in ALABAMA's Plant Miller Units 1 and 2. AEC's facilities were financed with RUS loans secured by long-term contracts requiring distributing cooperatives to take their requirements from AEC to the extent such energy is available. Two of the 14 distributing cooperatives operating in ALABAMA's service territory obtain a portion of their power requirements directly from ALABAMA. I-9 Four electric cooperative associations, financed by the RUS, operate within GULF's service area. These cooperatives purchase their full requirements from AEC and SEPA. A non-affiliated utility also operates within GULF's service area and purchases its full requirements from GULF. ALABAMA and GULF have entered into separate agreements with AEC involving interconnection between the respective systems. The delivery of capacity and energy from AEC to certain distributing cooperatives in the service areas of ALABAMA and GULF is governed by SOUTHERN's AEC Network Transmission Service Agreement. The rates for this service to AEC are based on the negotiated agreement on file with the FERC. See Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein for details of ALABAMA's joint-ownership with AEC of a portion of Plant Miller. MISSISSIPPI has an interchange agreement with SMEPA, a generating and transmitting cooperative, pursuant to which various services are provided, including the furnishing of protective capacity by MISSISSIPPI to SMEPA. SMEPA has a generating capacity of 821,000 kilowatts and a transmission system estimated to be 1,480 miles in length. There are 43 electric cooperative organizations operating in, or in areas adjoining, territory in the State of Georgia in which GEORGIA provides electric service at retail or wholesale. Three of these organizations obtain their power from TVA and one from other sources. Since July 1, 1975, OPC has supplied the requirements of the remaining 39 of these cooperative organizations from self-owned generation acquired from GEORGIA and, until September 1991, through partial requirements purchases from GEORGIA. GEORGIA entered into a power coordination agreement with OPC pursuant to which, effective in September 1991, OPC ceased to be a partial requirements wholesale customer of GEORGIA. Instead, OPC began the purchase of 1,250 megawatts of capacity from GEORGIA through 1999, subject to reduction or extension by OPC, and may satisfy the balance of its needs through purchases from others. OPC decreased its purchases of capacity by 250 megawatts each in September 1997, 1998 and 1999. Under the amended 1995 Integrated Resource Plan approved by the Georgia PSC in March 1997, the resources associated with the decreased purchases by OPC in 1997, 1998 and 1999 will be used to meet the needs of GEORGIA's retail customers through 2004. In April 1999, a new power supply agreement was implemented between GEORGIA and OPC. Pursuant to this agreement, OPC will purchase 250 megawatts of steam capacity through March 2006, 250 megawatts of peaking capacity through August of 2000, and 125 megawatts of peaking capacity from September 2000 through August 2001. There are 65 municipally-owned electric distribution systems operating in the territory in which the integrated Southeast utilities provide electric service at retail or wholesale. AMEA was organized under an act of the Alabama legislature and is comprised of 11 municipalities. In 1986, ALABAMA entered into a firm power purchase contract with AMEA entitling AMEA to scheduled amounts of capacity (to a maximum of 100 megawatts) for a period of 15 years commencing September 1, 1986. In October 1991, ALABAMA entered into a second firm power purchase contract with AMEA entitling AMEA to scheduled amounts of additional capacity (to a maximum 80 megawatts) for a period of 15 years commencing October 1, 1991. In both contracts the power is being sold to AMEA for its member municipalities that previously were served directly by ALABAMA as wholesale customers. Under the terms of the contracts, ALABAMA received payments from AMEA representing the net present value of the revenues associated with the respective capacity entitlements. See Note 7 to ALABAMA's financial statements in Item 8 herein for further information on these contracts. Forty-eight municipally-owned electric distribution systems and one county-owned system receive their requirements through MEAG, which was established by a state statute in 1975. MEAG serves these requirements from self-owned generation facilities acquired from GEORGIA and purchases from others. In August 1997, a power coordination agreement was implemented between GEORGIA and MEAG that replaced the partial requirements tariff pursuant to which GEORGIA previously sold wholesale energy to MEAG. Since 1977, Dalton has filled its requirements from generation facilities acquired from GEORGIA and through partial requirements purchases. One municipally-owned electric distribution system's full requirements are served under a market-based contract by GEORGIA. (See Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein.) I-10 GULF and MISSISSIPPI provide wholesale requirements for one municipal system each. GEORGIA has entered into substantially similar agreements with Georgia Transmission Corporation (formerly OPC's transmission division), MEAG and Dalton providing for the establishment of an integrated transmission system to carry the power and energy of each. The agreements require an investment by each party in the integrated transmission system in proportion to its respective share of the aggregate system load. (See Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein.) SCS, acting on behalf of ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH, also has a contract with SEPA (a federal power marketing agency) providing for the use of those companies' facilities at government expense to deliver to certain cooperatives and municipalities, entitled by federal statute to preference in the purchase of power from SEPA, quantities of power equivalent to the amounts of power allocated to them by SEPA from certain United States government hydroelectric projects. The retail service rights of all electric suppliers in the State of Georgia are regulated by the 1973 State Territorial Electric Service Act. Pursuant to the provisions of this Act, all areas within existing municipal limits were assigned to the primary electric supplier therein on March 29, 1973 (451 municipalities, including Atlanta, Columbus, Macon, Augusta, Athens, Rome and Valdosta, to GEORGIA; 115 to electric cooperatives; and 50 to publicly-owned systems). Areas outside of such municipal limits were either to be assigned or to be declared open for customer choice of supplier by action of the Georgia PSC pursuant to standards set forth in the Act. Consistent with such standards, the Georgia PSC has assigned substantially all of the land area in the state to a supplier. Notwithstanding such assignments, the Act provides that any new customer locating outside of 1973 municipal limits and having a connected load of at least 900 kilowatts may receive electric service from the supplier of its choice. (See also Item 1 - BUSINESS - "Competition" herein.) Under and subject to the provisions of its franchises and concessions and the 1973 State Territorial Electric Service Act, SAVANNAH has the full but nonexclusive right to serve the City of Savannah, the Towns of Bloomingdale, Pooler, Garden City, Guyton, Newington, Oliver, Port Wentworth, Rincon, Tybee Island, Springfield, Thunderbolt, Vernonburg, and in conjunction with a secondary supplier, the Town of Richmond Hill. In addition, SAVANNAH has been assigned certain unincorporated areas in Chatham, Effingham, Bryan, Bulloch and Screven Counties by the Georgia PSC. (See also Item 1 - BUSINESS - "Competition" herein.) Pursuant to the 1956 Utility Act, the Mississippi PSC issued "Grandfather Certificates" of public convenience and necessity to MISSISSIPPI and to six distribution rural cooperatives operating in southeastern Mississippi, then served in whole or in part by MISSISSIPPI, authorizing them to distribute electricity in certain specified geographically described areas of the state. The six cooperatives serve approximately 300,000 retail customers in a certificated area of approximately 10,300 square miles. In areas included in a "Grandfather Certificate," the utility holding such certificate may, without further certification, extend its lines up to five miles; other extensions within that area by such utility, or by other utilities, may not be made except upon a showing of, and a grant of a certificate of, public convenience and necessity. Areas included in such a certificate which are subsequently annexed to municipalities may continue to be served by the holder of the certificate, irrespective of whether it has a franchise in the annexing municipality. On the other hand, the holder of the municipal franchise may not extend service into such newly annexed area without authorization by the Mississippi PSC. Long-Term Power Sales Agreements Reference is made to Note 7 to the financial statements for SOUTHERN, ALABAMA, GEORGIA, GULF and MISSISSIPPI in Item 8 herein for information regarding contracts for the sales of capacity and energy to non-territorial customers. I-11 Competition The electric utility industry in the United States is currently undergoing a period of dramatic change as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Act. The Energy Act allows IPPs to access a utility's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for a utility's large industrial and commercial customers, and sell energy generation to other utilities. Also, electricity sales for resale rates are being driven down by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. The integrated Southeast utilities are aggressively working to maintain and expand their share of wholesale sales in the Southeastern power markets. Although the Energy Act does not permit retail customer access, it was a major catalyst for the current restructuring and consolidation taking place within the utility industry. Numerous federal and state initiatives are in varying stages to promote wholesale and retail competition. Among other things, these initiatives allow customers to choose their electricity provider. As these initiatives materialize, the structure of the utility industry continues to change. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While various restructuring and competition initiatives have been or are being discussed in Alabama, Florida, Georgia, and Mississippi, none have been enacted to date. Enactment would require numerous issues to be resolved, including significant ones relating to transmission pricing and recovery of any stranded investments. The inability of a company to recover its investments, including the regulatory assets described in Note 1 to each registrant's respective financial statements, could have a material adverse effect on such company's financial condition and results of operations. The integrated Southeast utilities are attempting to minimize or reduce their cost exposure. Reference is made to Note 3 to the financial statements for SOUTHERN under "Alabama Power Rate Adjustment Procedures" and "Georgia Power 1998 Retail Rate Order" for information regarding these efforts. Reference is made to each registrant's "Management's Discussion and Analysis - - Future Earnings Potential" in Item 7 for information relating to the FERC's final rule issued on December 20, 1999, relating to RTOs. Continuing to be a low-cost producer could provide opportunities to increase market share and profitability in markets that evolve with changing regulation. Conversely, if the integrated Southeast utilities do not remain low-cost producers and provide quality service, then energy sales could be adversely affected, and this could significantly erode earnings. Reference is made to each registrant's "Management's Discussion and Analysis - Future Earnings Potential" in Item 7 herein for further discussion of competition. To adapt to a less regulated, more competitive environment and to enhance shareholder value, SOUTHERN continues to evaluate and consider a wide array of potential business strategies. These strategies may include business combinations, acquisitions involving other utility or non-utility businesses or properties, internal restructuring or other restructuring options, disposition of certain assets or businesses, or some combination thereof. Furthermore, SOUTHERN may engage in other new business ventures that arise from competitive and regulatory changes in the utility industry. Pursuit of any of the above strategies, or any combination thereof, may significantly affect the business operations and financial condition of SOUTHERN. (See Item 1 BUSINESS - "Southern Energy" and "Other Business" herein.) As a result of the foregoing factors, SOUTHERN has experienced increasing competition for available off-system sales of capacity and energy from neighboring utilities and alternative sources of energy. Additionally, the future effect of cogeneration and small-power production facilities on the SOUTHERN system cannot currently be determined but may be adverse. ALABAMA currently has cogeneration contracts in effect with twelve industrial customers. Under the terms of these contracts, ALABAMA purchases excess generation of such companies. During 1999, ALABAMA purchased approximately 94 million kilowatt-hours from such companies at a cost of $2.2 million. I-12 GEORGIA currently has contracts in effect with six small power producers whereby GEORGIA purchases their excess generation. During 1999, GEORGIA purchased 3.9 million kilowatt-hours from such companies at a cost of $638,000. In June 1998, GEORGIA entered into a 30-year purchased power agreement for electricity from a 300-megawatt cogeneration facility. Payments are subject to reductions for failure to meet minimum capacity output. During 1999, GEORGIA purchased 705.2 million kilowatt-hours at a cost of $39 million from this facility. Reference is made to Note 4 to the financial statements for GEORGIA in Item 8 herein for information regarding purchased power commitments. GULF currently has agreements in effect with four industrial customers pursuant to which GULF purchases "as available" energy from customer-owned generation. During 1999, GULF purchased 162 million kilowatt-hours from such companies for $5.0 million. In 1996, MISSISSIPPI entered into agreements to purchase options for summer peaking power for the years 1997 through 2000. Reference is made to Note 5 to the financial statements for MISSISSIPPI in Item 8 herein for information regarding fuel and purchased power commitments. SAVANNAH currently has cogeneration contracts in effect with six large customers. Under the terms of these contracts, SAVANNAH purchases excess generation of such companies. During 1999, SAVANNAH purchased 28 million kilowatt-hours from such companies at a cost of $2.8 million. The competition for retail energy sales among competing suppliers of energy is influenced by various factors, including price, availability, technological advancements and reliability. These factors are, in turn, affected by, among other influences, regulatory, political and environmental considerations, taxation and supply. The integrated Southeast utilities have experienced, and expect to continue to experience, competition in their respective retail service territories in varying degrees as the result of self-generation (as described above) and fuel switching by customers and other factors. (See also Item 1 - BUSINESS - "Territory Served by the Integrated Southeast Utilities" herein for information concerning suppliers of electricity operating within or near the areas served at retail by the integrated Southeast utilities.) Regulation State Commissions The integrated Southeast utilities are subject to the jurisdiction of their respective state regulatory commissions, which have broad powers of supervision and regulation over public utilities operating in the respective states, including their rates, service regulations, sales of securities (except for the Mississippi PSC) and, in the cases of the Georgia PSC and Mississippi PSC, in part, retail service territories. (See Item 1 - BUSINESS - "Rate Matters" and "Territory Served by the Integrated Southeast Utilities" herein.) Holding Company Act SOUTHERN is registered as a holding company under the Holding Company Act, and it and its subsidiary companies are subject to the regulatory provisions of said Act, including provisions relating to the issuance of securities, sales and acquisitions of securities and utility assets, services performed by SCS and Southern Nuclear, and the activities of certain of SOUTHERN's special purpose subsidiaries. While various proposals have been introduced in Congress regarding the Holding Company Act, the prospects for legislative reform or repeal are uncertain at this time. Federal Power Act The Federal Power Act subjects the integrated Southeast utilities and SEGCO to regulation by the FERC as companies engaged in the transmission or sale at wholesale of electric energy in interstate commerce, including regulation of accounting policies and practices. ALABAMA and GEORGIA are also subject to the provisions of the Federal Power Act or the earlier Federal Water Power Act applicable to licensees with respect to their hydroelectric developments. Among the hydroelectric projects subject to licensing by the FERC are 14 existing ALABAMA generating stations having an I-13 aggregate installed capacity of 1,582,725 kilowatts and 18 existing GEORGIA generating stations having an aggregate installed capacity of 1,074,696 kilowatts. GEORGIA received a new, 40-year license for the Flint River Project effective November 1, 1999. GEORGIA has also started the relicensing process for the Middle Chattahoochee Project. This project consists of the Goat Rock, Oliver, and North Highlands facilities. GEORGIA and OPC also have a license, expiring in 2027, for the Rocky Mountain Plant, a pure pumped storage facility of 847,800 kilowatt capacity which began commercial operation in 1995. (See Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein and Note 3 to SOUTHERN's and GEORGIA's financial statements in Item 8 herein for additional information.) Licenses for all projects, excluding those discussed above, expire in the period 2007-2033 in the case of ALABAMA's projects and in the period 2005-2036 in the case of GEORGIA's projects. Upon or after the expiration of each license, the United States Government, by act of Congress, may take over the project, or the FERC may relicense the project either to the original licensee or to a new licensee. In the event of takeover or relicensing to another, the original licensee is to be compensated in accordance with the provisions of the Federal Power Act, such compensation to reflect the net investment of the licensee in the project, not in excess of the fair value of the property taken, plus reasonable damages to other property of the licensee resulting from the severance therefrom of the property taken. Atomic Energy Act of 1954 ALABAMA, GEORGIA and Southern Nuclear are subject to the provisions of the Atomic Energy Act of 1954, as amended, which vests jurisdiction in the NRC over the construction and operation of nuclear reactors, particularly with regard to certain public health and safety and antitrust matters. The National Environmental Policy Act has been construed to expand the jurisdiction of the NRC to consider the environmental impact of a facility licensed under the Atomic Energy Act of 1954, as amended. NRC operating licenses currently expire in June 2017 and March 2021 for Plant Farley units 1 and 2, respectively, in August 2014 and June 2018 for Plant Hatch units 1 and 2, respectively, and in January 2027 and February 2029 for Plant Vogtle units 1 and 2, respectively. On February 29, 2000, Southern Nuclear, on behalf of GEORGIA, filed a license renewal application with the NRC for Plant Hatch units 1 and 2. If approved, the operating license will be extended to August 6, 2034 for Plant Hatch unit 1 and until June 13, 2038 for Plant Hatch unit 2. Reference is made to Notes 1 and 12 to SOUTHERN's, Notes 1 and 12 to ALABAMA's and Notes 1 and 5 to GEORGIA's financial statements in Item 8 herein for information on nuclear decommissioning costs and nuclear insurance. Additionally, Note 3 to GEORGIA's financial statements contains information regarding nuclear performance standards imposed by the Georgia PSC that may impact retail rates. Environmental Regulation The integrated Southeast utilities, SEGCO and Southern Energy's domestic operations are subject to federal, state and local environmental requirements which, among other things, control emissions of particulates, sulfur dioxide and nitrogen oxides into the air; the use, transportation, storage and disposal of hazardous and toxic waste; and discharges of pollutants, including thermal discharges, into waters of the United States. The integrated Southeast utilities, SEGCO and Southern Energy expect to comply with such requirements, which generally are becoming increasingly stringent, through technical improvements, the use of appropriate combinations of low-sulfur fuel and chemicals, addition of environmental control facilities, changes in control techniques and reduction of the operating levels of generating facilities. Failure to comply with such requirements could result in the complete shutdown of individual facilities not in compliance as well as the imposition of civil and criminal penalties. Reference is made to each registrant's "Management's Discussion and Analysis" in Item 7 herein for a discussion of the Clean Air Act and other environmental legislation and proceedings, including a pending lawsuit brought on behalf of the EPA. I-14 The integrated Southeast utilities', SEGCO's and Southern Energy's estimated capital expenditures for environmental quality control facilities for the years 2000, 2001 and 2002 are as follows: (in millions) --------------------- --- ---------- ---------- ----------- 2000 2001 2002 ---------- ---------- ----------- ALABAMA $ 28 $ 78 $ 72 GEORGIA 161 268 298 GULF 2 2 9 MISSISSIPPI - - 7 SAVANNAH 1 2 2 SEGCO 4 31 55 Southern Energy 29 38 69 --------------------- --- ---------- ---------- ----------- Total $225 $419 $512 ===================== === ========== ========== =========== *The foregoing estimates are included in the current construction programs. (See Item 1 - BUSINESS - "Construction Programs" herein.) Additionally, each integrated Southeast utility and SEGCO has incurred costs for environmental remediation of various sites. Reference is made to each registrant's "Management's Discussion and Analysis" in Item 7 herein for information regarding the registrants' environmental remediation efforts. Also, see Note 3 to SOUTHERN's and GEORGIA's financial statements in Item 8 herein for information regarding the identification of sites that may require environmental remediation by GEORGIA and Note 3 to MISSISSIPPI's financial statements in Item 8 herein for information regarding a site that will require environmental remediation by MISSISSIPPI. The integrated Southeast utilities, SEGCO and Southern Energy are unable to predict at this time what additional steps they may be required to take as a result of the implementation of existing or future quality control requirements for air, water and hazardous or toxic materials, but such steps could adversely affect system operations and result in substantial additional costs. International Regulation Southern Energy's international operations are subject to the jurisdiction of numerous governmental agencies in the countries in which its projects are located with respect to environmental and other regulatory matters. Generally, many of the countries in which Southern Energy conducts and will conduct business have recently developed or are in the process of developing new regulatory and legal structures to accommodate private and foreign-owned businesses. These regulatory and legal structures and their interpretation by applicable administrative agencies are relatively new and sometimes limited, and more detailed rules and procedures may be issued in the future. The interpretation of existing rules can also be expected to evolve over time. In addition, as Southern Energy acquires additional projects in various countries, it will be affected by the environmental and other regulatory restrictions of such countries. The outcome of the matters mentioned above under "Regulation" cannot now be determined, except that these developments may result in delays in obtaining appropriate licenses for generating facilities, increased construction and operating costs, or reduced generation, the nature and extent of which, while not determinable at this time, could be substantial. Rate Matters Rate Structure The rates and service regulations of the integrated Southeast utilities are uniform for each class of service throughout their respective service areas. Rates for residential electric service are generally of the block type based upon kilowatt-hours used and include minimum charges. Residential and other rates contain separate customer charges. Rates for commercial service are presently of the block type and, for large customers, the billing demand is generally used to determine capacity and minimum bill charges. These large customers' rates are generally based upon usage by the customer including those with special features to encourage off-peak usage. Additionally, the integrated Southeast utilities are allowed by their respective PSCs to negotiate the terms and compensation of service to large customers. Such terms and compensation of service, however, are subject to final PSC approval. ALABAMA, GEORGIA and SAVANNAH are allowed by state law to recover fuel and net purchased energy costs through fuel cost recovery provisions which are adjusted to reflect increases or decreases in such costs. GULF recovers from retail I-15 customers costs of fuel, net purchased power, energy conservation and environmental compliance through provisions which are adjusted to reflect increases or decreases in such costs. GULF's recovery of these costs is based upon an annual projection - any over/under recovery during such period is reflected in a subsequent annual period with interest. With respect to MISSISSIPPI's retail rates, fuel and purchased power costs above base levels included in the various rate schedules are billed to such customers under the fuel and energy adjustment clause. The adjustment factors for MISSISSIPPI's retail and wholesale rates are generally levelized based on the estimated energy cost for the year, adjusted for any actual over/under collection from the previous year. Revenues are adjusted for differences between recoverable fuel costs and amounts actually recovered in current rates. Rate Proceedings Reference is made to Note 3 to each registrant's financial statements in Item 8 herein for a discussion of rate matters. Reference is also made to GULF's "Management's Discussion and Analysis - Future Earnings Potential" in Item 7 herein for a discussion of recent Florida PSC matters. Integrated Resource Planning GEORGIA and SAVANNAH must file Integrated Resource Plans for approval by the Georgia PSC. The plans must specify how GEORGIA and SAVANNAH each intends to meet the future electrical needs of their customers through a combination of demand-side and supply-side resources. The Georgia PSC must pre-certify these new resources. Once certified, all prudently incurred construction costs and purchased power costs will be recoverable through rates. In July 1998, the Georgia PSC approved GEORGIA's and SAVANNAH's 1998 Integrated Resource Plans as filed, with minor modifications. The approved plans identify resource needs of approximately 800 megawatts to 1,200 megawatts starting in the summer of 2002. As a result, GEORGIA and SAVANNAH issued a joint request for proposals for their collective needs of 800 megawatts to 1,200 megawatts for 2002 and 2003. The bids were evaluated against self-build options, and a Certification Filing for the selected resources was approved by the Georgia PSC in March 2000. The selected resources for retail needs in Georgia are: (1) a 7-year purchased power agreement with the West Georgia Generating Company for 310 megawatts starting in 2002, increasing to 465 megawatts in 2005, and terminating in May 2009; and (2) a 7 1/2-year purchased power agreement for two 568 megawatt combined cycle units to be located at Plant Wansley starting in 2002 and terminating at the end of 2009. SAVANNAH has a 7-year purchased power agreement with GEORGIA for 200 megawatts of the 1,136 megawatt addition at Plant Wansley starting in 2002 and terminating in 2009. After 2009, this capacity will be available to the wholesale market. Environmental Cost Recovery Plans GULF and MISSISSIPPI both have retail rate mechanisms that provide for recovery of environmental compliance costs. For a description of these plans, see Note 3 to each of GULF's and MISSISSIPPI's financial statements in Item 8 herein. I-16 Employee Relations The companies of the SOUTHERN system had a total of 32,949 employees on their payrolls at December 31, 1999. -------------------------------- --- ------------------------- Employees at December 31, 1999 ------------------------- ALABAMA 6,792 GEORGIA 8,961 GULF 1,339 MISSISSIPPI 1,328 SAVANNAH 533 SCS 3,572 Southern Energy* 6,680 Southern Nuclear 3,018 Other 726 -------------------------------- --- ------------------------- Total 32,949 ================================ === ========================= *Includes 5,282 employees on international payrolls. The integrated Southeast utilities have separate agreements with local unions of the IBEW generally covering wages, working conditions and procedures for handling grievances and arbitration. These agreements apply with certain exceptions to operating, maintenance and construction employees. ALABAMA has agreements with the IBEW on a three-year contract extending to August 14, 2001. Upon notice given at least 60 days prior to that date, negotiations may be initiated with respect to agreement terms to be effective after such date. GEORGIA has an agreement with the IBEW covering wages and working conditions, which is in effect through June 30, 2002. GULF has an agreement with the IBEW on a three-year contract extending to August 15, 2001. MISSISSIPPI has an agreement with the IBEW on a four-year contract extending to August 16, 2002. SAVANNAH has four-year labor agreements with the IBEW and the Office and Professional Employees International Union that expire April 15, 2003 and December 1, 2003, respectively. Southern Energy has a labor contract with the United Steel Workers that extends to January 1, 2004 at its State Line facility in Hammond, Indiana. Southern Energy Canal located in Sandwich, Massachusetts, and Southern Energy Kendall located in Cambridge, Massachusetts, both subsidiaries of Southern Energy, have contracts with the Utilities Workers' Union of America which expire on June 1, 2001 and March 1, 2001, respectively. Also, Southern Energy New York has a contract with the IBEW which expires on June 1, 2000. Currently, Southern Energy New York is in negotiations with the IBEW. Southern Nuclear has agreements with the IBEW on separate three-year contracts extending to August 15, 2001 for Plant Farley and to June 30, 2002 for Plants Hatch and Vogtle. Upon notice given at least 60 days prior to these dates, negotiations may be initiated with respect to agreement terms to be effective after such dates. Southern Nuclear also has an agreement with the United Plant Guard Workers of America for security officers at Plant Hatch extending to September 30, 2001. Upon notice given at least 60 days prior to that date, negotiations may be initiated with respect to agreement terms to be effective after such date. The agreements also subject the terms of the pension plans for the companies discussed above to collective bargaining with the unions at five-year intervals. I-17 Item 2. PROPERTIES Electric Properties - The Integrated Southeast Utilities The integrated Southeast utilities and SEGCO, at December 31, 1999, operated 33 hydroelectric generating stations, 33 fossil fuel generating stations and three nuclear generating stations. The amounts of capacity owned by each company are shown in the table below. ------------------------- ------------------------------------- Nameplate Generating Station Location Capacity (1) ------------------------- ------------------- ----------------- (Kilowatts) Fossil Steam Gadsden Gadsden, AL 120,000 Gorgas Jasper, AL 1,221,250 Barry Mobile, AL 1,525,000 Chickasaw Chickasaw, AL 40,000 Greene County Demopolis, AL 300,000 (2) Gaston Unit 5 Wilsonville, AL 880,000 Miller Birmingham, AL 2,532,288 (3) --------- ALABAMA Total 6,618,538 --------- Arkwright Macon, GA 160,000 Atkinson Atlanta, GA 180,000 Bowen Cartersville, GA 3,160,000 Branch Milledgeville, GA 1,539,700 Hammond Rome, GA 800,000 McDonough Atlanta, GA 490,000 McManus Brunswick, GA 115,000 Mitchell Albany, GA 170,000 Scherer Macon, GA 750,924 (4) Wansley Carrollton, GA 925,550 (5) Yates Newnan, GA 1,250,000 --------- GEORGIA Total 9,541,174 --------- Crist Pensacola, FL 1,045,000 Lansing Smith Panama City, FL 305,000 Scholz Chattahoochee, FL 80,000 Daniel Pascagoula, MS 500,000 (6) Scherer Unit 3 Macon, GA 204,500 (4) ----------- GULF Total 2,134,500 --------- Eaton Hattiesburg, MS 67,500 Sweatt Meridian, MS 80,000 Watson Gulfport, MS 1,012,000 Daniel Pascagoula, MS 500,000 (6) Greene County Demopolis, AL 200,000 (2) ----------- MISSISSIPPI Total 1,859,500 ----------- ------------------------- ----------------------------------------- Nameplate Generating Station Location Capacity ---------------------- ------------------------- ------------------ (Kilowatts) McIntosh Effingham County, GA 163,117 Kraft Port Wentworth, GA 281,136 Riverside Savannah, GA 102,278 ----------- SAVANNAH Total 546,531 ----------- Gaston Units 1-4 Wilsonville, AL SEGCO Total 1,000,000 (7) ----------- Total Fossil Steam 21,700,243 ----------- Nuclear Steam Farley Dothan, AL ALABAMA Total 1,720,000 ----------- Hatch Baxley, GA 899,612 (8) Vogtle Augusta, GA 1,060,240 (9) ----------- GEORGIA Total 1,959,852 ----------- Total Nuclear Steam 3,679,852 ----------- Combustion Turbines Greene County Demopolis, AL ALABAMA Total 720,000 ----------- Arkwright Macon, GA 30,580 Atkinson Atlanta, GA 78,720 Bowen Cartersville, GA 39,400 Intercession City Intercession City, FL 47,333 (10) McDonough Atlanta, GA 78,800 McIntosh Units 1,2,3,4,7,8 Effingham County, GA 480,000 McManus Brunswick, GA 481,700 Mitchell Albany, GA 118,200 Robins Warner Robins, GA 160,000 Wilson Augusta, GA 354,100 Wansley Carrollton, GA 26,322 (5) ---------- GEORGIA Total 1,895,155 ---------- Lansing Smith Unit A Panama City, FL 39,400 Pea Ridge Units 1-3 Pea Ridge, FL 14,250 ------ GULF Total 53,650 ------ Chevron Cogenerating Station Pascagoula, MS 147,292 (11) Sweatt Meridian, MS 39,400 Watson Gulfport, MS 39,360 --------- MISSISSIPPI Total 226,052 --------- ------------------------------------------------- ----------------- I-18 --------------------------- -------------------- ----------------- Nameplate Generating Station Location Capacity --------------------------- -------------------- ----------------- (Kilowatts) Boulevard Savannah, GA 59,100 Kraft Port Wentworth, GA 22,000 McIntosh Units 5&6 Effingham County, 160,000 GA ------- SAVANNAH Total 241,100 ------- Gaston (SEGCO) Wilsonville, AL 19,680 (7) --------- Total Combustion Turbines 3,155,637 --------- Hydroelectric Facilities Weiss Leesburg, AL 87,750 Henry Ohatchee, AL 72,900 Logan Martin Vincent, AL 128,250 Lay Clanton, AL 177,000 Mitchell Verbena, AL 170,000 Jordan Wetumpka, AL 100,000 Bouldin Wetumpka, AL 225,000 Harris Wedowee, AL 135,000 Martin Dadeville, AL 154,200 Yates Tallassee, AL 32,000 Thurlow Tallassee, AL 58,000 Lewis Smith Jasper, AL 157,500 Bankhead Holt, AL 45,125 Holt Holt, AL 40,000 ---------- ALABAMA Total 1,582,725 ---------- Barnett Shoals (Leased) Athens, GA 2,800 Bartletts Ferry Columbus, GA 173,000 Goat Rock Columbus, GA 26,000 Lloyd Shoals Jackson, GA 14,400 Morgan Falls Atlanta, GA 16,800 North Highlands Columbus, GA 29,600 Oliver Dam Columbus, GA 60,000 Rocky Mountain Rome, GA 215,256 (12) Sinclair Dam Milledgeville, GA 45,000 Tallulah Falls Clayton, GA 72,000 Terrora Clayton, GA 16,000 Tugalo Clayton, GA 45,000 Wallace Dam Eatonton, GA 321,300 Yonah Toccoa, GA 22,500 6 Other Plants 18,080 ---------- GEORGIA Total 1,077,736 ---------- Total Hydroelectric Facilities 2,660,461 ---------- Total Generating Capacity 31,196,193 ========== ------------------------------------------------ ----------------- Notes: (1) For additional information regarding facilities jointly-owned with non-affiliated parties, see Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein. (2) Owned by ALABAMA and MISSISSIPPI as tenants in common in the proportions of 60% and 40%, respectively. (3) Excludes the capacity owned by AEC. (4) Capacity shown for GEORGIA is 8.4% of Units 1 and 2 and 75% of Unit 3. Capacity shown for GULF is 25% of Unit 3. (5) Capacity shown is GEORGIA's portion (53.5%) of total plant capacity. (6) Represents 50% of the plant which is owned as tenants in common by GULF and MISSISSIPPI. (7) SEGCO is jointly-owned by ALABAMA and GEORGIA. (See Item 1 - BUSINESS herein.) (8) Capacity shown is GEORGIA's portion (50.1%) of total plant capacity. (9) Capacity shown is GEORGIA's portion (45.7%) of total plant capacity. (10) Capacity shown represents 33-1/3% of total plant capacity. GEORGIA owns a 1/3 interest in the unit with 100% use of the unit from June through September. FPC operates the unit. (11) Generation is dedicated to a single industrial customer. (12) Capacity shown is GEORGIA's portion (25.4%) of total plant capacity. OPC operates the plant. I-19 Except as discussed below under "Titles to Property," the principal plants and other important units of the integrated Southeast utilities and SEGCO are owned in fee by the respective companies. It is the opinion of management of each such company that its operating properties are adequately maintained and are substantially in good operating condition. MISSISSIPPI owns a 79-mile length of 500-kilovolt transmission line which is leased to Entergy Gulf States. The line, completed in 1984, extends from Plant Daniel to the Louisiana state line. Entergy Gulf States is paying a use fee over a forty-year period covering all expenses and the amortization of the original $57 million cost of the line. At December 31, 1999, the unamortized portion of this cost was $35 million. The all-time maximum demand on the integrated Southeast utilities and SEGCO was 30,578,200 kilowatts and occurred in August 1999. This amount excludes demand served by capacity retained by MEAG and Dalton and excludes demand associated with power purchased from OPC and SEPA by its preference customers. The reserve margin for the integrated Southeast utilities and SEGCO at that time was 8.5%. For additional information on peak demands, reference is made to Item 6 - SELECTED FINANCIAL DATA herein. ALABAMA and GEORGIA will incur significant costs in decommissioning their nuclear units at the end of their useful lives. (See Item 1 - BUSINESS - "Regulation - Atomic Energy Act of 1954" and Note 1 to SOUTHERN's, ALABAMA's and GEORGIA's financial statements in Item 8 herein.) I-20 Other Electric Properties - Southern Energy Through special purpose subsidiaries, SOUTHERN owns interests in or operates independent power production facilities and foreign utility companies. The generating capacity of these utilities (or facilities) at December 31, 1999, was as follows:
Facilities in Operation ------------------------------------------------------------------------------------------------------------------------ Megawatts of Capacity Percent Facility Location Units Owned Operated Ownership Type -------------------- --------------------------- --------- ------------ ---------------------------------------------- Alicura Argentina 4 551 (1) 1,000 55.14 (1) Hydro BEWAG Germany 15 428 - 26.00 Coal BEWAG Germany 14 340 - 26.00 Oil & Gas Birchwood Virginia 1 111 222 50.00 Coal (2) CEPA China 3 634 - 32.00 Coal CEPA Philippines 2 641 735 87.22 Coal CEPA Philippines 3 189 210 90.10 Oil CEPA China 16 443 - 9.99 Coal CEPA Philippines 2 1,119 1,218 91.90 Coal CEPA Philippines 1 100 100 100.00 Oil CEPA Philippines 4 15 15 100.00 Diesel CEMIG Brazil 34 194 - 3.60 Hydro CEMIG Brazil 2 5 - 3.60 Thermal CEMIG Brazil 1 - - 3.60 Wind Edelnor Chile 2 281 341 82.34 Coal Edelnor Chile 37 103 125 82.34 Diesel & Hydro Freeport Grand Bahamas 8 79 126 62.50 Oil Penal Trinidad and Tobago 5 92 236 39.00 Gas Port of Spain Trinidad and Tobago 6 120 308 39.00 Gas Pt. Lisas Trinidad and Tobago 10 247 634 39.00 Gas State Line Indiana 2 490 490 100.00 Coal SE California California 13 3,065 3,065 100.00 Oil & Gas SE New York New York 16 1,794 1,794 100.00 Oil, Gas, Coal & Hydro SE New Maine and Massachusetts 8 1,245 1,236 100.00 Oil & Gas England SEI Wichita Falls Texas 4 80 80 100.00 Gas WPD United Kingdom 10 71 - 3.77 Gas WPD United Kingdom 8 6 12 49.00 Oil & Gas WPD United Kingdom 2 3 - 22.00 Wind WPD United Kingdom 2 - 2 - Oil ============================================================================================================================== Total Capacity 12,446 11,949 ==============================================================================================================================
I-21 Notes: (1) Represents megawatts of capacity under a concession agreement expiring in the year 2023. In early 2000, Southern Energy announced an agreement to sell Alicura, its Argentinean assets, substantially at the adjusted carrying value with no material gain or loss expected to be recognized in 2000. (2) Cogeneration facility.
Facilities Under Construction ------------------------------------------------------------------------------------------------------------------------------- Megawatts of Capacity ----------------- Percent Facility Location Units Own Operate Ownership Type -------------------------------------------------------------------------------------------------------------------------------- SEI Wisconsin Wisconsin 2 306 306 100.00 Gas SEI Texas Texas 3 550 550 100.00 Gas Edelnor Chile 1 206 250 82.34 Gas -------------------------------------------------------------------------------------------------------------------------------- Total Capacity 1,062 1,106 ================================================================================================================================
Jointly-Owned Facilities ALABAMA and GEORGIA have sold and GEORGIA has purchased undivided interests in certain generating plants and other related facilities to or from non-affiliated parties. The percentages of ownership resulting from these transactions are as follows:
Total Percentage Ownership ---------------- -------- ------------ -------- --------- ------------ -------- Capacity ALABAMA AEC GEORGIA OPC MEAG DALTON FPC -------------- ---------------- -------- ------------ -------- --------- ------------ -------- (Megawatts) Plant Miller Units 1 and 2 1,320 91.8% 8.2% -% -% -% -% -% Plant Hatch 1,796 - - 50.1 30.0 17.7 2.2 - Plant Vogtle 2,320 - - 45.7 30.0 22.7 1.6 - Plant Scherer Units 1 and 2 1,636 - - 8.4 60.0 30.2 1.4 - Plant Wansley 1,779 - - 53.5 30.0 15.1 1.4 - Rocky Mountain 848 - - 25.4 74.6 - - - Intercession City, FL 142 - - 33.3 - - - 66.7 ----------------------------- -------------- -- ---------------- -------- ------------ -------- --------- ------------ --------
ALABAMA and GEORGIA have contracted to operate and maintain the respective units in which each has an interest (other than Rocky Mountain and Intercession City, as described below) as agent for the joint owners. In addition, GEORGIA has commitments regarding a portion of a 5 percent interest in Plant Vogtle owned by MEAG that are in effect until the later of retirement of the plant or the latest stated maturity date of MEAG's bonds issued to finance such ownership interest. The payments for capacity are required whether any capacity is available. The energy cost is a function of each unit's variable operating costs. Except for the portion of the capacity payments related to the 1987 and 1990 write-offs of Plant Vogtle costs, the cost of such capacity and energy is included in purchased power from non-affiliates in GEORGIA's Statements of Income in Item 8 herein. In December 1988, GEORGIA and OPC entered into a joint ownership agreement for the Rocky Mountain plant under which GEORGIA agreed to retain its present investment in the project and OPC agreed to finance, complete and operate the facility. In 1995, the plant went into commercial operation. GEORGIA's ownership is 25.4 percent. On January 14, 1998, the Georgia PSC ordered that the Company I-22 be allowed approximately $108 million of its $142 million investment in the plant in rate base as of December 31, 1998. GEORGIA appealed the Georgia PSC's order. Under the rate order approved by the Georgia PSC on December 18, 1998, GEORGIA accepted the rate base allowance and, in December 1998, GEORGIA recorded a charge to earnings of $21 million, after taxes, associated with the write-down of the plant. Reference is made to Note 3 to SOUTHERN's and GEORGIA's financial statements in Item 8 herein for additional information regarding the Rocky Mountain plant. In 1994, GEORGIA and FPC entered into a joint ownership agreement regarding the Intercession City combustion turbine unit. The unit began commercial operation in January 1997, and is operated by FPC. GEORGIA owns a one-third interest in the unit, with use of 100% of the capacity from June through September. FPC has the capacity the remainder of the year. Titles to Property The integrated Southeast utilities' and SEGCO's interests in the principal plants (other than certain pollution control facilities, one small hydroelectric generating station leased by GEORGIA and the land on which five combustion turbine generators of MISSISSIPPI are located, which is held by easement) and other important units of the respective companies are owned in fee by such companies, subject only to the liens of applicable mortgage indentures (except for SEGCO) and to excepted encumbrances as defined therein. The integrated Southeast utilities own the fee interests in certain of their principal plants as tenants in common. (See Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein.) Properties such as electric transmission and distribution lines and steam heating mains are constructed principally on rights-of-way which are maintained under franchise or are held by easement only. A substantial portion of lands submerged by reservoirs is held under flood right easements. In substantially all of its coal reserve lands, SEGCO owns or will own the coal only, with adequate rights for the mining and removal thereof. I-23 Item 3. LEGAL PROCEEDINGS (1) United States of America v. ALABAMA, GEORGIA and SCS (United States District Court for the Northern District of Georgia) Reference is made to Note 3 in each of the registrant's financial statements in Item 8 herein. (2) Sullivan v. ALABAMA et al. (Circuit Court of Jefferson County, Alabama) Reference is made to Note 3 to SOUTHERN's and ALABAMA's financial statements in Item 8 herein under the captions "Alabama Power Lake Martin Litigation" and "Lake Martin Litigation", respectively. (3) GEORGIA has been designated as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act with respect to a site in Brunswick, Georgia. Reference is made to Note 3 to SOUTHERN's and GEORGIA's financial statements in Item 8 herein under the captions "Georgia Power Potentially Responsible Party Status" and "Other Environmental Contingencies," respectively. (4) In re: Mobile Energy Services Company, LLC; In re: Mobile Energy Services Holdings, Inc. (U.S. Bankruptcy Court for the Southern District of Alabama). Reference is made to Note 3 to SOUTHERN's financial statements in Item 8 herein under the caption "Mobile Energy Services Petition for Bankruptcy". (5) State of Minas Gerais v. Southern Electric Brasil Participacoes Ltda. (Appellate Court of the State of Minas Gerais) Reference is made to Note 3 to SOUTHERN's financial statements in Item 8 herein under the caption "Southern Energy Brazilian Investment". See Item 1 - BUSINESS - "Construction Programs," "Fuel Supply," "Regulation - - Federal Power Act" and "Rate Matters" as well as Note 3 to each registrant's financial statements in Item 8 herein for a description of certain other administrative and legal proceedings discussed therein. Additionally, each of the integrated Southeast utilities, Southern Energy, SCS, Southern Nuclear, Energy Solutions and Southern LINC are, in the normal course of business, engaged in litigation or administrative proceedings that include, but are not limited to, acquisition of property, injuries and damages claims, and complaints by present and former employees. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. I-24 EXECUTIVE OFFICERS OF SOUTHERN (Identification of executive officers of SOUTHERN is inserted in Part I in accordance with Regulation S-K, Item 401(b), Instruction 3.) The ages of the officers set forth below are as of December 31, 1999. A. W. Dahlberg Chairman, Chief Executive Officer, and Director Age 59 Elected Director in 1985 and Chairman and Chief Executive Officer effective March 1995. Also served as President from January 1994 to June 1999. H. Allen Franklin President, Chief Operating Officer and Director Age 55 Elected Director in 1988 and President and Chief Operating Officer effective June 1999. Previously served as President and Chief Executive Officer of GEORGIA from January 1994 to June 1999. S. Marce Fuller Executive Vice President Age 39 Elected in 1999. She also has served as President and Chief Executive Officer of Southern Energy since July 1999. Previously Executive Vice President of Southern Energy from October 1998 to July 1999; Senior Vice President from May 1996 to October 1998; and Vice President from February 1994 to May 1996. Also served as President and Chief Executive Officer of SCEM from February 1998 to November 1999. Elmer B. Harris Executive Vice President and Director Age 60 Elected Director in 1989 and Executive Vice President in 1991. He also has served as President and Chief Executive Officer of ALABAMA since 1989. David M. Ratcliffe Executive Vice President Age 51 Elected in 1999. He also has served as President and Chief Executive Officer of GEORGIA since June 1999. Previously served as Executive Vice President and Chief Financial Officer of GEORGIA from March 1998 to June 1999; Senior Vice President of SOUTHERN from March 1995 to March 1998; and as President and Chief Executive Officer of MISSISSIPPI from 1991 to March 1995. Stephen A. Wakefield Senior Vice President and General Counsel Age 59 Elected in 1997. Previously, he was a partner at the law firm of Akin, Gump, Strauss, Hauer & Feld, LLP from July 1991 through August 1997. W. L. Westbrook Financial Vice President, Chief Financial Officer and Treasurer Age 60 Elected in 1986. He also has served as Executive Vice President of SCS since 1986. C. Alan Martin Vice President Age 51 Elected in 1998; served as Chief Marketing Officer for the SOUTHERN system. Previously Vice President of Human Resources of SOUTHERN from 1995 to February 1998. Effective January 1, 2000; elected Executive Vice President of ALABAMA. Charles D. McCrary Vice President Age 48 Elected in 1998; serves as Chief Production Officer for the SOUTHERN system. He also serves as Executive Vice President of GEORGIA since May 1998. Previously, he served as Executive Vice President of ALABAMA from 1994 through April 1998. W. G. Hairston, III Age 54 President and Chief Executive Officer of Southern Nuclear since 1993. The officers of SOUTHERN were elected for a term running from June 1, 1999 for one year until the next annual meeting of directors or until their successors are elected and have qualified, except for Ms. Fuller who was elected October 18, 1999. I-25 PART II Item 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) The common stock of SOUTHERN is listed and traded on the New York Stock Exchange. The stock is also traded on regional exchanges across the United States. High and low stock prices, per the New York Stock Exchange Composite Tape during each quarter for the past two years were as follows: ------------------------ ----------- --- -------------- High Low ----------- -------------- 1999 First Quarter $29-5/8 $23-1/4 Second Quarter 29-3/16 22-3/4 Third Quarter 28 25 Fourth Quarter 27-1/8 22-1/16 1998 First Quarter $28-11/16 $23-15/16 Second Quarter 29 25-1/16 Third Quarter 29-13/16 25-1/4 Fourth Quarter 31-9/16 27-3/16 -------------------- --------------- --- -------------- There is no market for the other registrants' common stock, all of which is owned by SOUTHERN. On February 29, 2000, the closing price of SOUTHERN's common stock was $22-3/16. (b) Number of SOUTHERN's common stockholders at December 31, 1999: 174,179 Each of the other registrants have one common stockholder, SOUTHERN. (c) Dividends on each registrant's common stock are payable at the discretion of their respective board of directors. The dividends on common stock paid and/or declared by SOUTHERN and the operating affiliates to their stockholder(s) for the past two years were as follows: (in thousands) ------------------- --------- ------------- ---------- Registrant Quarter 1999 1998 ------------------- --------- ------------- ---------- SOUTHERN First $233,879 $232,449 Second 233,445 233,623 Third 228,690 233,763 Fourth 225,470 233,506 ALABAMA First 98,000 90,400 Second 98,400 90,500 Third 99,700 90,800 Fourth 103,500 95,400 GEORGIA First 133,100 132,100 Second 133,700 132,300 Third 135,500 132,700 Fourth 140,700 139,500 GULF First 15,000 14,100 Second 15,100 14,100 Third 15,300 14,100 Fourth 15,900 14,900 MISSISSIPPI First 13,800 12,700 Second 13,800 12,800 Third 14,000 12,800 Fourth 14,500 13,400 SAVANNAH First 6,200 5,800 Second 6,200 5,800 Third 6,300 5,800 Fourth 6,500 6,100 ------------------- --------- ------------- ---------- The dividend paid per share by SOUTHERN was 33.5(cent) for each quarter of 1998 and 1999. The dividend paid on SOUTHERN's common stock for the first quarter of 2000 was 33.5(cent) per share. The amount of dividends on their common stock that may be paid by the subsidiary registrants is restricted in accordance with their first mortgage bond indenture. The II-1 amounts of earnings retained in the business and the amounts restricted against the payment of cash dividends on common stock at December 31, 1999, were as follows: -------------------- ------------------ --- -------------- Retained Restricted Earnings Amount ------------------ -------------- (in millions) ALABAMA $1,225 $ 796 GEORGIA 1,778 897 GULF 163 127 MISSISSIPPI 172 118 SAVANNAH 111 68 Consolidated 4,232 2,003 -------------------- ------------------ --- -------------- Item 6. SELECTED FINANCIAL DATA SOUTHERN. Reference is made to information under the heading "Selected Consolidated Financial and Operating Data," contained herein at pages II-46 and II-47. ALABAMA. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-78 and II-79. GEORGIA. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-111 and II-112. GULF. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-140 and II-141. MISSISSIPPI. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-169 and II-170. SAVANNAH. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-195 and II-196. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SOUTHERN. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-8 through II-19. ALABAMA. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-51 through II-58. GEORGIA. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-83 through II-90. GULF. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-116 through II-123. MISSISSIPPI. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-145 through II-151. SAVANNAH. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-174 through II-180. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to information in SOUTHERN's "Management's Discussion and Analysis - Derivative Financial Instruments" and to Note 1 to SOUTHERN's financial statements under the headings "Financial Instruments for Non-Trading Activities" and "Financial Instruments for Trading Activities" contained herein on pages II-15 through II-16 and II-31 through II-32, respectively. Reference is also made to "Management's Discussion and Analysis - Exposure to Market Risks" in Item 7 of ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH contained herein at pages II-55, II-87, II-120, II-148, and II-177, respectively. II-2
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO 1999 FINANCIAL STATEMENTS Page The Southern Company and Subsidiary Companies: Report of Independent Public Accountants................................................................................ II-7 Consolidated Statements of Income for the Years Ended December 31, 1999, 1998 and 1997.................................. II-20 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997.............................. II-21 Consolidated Balance Sheets at December 31, 1999 and 1998............................................................... II-22 Consolidated Statements of Capitalization at December 31, 1999 and 1998................................................. II-24 Consolidated Statements of Common Stockholders' Equity for the Years Ended December 31, 1999, 1998 and 1997.................................................................................... II-26 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1999, 1998 and 1997.................................................................................... II-26 Notes to Financial Statements........................................................................................... II-27 ALABAMA: Report of Independent Public Accountants .............................................................................. II-50 Statements of Income for the Years Ended December 31, 1999, 1998 and 1997............................................... II-59 Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997........................................... II-60 Balance Sheets at December 31, 1999 and 1998 ........................................................................... II-61 Statements of Capitalization at December 31, 1999 and 1998 ............................................................. II-63 Statements of Common Stockholder's Equity for the Years Ended December 31, 1999, 1998 and 1997..................................................................................... II-65 Notes to Financial Statements........................................................................................... II-66 GEORGIA: Report of Independent Public Accountants................................................................................ II-82 Statements of Income for the Years Ended December 31, 1999, 1998 and 1997............................................... II-91 Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997........................................... II-92 Balance Sheets at December 31, 1999 and 1998 ........................................................................... II-93 Statements of Capitalization at December 31, 1999 and 1998 ............................................................. II-95 Statements of Common Stockholder's Equity for the Years Ended December 31, 1999, 1998 and 1997..................................................................................... II-97 Notes to Financial Statements........................................................................................... II-98 GULF: Report of Independent Public Accountants................................................................................ II-115 Statements of Income for the Years Ended December 31, 1999, 1998 and 1997............................................... II-124 Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997........................................... II-125 Balance Sheets at December 31, 1999 and 1998 ........................................................................... II-126 Statements of Capitalization at December 31, 1999 and 1998 ............................................................. II-128 Statements of Common Stockholder's Equity for the Years Ended December 31, 1999, 1998 and 1997..................................................................................... II-129 Notes to Financial Statements........................................................................................... II-130 II-3 Page MISSISSIPPI: Report of Independent Public Accountants................................................................................ II-144 Statements of Income for the Years Ended December 31, 1999, 1998 and 1997............................................... II-152 Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997........................................... II-153 Balance Sheets at December 31, 1999 and 1998 ........................................................................... II-154 Statements of Capitalization at December 31, 1999 and 1998 ............................................................. II-156 Statements of Common Stockholder's Equity for the Years Ended December 31, 1999, 1998 and 1997..................................................................................... II-158 Notes to Financial Statements........................................................................................... II-159 SAVANNAH: Report of Independent Public Accountants................................................................................ II-173 Statements of Income for the Years Ended December 31, 1999, 1998 and 1997............................................... II-181 Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997........................................... II-182 Balance Sheets at December 31, 1999 and 1998 ........................................................................... II-183 Statements of Capitalization at December 31, 1999 and 1998 ............................................................. II-185 Statements of Common Stockholder's Equity for the Years Ended December 31, 1999, 1998 and 1997..................................................................................... II-186 Notes to Financial Statements........................................................................................... II-187
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. II-4 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES FINANCIAL SECTION II-5 MANAGEMENT'S REPORT Southern Company and Subsidiary Companies 1999 Annual Report The management of Southern Company has prepared -- and is responsible for -- the consolidated financial statements and related information included in this report. These statements were prepared in accordance with generally accepted accounting principles appropriate in the circumstances and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that books and records reflect only authorized transactions of the company. Limitations exist in any system of internal controls, however, based on a recognition that the cost of the system should not exceed its benefits. The company believes its system of internal accounting controls maintains an appropriate cost/benefit relationship. The company's system of internal accounting controls is evaluated on an ongoing basis by the company's internal audit staff. The company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, composed of five directors who are not employees, provides a broad overview of management's financial reporting and control functions. Periodically, this committee meets with management, the internal auditors, and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal controls, and financial reporting matters. The internal auditors and independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the company's operations are conducted according to a high standard of business ethics. In management's opinion, the consolidated financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of Southern Company and its subsidiary companies in conformity with generally accepted accounting principles. /s/A. W. Dahlberg A. W. Dahlberg Chairman and Chief Executive Officer /s/W. L. Westbrook W. L. Westbrook Financial Vice President, Chief Financial Officer, and Treasurer February 16, 2000 II-6 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Southern Company: We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of Southern Company (a Delaware corporation) and subsidiary companies as of December 31, 1999 and 1998, and the related consolidated statements of income, comprehensive income, common stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements (pages II-20 through II-45) referred to above present fairly, in all material respects, the financial position of Southern Company and subsidiary companies as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/Arthur Andersen LLP Atlanta, Georgia February 16, 2000 II-7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Southern Company and Subsidiary Companies 1999 Annual Report Results of Operations Overview of Consolidated Earnings Southern Company's 1999 earnings of $1.28 billion or $1.86 per share established a new record high. Higher earnings were primarily driven by strong growth in the competitive energy supply business outside the southeastern United States. The traditional business of selling electricity in the Southeast continued to remain strong. However, reported earnings in both 1999 and 1998 reflected significant items not related to the normal day-to-day business activities. After excluding these items, earnings for 1999 were $1.30 billion or $1.90 per share compared with $1.23 billion or $1.76 per share in 1998. Southern Energy, Inc. (Southern Energy) is the Southern Company subsidiary that owns and manages its international operations and develops and owns its competitive energy supply business in North America outside the Southeast. Southern Energy earnings accounted for approximately 26 percent of Southern Company's reported net income in 1999. Amortization of goodwill related to Southern Energy investments reduced earnings per share by 5 cents in 1999 and 4 cents in 1998. A reconciliation of reported earnings to earnings excluding non-day to day business items and the related explanations are as follows: Consolidated Earnings Net Income Per Share ------------- -------------- 1999 1998 1999 1998 ------------- -------------- (in millions) Earnings as reported $1,276 $ 977 $1.86 $1.40 - --------------------------------------------------------------- Gain on asset sale (78) - (.11) - Write down of assets: South American investments - 200 - .29 Rocky Mountain plant - 21 - .03 Mobile Energy 69 - .10 - Work force reductions 50 20 .07 .03 Other (14) 7 (.02) .01 - --------------------------------------------------------------- Total adjustments 27 248 .04 .36 - --------------------------------------------------------------- Earnings as adjusted $1,303 $1,225 $1.90 $1.76 =============================================================== Amount and percent change $78 6.4% $0.14 8.0% - --------------------------------------------------------------- Southern Energy sold the supply business of South Western Electricity in 1999, and the remaining distribution business was renamed Western Power Distribution. In 1999, Southern Energy recorded an asset impairment related to Mobile Energy Services -- see Note 3 to the financial statements. Southern Energy's write down of assets in 1998 related to investments in Argentina and Chile not meeting financial expectations, which resulted in an announced plan to sell these assets. In 1998, Georgia Power wrote down its investment in the Rocky Mountain pumped storage hydroelectric plant as a result of a settlement related to its 1998 retail rate proceeding. Work force reduction programs began in late 1999 for Bewag, a German utility in which Southern Energy has a 26 percent ownership interest. Also, the traditional business recorded costs related to workforce reductions in 1998. Discussion of the results of operations are separated between the traditional business of the integrated Southeast utilities and Southern Energy. Integrated Southeast Utilities The five integrated Southeast utilities provide electric service in four states. These utilities are Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Savannah Electric. They comprise Southern Company's principal business segment with earnings of $1.1 billion in 1999. A condensed income statement for this business segment is as follows: Increase (Decrease) Amount From Prior Year ------ -------------------- 1999 1999 1998 - --------------------------------------------------------------- (in millions) Operating revenues $9,125 $(238) $675 - --------------------------------------------------------------- Fuel 2,328 7 117 Purchased power 409 13 182 Other operation and maintenance 2,430 4 252 Depreciation and amortization 961 (328) 134 Taxes other than income taxes 521 13 7 Write down of assets - (34) 34 - --------------------------------------------------------------- Total operating expenses 6,649 (325) 726 - --------------------------------------------------------------- Operating income 2,476 87 (51) Other income (8) (84) 93 - --------------------------------------------------------------- Earnings before interest and taxes 2,468 3 42 Interest charges and other 720 41 48 Income taxes 675 (28) 16 - --------------------------------------------------------------- Net income $1,073 $ (10) $ (22) =============================================================== II-8 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1999 Annual Report Revenues Operating revenues changed in 1999 and 1998 as a result of the following factors: Increase (Decrease) From Prior Year ------------------ 1999 1998 - --------------------------------------------------------------- (in millions) Retail -- Growth and price changes $ 166 $258 Rate reductions (352) - Weather (86) 178 Fuel cost recovery and other 86 189 - --------------------------------------------------------------- Total retail (186) 625 - --------------------------------------------------------------- Sales for resale -- Within service area (24) (2) Outside service area (49) 12 - --------------------------------------------------------------- Total sales for resale (73) 10 Other operating revenues 21 40 - --------------------------------------------------------------- Operating revenues $(238) $675 =============================================================== Percent change (2.5)% 7.8% - --------------------------------------------------------------- Retail revenues of $8.1 billion in 1999 declined as a result of a Georgia Power rate reduction effective January 1999. For additional information, see Note 3 to the financial statements under "Georgia Power 1998 Retail Rate Order." Customer growth in the Southeast somewhat offset the rate decrease. In 1998, retail revenues increased sharply, up 8.2 percent compared with the prior year. Continued growth in the traditional service area and the positive impact of weather on energy sales were the predominant factors causing the rise in revenues in 1998. Under fuel cost recovery provisions, fuel revenues generally equal fuel expenses -- including the fuel component of purchased energy -- and do not affect net income. Sales for resale revenues within the service area were $350 million in 1999, down 6.5 percent from the prior year. This sharp decline resulted primarily from supplying less electricity under contractual agreements with certain wholesale customers in 1999, and a slight reduction in these revenues is expected in 2000. Revenues from sales for resale within the service area were $374 million in 1998, down 0.7 percent from the prior year. Energy sales for resale outside the service area are predominantly unit power sales under long-term contracts to Florida utilities. Economy sales and amounts sold under short-term contracts are also sold for resale outside the service area. Revenue from long-term unit power contracts have both a capacity and energy component. Capacity revenues reflect the recovery of fixed costs and a return on investment under the contracts. Energy is generally sold at variable cost. The capacity and energy components of the unit power contracts were as follows: 1999 1998 1997 - --------------------------------------------------------------- (in millions) Capacity $174 $196 $203 Energy 157 152 183 - --------------------------------------------------------------- Total $331 $348 $386 =============================================================== Capacity revenues in 1999 and 1998 declined each year as a result of adjustments and true-ups related to contractual pricing. No significant declines in capacity are scheduled until the termination of the contracts in 2010. Energy Sales The changes in revenues for the traditional business in the Southeast are influenced heavily by the amount of energy sold each year. Kilowatt-hour sales for 1999 and the percent change by year were as follows: Amount Percent Change (billions of ------- ---------------------------- kilowatt-hours) 1999 1999 1998 1997 - ---------------------------------------------------------------- Residential 43.4 (0.2)% 10.9% (2.2)% Commercial 43.4 4.0 7.2 2.5 Industrial 56.2 1.6 2.1 2.6 Other 0.9 1.6 3.1 (1.1) ----- Total retail 143.9 1.7 6.2 1.1 Sales for resale -- Within service area 9.4 (4.1) (0.4) (9.6) Outside service area 13.0 (0.4) (5.6) 27.7 ----- Total 166.3 1.2 4.7 2.2 ================================================================ The rate of increase in 1999 total retail energy sales was significantly lower than in 1998. Although the total number of residential customers served increased by 61,000 during the year, residential energy sales experienced a decline as a result of milder weather in 1999. The rate of growth in 1998 retail II-9 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1999 Annual Report energy sales was the highest one-year increase since 1986. Also, residential energy sales registered the highest annual increase in over two decades as a result of hotter-than-normal weather. Commercial and industrial sales, both in 1999 and 1998, continued to show slight gains in excess of the national averages. This reflects the strength of business and economic conditions in Southern Company's traditional service area in the southeastern United States. Energy sales to retail customers are projected to increase at an average annual rate of 2.2 percent during the period 2000 through 2010. Sales to customers outside the service area declined by 0.4 percent in 1999 and by 5.6 percent in 1998 when compared with the respective prior year. The declines in sales were influenced by weather and fluctuations in prices for oil and natural gas, the primary fuel sources for utilities with which the company has long-term contracts. When oil and gas prices fall below a certain level, these customers can generate electricity to meet their requirements more economically. However, these fluctuations in energy sales under long-term contracts have minimal effects on earnings because Southern Company is paid for dedicating specific amounts of its generating capacity to these utilities outside the service area. Expenses Operating expenses of $6.6 billion for 1999 decreased $325 million. This decline was primarily attributable to $308 million less accelerated depreciation of plant being recorded in accordance with the 1998 Georgia Power rate order as referred to earlier. The costs to produce and deliver electricity for the traditional business in the Southeast for 1999 increased by $68 million to meet higher energy demands. All other operating and maintenance expenses declined by $44 million as a result of continued cost control programs. In 1998, operating expenses of $7.0 billion increased $726 million compared with the prior year. The costs to produce and deliver electricity for the traditional business in 1998 increased by $359 million to meet higher energy demands. Non-production operation and maintenance expenses increased $192 million in 1998. Accelerated depreciation of certain assets increased $157 million when compared with 1997. Fuel costs constitute the single largest expense for the integrated Southeast utilities. The mix of fuel sources for generation of electricity is determined primarily by system load, the unit cost of fuel consumed, and the availability of hydro and nuclear generating units. The amount and sources of generation and the average cost of fuel per net kilowatt-hour generated -- within the traditional business service area -- were as follows: 1999 1998 1997 - ---------------------------------------------------------------- Total generation (billions of kilowatt-hours) 165 164 160 Sources of generation (percent) -- Coal 78 77 77 Nuclear 17 16 17 Hydro 2 4 4 Oil and gas 3 3 2 Average cost of fuel per net kilowatt-hour generated (cents) -- 1.45 1.48 1.46 - ---------------------------------------------------------------- Total fuel and purchased power costs of $2.7 billion in 1999 increased only $20 million while total energy sales increased 2.0 billion kilowatt-hours compared with the amounts recorded in 1998. Continued efforts to control energy costs helped lower the average cost of fuel per net kilowatt-hour generated in 1999. In 1998, fuel and purchased power costs increased $299 million as a result of 7.4 billion more kilowatt-hours being sold than in 1997. Total interest charges and other financing costs in 1999 decreased $41 million from amounts reported in the previous year. The decline reflected additional refinancing of debt in 1999. Alabama Power and Georgia Power -- in accordance with their respective rate making procedures -- recorded additional accelerated amortization of premium on reacquired debt of $85 million in 1999, $33 million in 1998, and no additional amounts in 1997. Interest charges and other financing costs increased in 1998 as a result of the additional amortization being recorded. II-10 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1999 Annual Report Southern Energy Southern Energy's domestic and international operations provided much of Southern Company's strong financial growth in 1999. A condensed income statement for Southern Company's other significant business segment is as follows: Increase (Decrease) Amount From Prior Year ------- --------------------- 1999 1999 1998 - ---------------------------------------------------------------- (in millions) Operating revenues $2,268 $ 365 $(1,934) - ---------------------------------------------------------------- Fuel and purchased power 937 38 (1,996) Other operation and maintenance 477 131 (22) Depreciation and amortization 322 88 40 Taxes other than income taxes 89 2 16 Write down of assets 69 (239) 308 - ---------------------------------------------------------------- Total operating expenses 1,894 20 (1,654) - ---------------------------------------------------------------- Operating income 374 345 (280) Gain on asset sales 313 272 17 Other income 433 99 100 - ---------------------------------------------------------------- Earnings before interest and taxes 1,120 716 (163) Interest charges and other 666 178 97 Income taxes 126 249 (298) - ---------------------------------------------------------------- Net income $ 328 $ 289 $ 38 ================================================================ Southern Energy recorded several significant items not related to the normal day-to-day business activities in both 1999 and 1998 as discussed earlier. Excluding these one time items, earnings were $355 million and $239 million in 1999 and 1998, respectively. Southern Energy develops and owns competitive energy supply businesses around the world. Domestic assets include a 60 percent interest in a top ten energy trading and marketing business. International operations are principally located in China, Philippines, England, Germany, Netherlands, Brazil, Chile, Argentina, Bahamas, and Trinidad and Tobago. Earnings by major geographical area -- excluding the one time items -- are as follows: Increase (Decrease) Amount From Prior Year ------ -------------------- 1999 1999 1998 - ---------------------------------------------------------------- (in millions) Asia $175 $107 $27 Europe 142 9 62 North America 81 78 14 South America 1 (16) 8 Corporate and other (44) (62) 16 - ---------------------------------------------------------------- Revenues in 1999 increased 19 percent primarily as a result of acquisitions in North America of some 6,100 megawatts of generating facilities in late 1998 and in 1999. Also, approximately 1,100 megawatts of owned generating capacity in Asia went into commercial operation in late 1999. In 1998, Southern Energy's revenues declined because its energy trading and marketing operations -- $2.0 billion in 1997 -- were deconsolidated as of January 1, 1998, when Southern Energy's joint venture with Vastar Resources, Inc. (Vastar) became effective. Because of Vastar's significant participation rights in the joint venture, the equity method of accounting is required. This results in Southern Energy's share of the joint venture's earnings being reported in other income in 1999 and 1998. Southern Energy's revenues in 1998 of $1.9 billion increased by $48 million compared with comparable revenues in 1997 that exclude energy trading and marketing. This increase resulted primarily from operations of assets obtained in domestic acquisitions. The decline in 1998 operating expenses corresponds to the decrease in revenues resulting primarily from the deconsolidation of the energy trading and marketing operations as discussed earlier. Approximately $2.0 billion of these expenses were recorded in 1997 purchased power expenses. Operating expenses and interest charges increased in 1999 as a result of acquisitions and new facilities being placed into service. II-11 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1999 Annual Report Effects of Inflation Southern Company's traditional business of the integrated Southeast utilities is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the company is recovering its costs of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on Southern Company because of the large investment in utility plant 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 and preferred securities. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. Future Earnings Potential The results of operations for the past three years are not necessarily indicative of future earnings potential. The level of Southern Company's future earnings depends on numerous factors. The two major factors are the growth of Southern Energy's operations and the ability of the integrated Southeast utilities to achieve energy sales growth in a less regulated, more competitive environment. The traditional business or the five Southeast utilities currently operate as vertically integrated companies providing electricity to customers within the traditional service area of the southeastern United States. Prices for electricity provided to retail customers are set by state public service commissions under cost-based regulatory principles. Retail rates and earnings are reviewed and adjusted periodically within certain limitations based on earned return on equity. See Note 3 to the financial statements for additional information about these and other regulatory matters. Future earnings for the traditional business in the near term will depend upon growth in energy sales, which 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 the traditional service area. The electric utility industry in the United States is currently undergoing a period of dramatic change as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). The Energy Act allows independent power producers (IPPs) to access a utility's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for a utility's large industrial and commercial customers and sell energy generation to other utilities. Also, electricity sales for resale rates are being driven down by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. Southern Company's integrated utilities are aggressively working to maintain and expand their share of wholesale sales in the southeastern power markets. Although the Energy Act does not permit retail customer access, it was a major catalyst for the current restructuring and consolidation taking place within the utility industry. Numerous federal and state initiatives are in varying stages to promote wholesale and retail competition. Among other things, these initiatives allow customers to choose their electricity provider. As these initiatives materialize, the structure of the utility industry continues to change. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While various restructuring and competition initiatives have been or are being discussed in Alabama, Florida, Georgia, and Mississippi, none have been enacted to date. Enactment would require numerous issues to be resolved, including significant ones relating to transmission pricing and recovery of any stranded investments. The inability of a company to recover its investments, including the regulatory assets described in Note 1 to the financial statements, could have a material adverse effect on financial condition and results of operations. Continuing to be a low-cost producer could provide opportunities to increase market share and profitability in markets that evolve with changing regulation. Conversely, if Southern Company's integrated Southeast utilities do not remain low-cost producers and provide quality service, then energy sales growth could be limited, and this could significantly erode earnings. II-12 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1999 Annual Report To adapt to a less regulated, more competitive environment, Southern Company continues to evaluate and consider a wide array of potential business strategies. These strategies may include business combinations, acquisitions involving other utility or non-utility businesses or properties, internal restructuring, disposition of certain assets, or some combination thereof. Furthermore, Southern Company may engage in other new business ventures that arise from competitive and regulatory changes in the utility industry. Pursuit of any of the above strategies, or any combination thereof, may significantly affect the business operations and financial condition of Southern Company. On December 20, 1999, the Federal Energy Regulatory Commission (FERC) issued its final rule on Regional Transmission Organizations (RTOs). The order encourages utilities owning transmission systems to form RTOs on a voluntary basis. To facilitate the development of RTOs, the FERC will convene regional conferences for utilities, customers, and other members of the public to discuss the formation of RTOs. In addition to participating in the regional conferences, utilities owning transmission systems, including Southern Company, are required to make a filing by October 15, 2000. The filing must contain either a proposal for RTO participation or a description of the efforts made to participate in an RTO, the reasons for non-participation, any obstacles to participation, and any plans for further work toward participation. The RTOs that are proposed in the filings should be operational by December 15, 2001. Southern Company is evaluating this issue and formulating its response. The outcome of this matter cannot now be determined. The Energy Act amended the Public Utility Holding Company Act of 1935 (PUHCA) to allow holding companies to form exempt wholesale generators and foreign utility companies to sell power largely free of regulation under PUHCA. These entities are able to sell power to affiliates -- under certain restrictions -- and to own and operate power generating facilities in other domestic and international markets. To take advantage of existing and evolving opportunities, Southern Energy -- founded in 1981 -- is focused on several key international and domestic business lines, including energy trading and marketing, distribution, and stand-alone generation. As the energy marketplace evolves, Southern Energy continues to position the company as a major competitor. At December 31, 1999, Southern Energy's total assets were $13.9 billion, and it had ownership or control of over 14,000 megawatts of generating capacity. It has another 5,000 megawatts under construction or advanced development. In 1999, Southern Energy refined its business strategy to focus on a few key geographic regions of the world. Its Asian subsidiary will focus primarily on China, India, and the Philippines, while also pursuing opportunities in more developed countries such as Australia and Singapore. In Europe, Southern Energy will concentrate efforts in the countries that make up the North-South corridor of continental Europe -- Scandinavia, Italy, Switzerland, Germany, the Netherlands, and select countries in Eastern Europe. In South America, the company is in the process of exiting Argentina and Chile and is reviewing whether or not it will pursue additional opportunities in Brazil. In North America, the company will target its efforts on four U.S. regions -- the Northeast, the Midwest, Texas/Louisiana, and California/Desert Southwest -- and also will pursue opportunities in Canada. In the United States, Southern Energy plans to acquire, build, or gain access to some 20,000 megawatts of generating capacity over the next several years in order to ensure its success in the evolving competitive wholesale energy supply business. Currently, Southern Energy owns or controls approximately 8,500 megawatts of capacity in the four targeted regions, with an additional 4,100 megawatts under construction or advanced development. All of these assets will be closely linked with Southern Energy's energy trading and marketing business, Southern Company Energy Marketing (SCEM). In 1998, Southern Energy and Vastar completed the combination of their energy trading and marketing activities to form a joint venture, SCEM. SCEM has the rights to market virtually all of Vastar's natural gas production over a period of 10 years. Southern Energy's current ownership interest in SCEM is 60 percent. On July 1, 2001, this ownership interest will automatically increase to 75 percent. Southern Energy has the right -- exercisable during fiscal year 2002 -- to acquire an additional 5 percent interest from Vastar for $80 million. Also, Vastar has the right -- exercisable in the period from December 1, 2002 through January 2, 2003 -- to sell its remaining interest in SCEM to Southern Energy. The price will range from $130 million to $210 million depending on the interest owned by Vastar at that time, plus certain other contractual considerations. II-13 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1999 Annual Report Southern Company has filed with the Securities and Exchange Commission (SEC) a request to invest up to nearly $6 billion in Southern Energy's domestic and international business. The current SEC authority is $4.1 billion, of which $2.7 billion has been invested as of December 31, 1999. Southern Company is involved in various matters being litigated. See Note 3 to the financial statements for information regarding material issues that could possibly affect future earnings. Compliance costs related to current and future environmental laws and regulations could affect earnings if such costs are not fully recovered. The Clean Air Act and other important environmental items are discussed later under "Environmental Matters." The staff of the SEC has questioned certain of the current accounting practices of the electric utility industry -- including Southern Company's -- regarding the recognition, measurement, and classification in the financial statements of decommissioning costs for nuclear generating facilities. In response to these questions, the Financial Accounting Standards Board (FASB) has decided to review the accounting for liabilities related to the retirement of long-lived assets, including nuclear decommissioning. If the FASB issues new accounting rules, the estimated costs of retiring Southern Company's nuclear and other facilities may be required to be recorded as liabilities in the Consolidated Balance Sheets. Also, the annual provisions for such costs could change. Because of the company's current ability to recover asset retirement costs through rates, these changes would not have a significant adverse effect on results of operations. See Note 1 to the financial statements under "Depreciation and Nuclear Decommissioning" for additional information. The integrated Southeast utilities 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. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. New Accounting Standard The FASB has issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which must be adopted by January 2001. This statement establishes accounting and reporting standards for derivative instruments -- including certain derivative instruments embedded in other contracts -- and for hedging activities. Southern Company has not yet quantified the impact of adopting this statement on its financial statements; however, the adoption could increase volatility in earnings and other comprehensive income. Year 2000 Challenge The work undertaken by Southern Company subsidiaries to prepare critical computer systems and other date sensitive devices to function correctly in the Year 2000 was successful. There were no material incidents reported and no disruption of electric service within the service area of the traditional business. There were no reports of significant events regarding third parties that impacted revenues or expenses. For the traditional business, original projected total costs for Year 2000 readiness were approximately $91 million. Final projected costs are $94 million of which $3 million is projected to be spent in 2000 and $6 million was billed to non-affiliated companies. These costs include labor necessary to identify, test, and renovate affected devices and systems, and costs for reporting requirements to state and federal agencies. From its inception through December 31, 1999, the Year 2000 program costs, recognized primarily as expense, amounted to $85 million based on Southern Company's ownership interest. Also, Southern Energy experienced no material incidents or disruption of electric service for its domestic and international operations. In addition to the traditional business costs, Southern Energy's final costs for Year 2000 readiness were approximately $17 million -- based on their ownership interest. Southern Energy's original projected costs were $24 million. II-14 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1999 Annual Report FINANCIAL CONDITION Overview Southern Company's financial condition continues to remain strong. In 1999, the integrated Southeast utilities' earnings were at the high end of their allowed range of return on equity, and Southern Energy reported strong earnings growth in 1999. These factors drove the record consolidated net income of $1.3 billion in 1999. Consolidated net income -- excluding non-recurring charges -- in 1999 increased $78 million compared with the prior year. In January 1999, Southern Company modified its dividend policy to lower, over time, the previously targeted payout ratio of approximately 75 percent down to 50 percent. The quarterly dividend declared in January 2000 continued to be maintained at 33 1/2 cents per share, or $1.34 annually. This action allows more internally generated funds to be reinvested in the company, which is expected to increase long-term shareholder value. This policy supports Southern Company's strategic goal to become the best investment in the electric utility business. Gross property additions to utility plant were $2.6 billion in 1999. The majority of funds needed for gross property additions since 1996 has been provided from operating activities. Southern Energy acquired $1.3 billion of generating assets in 1999 and sold the supply system of South Western Electricity -- Southern Energy owned 49 percent -- for $256 million. The Consolidated Statements of Cash Flows provide additional details. Derivative Financial Instruments Southern Company 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, the company nets the exposures to take advantage of natural offsets and enters into various derivative transactions for the remaining exposures pursuant to the company's policies in areas such as counterparty exposure and hedging practices. Generally, company policy is that derivatives are to be used only for hedging purposes. Derivative positions are monitored using techniques that include market valuation and sensitivity analysis. The company's market risk exposures relative to interest rate changes and currency exchange fluctuations, as discussed later, have not changed materially versus the previous reporting period. In addition, the company is not aware of any facts or circumstances that would significantly impact such exposures in the near-term. Interest rate swaps are used to hedge underlying debt obligations. These swaps hedge specific debt issuances and qualify for hedge accounting. The interest rate differential is reflected as an adjustment to interest expense over the life of the instruments. Additionally, the company has interest rate swaps in foreign currencies. These swaps are designated as hedges of the company's related debt issuance in the same currency. If the company sustained a 100 basis point change in interest rates for all variable rate debt in all currencies, the change would affect annualized interest expense by approximately $27 million at December 31, 1999. Based on the company's overall interest rate exposure at December 31, 1999, including derivative and other interest rate sensitive instruments, a near-term 100 basis point change in interest rates would not materially affect the consolidated financial statements. The company has investments in the United Kingdom and Germany. To hedge its net investment in these countries, the company uses long-term cross-currency agreements to reduce a substantial portion of its exposure to fluctuations in the British pound sterling and German Deutschemark. As a result of these swaps, a 10 percent sustained decline of the British pound sterling and German Deutschemark versus the U.S. dollar would not materially affect the consolidated financial statements. The company also has investments in various emerging market countries where the net investments are not hedged, including Argentina, Chile, Trinidad and Tobago, Bahamas, Philippines, and China. The company relies on either currency pegs or contractual or regulatory links to the U.S. dollar to mitigate currency risk attributable to these investments. II-15 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1999 Annual Report Also, the company has currency exposure related to its investment in Companhia Energetica de Minas Gerais (CEMIG) which has not been hedged. Revenues at CEMIG and dividends from CEMIG are denominated in Brazilian reals; however, a significant portion of debt incurred to finance CEMIG is required to be repaid in other currencies. The devaluation of the real in January 1999 resulted in a net reduction in other comprehensive income of $83 million. Based on availability and economics, the company also uses currency swaps and forward agreements to hedge dollar-denominated debt issued by subsidiaries with a functional currency other than the U.S. dollar. These swaps offset the dollar cash flows, thereby effectively converting debt to the respective company's reporting currency. Gains and losses related to qualified hedges of foreign currency firm commitments are deferred and included in the basis of the underlying transactions. To the extent that a qualifying hedge is terminated or ceases to be effective as a hedge, any deferred gains and losses to that point continue to be deferred and are included in the basis of the underlying transaction. In addition to the non-trading activities, the company is exposed to market risks through its electricity, natural gas, and energy trading business in North America and Europe. The North American trading business is primarily conducted through the company's joint venture relationship with Vastar. While this joint venture relationship is accounted for under the equity method of accounting, Southern Company -- through guarantees it has made jointly with Vastar -- is exposed to market risk. Southern Company and Vastar have agreed to indemnify each other against losses under such guarantees in proportion to their respective ownership shares of the joint venture. At December 31, 1999, outstanding guarantees related to the estimated fair value of net contractual commitments were approximately $146 million. Based upon the joint venture's statistical analysis of its credit risk, Southern Company's potential exposure under these contractual commitments would not materially differ from the estimated fair value. The joint venture's gross revenues and cost of sales were $12.0 billion and $11.9 billion for 1999, respectively; and $9.2 billion and $9.1 billion for 1998, respectively. In 1999, Southern Energy created a European trading operation in Amsterdam. The business provides risk management services associated with the energy industry to its customers in the European market. To estimate and manage the market risk of its trading and marketing portfolios, the trading businesses employ a daily Value at Risk (VAR) methodology. VAR is used to describe a probabilistic approach to measuring the exposure to market risk. VAR models are relatively sophisticated. However, the quantitative risk information is limited by the parameters established in creating the model. The instruments being evaluated may have features that may trigger a potential loss in excess of calculated amounts if the changes in commodity prices exceed the confidence level of the model used. The calculation utilizes the standard deviation of seasonally adjusted historical changes in the value of the market risk sensitive commodity-based financial instruments to estimate the amount of change (i.e., volatility) in the current value of these instruments that could occur at a specified confidence level over a specified holding interval. The parameters used in the calculation include holding intervals ranging from 5 days to 3 months, depending upon the type of instrument, the term of the instrument, the liquidity of the underlying market, and other factors. The models employ a 95 percent confidence level based on historical price movement. Based on VAR analysis of the overall commodity price risk exposure of the trading businesses at December 31, 1999, management does not anticipate a materially adverse effect on the company's consolidated financial statements as a result of market fluctuations. Due to cost-based rate regulations, the integrated Southeast utilities 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 companies enter into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market. Realized gains and losses are recognized in the income statement as incurred. At December 31, 1999, exposure from these activities was not material to the consolidated financial statements. For additional information, see Note 1 to the financial statements under "Financial Instruments for Non-Trading and Trading Activities." Capital Structure Southern Company's ratio of common equity to total capitalization -- including short-term debt -- was 32.7 percent in 1999, compared with 37.4 percent in 1998, and 38.6 percent in 1997. II-16 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1999 Annual Report During 1999, the integrated Southeast utilities sold, through public authorities, $349 million of pollution control revenue bonds. In addition, capital and preferred securities of $250 million were issued in 1999. The companies continued to reduce financing costs by retiring higher-cost bonds and preferred stock. Retirements of bonds, including maturities, totaled $1.2 billion during 1999, $1.7 billion during 1998, and $507 million during 1997. As a result, the composite interest rate on long-term debt decreased from 6.9 percent at December 31, 1996 to 6.5 percent at December 31, 1999. Retirements of preferred stock totaled $86 million during 1999, $239 million during 1998, and $660 million during 1997. In April 1999, Southern Company announced the repurchase of up to 50 million shares of its common stock over a two-year period through open market or privately negotiated transactions. The program did not establish a target stock price or timetable for specific repurchases. Under this program, 32.8 million shares were repurchased through December 31, 1999. Funding for the program was provided from Southern Company's commercial paper program. At the close of 1999, the company's common stock market value was 23 1/2 per share, compared with book value of $13.82 per share. The market-to-book value ratio was 170 percent at the end of 1999, compared with 207 percent at year-end 1998, and 186 percent at year-end 1997. Capital Requirements for Construction The construction program of Southern Company is budgeted at $3.0 billion for 2000, $3.8 billion for 2001, and $3.9 billion for 2002. Actual construction costs may vary from this estimate because of changes in such factors as: business conditions; environmental regulations; nuclear plant regulations; load projections; the cost and efficiency of construction labor, equipment, and materials; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. The integrated Southeast utilities have approximately 5,200 megawatts of combustion turbine generating capacity scheduled to be placed in service by 2002. Approximately 1,400 megawatts of this new capacity will be dedicated to the wholesale market. Southern Energy has approximately 1,000 megawatts of owned capacity under construction. Significant construction of transmission and distribution facilities and upgrading of generating plants will be continuing for the traditional business in the Southeast. Other Capital Requirements In addition to the funds needed for the construction program, approximately $2.1 billion will be required by the end of 2002 for present improvement fund requirements and maturities of long-term debt. Also, the subsidiaries will continue to retire higher-cost debt and preferred stock and replace these obligations with lower-cost capital if market conditions permit. Environmental Matters On November 3, 1999, the Environmental Protection Agency (EPA) brought a civil action in the U.S. District Court against Alabama Power, Georgia Power, and the system service company. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The EPA concurrently issued to the integrated Southeast utilities a notice of violation related to 10 generating facilities, which includes the five facilities mentioned previously. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation, and to add Gulf Power, Mississippi Power, and Savannah Electric as defendants. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. Southern Company believes that its integrated utilities complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. In November 1990, the Clean Air Act was signed into law. Title IV of the Clean Air Act -- the acid rain compliance provision of the law -- significantly affected Southern Company. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants are required in two phases. II-17 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1999 Annual Report Phase I compliance began in 1995 and initially affected 28 generating units of Southern Company. As a result of the company's compliance strategy, an additional 22 generating units were brought into compliance with Phase I requirements. Phase II compliance is required in 2000, and all fossil-fired generating plants will be affected. Southern Company achieved Phase I sulfur dioxide compliance at the affected plants by switching to low-sulfur coal, which required some equipment upgrades. Construction expenditures for Phase I nitrogen oxide and sulfur dioxide emissions compliance totaled approximately $300 million. For Phase II sulfur dioxide compliance, Southern Company currently uses emission allowances and increased fuel switching. Also, equipment to control nitrogen oxide emissions was installed on additional system fossil-fired units as necessary to meet Phase II limits and ozone non-attainment requirements for metropolitan Atlanta through 2000. Compliance for Phase II and initial ozone non-attainment requirements increased total estimated construction expenditures by approximately $105 million. The States of Georgia and Alabama have proposed or drafted rules to address one-hour ozone non-attainment in the Atlanta and Birmingham areas. Additional nitrogen oxide emission controls will be required on certain generating plants by May 1, 2003. It is expected that seven generating plants will be affected in the Atlanta area and two plants in the Birmingham area. Additional construction expenditures for compliance with these new rules are currently estimated at approximately $850 million. A significant portion of costs related to the acid rain and ozone nonattainment provision of the Clean Air Act is expected to be recovered through existing ratemaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. In July 1997, the EPA revised the national ambient air quality standards for ozone and particulate matter. This revision makes the standards significantly more stringent. In September 1998, the EPA issued the final regional nitrogen oxide reduction rule to the states for implementation. The final rule affects 22 states, including Alabama and Georgia. The EPA's July 1997 standards and the September 1998 rule are being challenged in the courts by several states and industry groups. Implementation of the final state rules for these three initiatives could require substantial further reductions in nitrogen oxide and sulfur dioxide emissions from fossil-fired generating facilities and other industries in these states. Additional compliance costs and capital expenditures resulting from the implementation of these rules and standards cannot be determined until the results of legal challenges are known, and the states have adopted their final rules. The EPA and state environmental regulatory agencies are reviewing and evaluating various other matters including: additional controls for hazardous air pollutant emissions; control strategies to reduce regional haze; and hazardous waste disposal requirements. The impact of any new standards will depend on the development and implementation of applicable regulations. Southern Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the subsidiaries could incur substantial costs to clean up properties. The subsidiaries conduct studies to determine the extent of any required cleanup costs and have recognized in their respective financial statements costs to clean up known sites. These costs for Southern Company amounted to $4 million in 1999, $6 million in 1998, and $4 million in 1997. Additional sites may require environmental remediation for which the subsidiaries may be liable for a portion or all required cleanup costs. See Note 3 to the financial statements for information regarding Georgia Power's potentially responsible party status at a site in Brunswick, Georgia. Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of Southern Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electromagnetic fields, and other environmental and health concerns could significantly affect Southern Company. The impact of new legislation -- if II-18 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1999 Annual Report any -- will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electromagnetic fields. Sources of Capital The amount and timing of additional equity capital to be raised in 2000 -- as well as in subsequent years -- will be contingent on Southern Company's investment opportunities. Equity capital can be provided from any combination of public offerings, private placements, or the company's stock plans. The integrated Southeast utilities plan to obtain the funds required for construction and other purposes from sources similar to those used in the past, which were primarily from internal sources. However, the type and timing of any financings -- if needed -- will depend on market conditions and regulatory approval. In recent years, financings primarily have utilized unsecured debt and trust preferred securities. To meet short-term cash needs and contingencies, Southern Company had at the beginning of 2000 approximately $466 million of cash and cash equivalents and $5.7 billion of unused credit arrangements with banks. Cautionary Statement Regarding Forward-Looking Information Southern Company's 1999 Annual Report contains forward-looking and historical information. The company cautions that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking information. Accordingly, there can be no assurance that such indicated results will be realized. These factors include legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry; the extent and timing of the entry of additional competition in the markets of the subsidiary companies; potential business strategies -- including acquisitions or dispositions of assets or internal restructuring -- that may be pursued by the company; state and federal rate regulation in the United States; changes in or application of environmental and other laws and regulations to which the company and its subsidiaries are subject; political, legal and economic conditions and developments in the United States and in foreign countries in which the subsidiaries operate; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather and other natural phenomena; the performance of projects undertaken by Southern Energy and the success of efforts to invest in and develop new opportunities; and other factors discussed in the reports -- including Form 10-K -- filed from time to time by the company with the SEC. II-19
CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 1999, 1998, and 1997 Southern Company and Subsidiary Companies 1999 Annual Report - ----------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------- (in millions) Operating Revenues: Retail sales $ 8,086 $ 8,272 $ 7,647 Sales for resale 823 896 886 Southern Energy revenues 2,268 1,903 3,837 Other revenues 408 332 241 - ----------------------------------------------------------------------------------------------------------------------------- Total operating revenues 11,585 11,403 12,611 - ----------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 2,720 2,371 2,281 Purchased power 954 1,243 3,033 Other 2,199 2,112 1,930 Maintenance 945 887 763 Depreciation and amortization 1,307 1,539 1,367 Taxes other than income taxes 612 599 572 Write down of assets 69 342 - - ----------------------------------------------------------------------------------------------------------------------------- Total operating expenses 8,806 9,093 9,946 - ----------------------------------------------------------------------------------------------------------------------------- Operating Income 2,779 2,310 2,665 Other Income: Interest income 164 243 152 Gain on asset sales 315 59 24 Equity in earnings of unconsolidated subsidiaries 94 123 35 Other, net 94 (2) - - ----------------------------------------------------------------------------------------------------------------------------- Earnings Before Interest, Minority Interests, and Income Taxes 3,446 2,733 2,876 - ----------------------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 698 712 678 Interest on notes payable 183 108 112 Amortization of debt discount, premium, and expense, net 125 65 34 Other interest charges 53 68 49 Minority interests in subsidiaries 183 80 29 Distributions on capital and preferred securities of subsidiaries 182 149 120 Preferred dividends of subsidiaries 20 25 43 - ----------------------------------------------------------------------------------------------------------------------------- Total interest charges and other, net 1,444 1,207 1,065 - ----------------------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes 2,002 1,526 1,811 Income taxes 726 549 839 - ----------------------------------------------------------------------------------------------------------------------------- Consolidated Net Income $ 1,276 $ 977 $ 972 ============================================================================================================================= Common Stock Data: Average number of shares of common stock outstanding (in millions) 685 697 685 Basic and diluted earnings per share of common stock $1.86 $1.40 $1.42 Cash dividends paid per share of common stock $1.34 $1.34 $1.30 - ----------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1999, 1998, and 1997 Southern Company and Subsidiary Companies 1999 Annual Report - -------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- (in millions) Operating Activities: Consolidated net income $ 1,276 $ 977 $ 972 Adjustments to reconcile consolidated net income to net cash provided from operating activities -- Depreciation and amortization 1,522 1,773 1,592 Deferred income taxes and investment tax credits 137 (22) (5) Gain on asset sales (315) (61) (25) Write down of assets 69 342 - Equity in earnings of unconsolidated subsidiaries (94) (123) (35) Other, net 172 (76) (29) Changes in certain current assets and liabilities excluding effects from acquisitions -- Receivables, net (213) 151 (229) Fossil fuel stock (26) (35) 53 Materials and supplies (50) (10) 21 Accounts payable (147) (17) 138 Other 392 (151) 172 - --------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 2,723 2,748 2,625 - --------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (2,560) (2,005) (1,859) Southern Energy business and asset acquisitions, net of cash acquired (1,800) (998) (2,925) Sales of property 285 281 32 Other (139) 86 (13) - --------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (4,214) (2,636) (4,765) - --------------------------------------------------------------------------------------------------------------------------- Financing Activities: Increase (decrease) in notes payable, net 2,131 (353) 509 Proceeds -- Other long-term debt 2,646 2,973 2,499 Capital and preferred securities 250 435 1,321 Preferred stock - 200 - Common stock 24 234 360 Redemptions -- First mortgage bonds (890) (1,487) (168) Other long-term debt (957) (599) (802) Capital and preferred securities (100) - - Preferred stock (86) (239) (660) Common stock repurchased (862) (125) - Payment of common stock dividends (921) (933) (889) Other (150) 53 126 - --------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities 1,085 159 2,296 - --------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents (406) 271 156 Cash and Cash Equivalents at Beginning of Year 872 601 445 - --------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 466 $ 872 $ 601 =========================================================================================================================== Supplemental Cash Flow Information: Cash paid during the year for -- Interest (net of amount capitalized) $1,011 $998 $876 Income taxes $642 $839 $823 Southern Energy business and asset acquisitions -- Fair value of assets acquired $1,832 $1,072 $4,768 Less cash paid 1,800 998 2,925 - --------------------------------------------------------------------------------------------------------------------------- Liabilities assumed $ 32 $ 74 $1,843 =========================================================================================================================== The accompanying notes are an integral part of these statements.
II-21
CONSOLIDATED BALANCE SHEETS At December 31, 1999 and 1998 Southern Company and Subsidiary Companies 1999 Annual Report - ----------------------------------------------------------------------------------------------------------------------- Assets 1999 1998 - ----------------------------------------------------------------------------------------------------------------------- (in millions) Current Assets: Cash and cash equivalents $ 466 $ 872 Special deposits 72 87 Receivables, less accumulated provisions for uncollectible accounts of $59 million in 1999 and $113 million in 1998 1,652 1,692 Unrecovered retail fuel clause revenue 244 105 Fossil fuel stock, at average cost 311 252 Materials and supplies, at average cost 585 515 Other 199 183 - ----------------------------------------------------------------------------------------------------------------------- Total current assets 3,529 3,706 - ----------------------------------------------------------------------------------------------------------------------- Property, Plant, and Equipment: In service 36,763 35,169 Less accumulated provision for depreciation 14,076 13,239 - ----------------------------------------------------------------------------------------------------------------------- 22,687 21,930 Nuclear fuel, at amortized cost 227 217 Construction work in progress 1,630 1,782 - ----------------------------------------------------------------------------------------------------------------------- Total property, plant, and equipment 24,544 23,929 - ----------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Equity investments in unconsolidated subsidiaries 1,376 1,549 Property rights, net of accumulated amortization of $227 million in 1999 and $169 million in 1998 2,202 1,185 Goodwill, net of accumulated amortization of $164 million in 1999 and $106 million in 1998 2,106 2,125 Other intangibles, net of accumulated amortization of $13 million in 1999 and $1 million in 1998 447 154 Nuclear decommissioning trusts, at fair value 658 516 Leveraged leases 556 264 Other 580 374 - ----------------------------------------------------------------------------------------------------------------------- Total other property and investments 7,925 6,167 - ----------------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes 987 1,036 Prepaid pension costs 590 491 Debt expense, being amortized 145 129 Premium on reacquired debt, being amortized 217 294 Other 459 439 - ----------------------------------------------------------------------------------------------------------------------- Total deferred charges and other assets 2,398 2,389 - ----------------------------------------------------------------------------------------------------------------------- Total Assets $38,396 $36,191 ======================================================================================================================= The accompanying notes are an integral part of these balance sheets.
II-22
CONSOLIDATED BALANCE SHEETS (continued) At December 31, 1999 and 1998 Southern Company and Subsidiary Companies 1999 Annual Report - ----------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity 1999 1998 - ----------------------------------------------------------------------------------------------------------------------- (in millions) Current Liabilities: Securities due within one year $ 576 $ 1,526 Notes payable 3,915 1,828 Accounts payable 895 1,027 Customer deposits 133 125 Taxes accrued -- Income taxes 155 49 Other 264 299 Interest accrued 281 233 Vacation pay accrued 120 112 Other 794 542 - ----------------------------------------------------------------------------------------------------------------------- Total current liabilities 7,133 5,741 - ----------------------------------------------------------------------------------------------------------------------- Long-term debt (See accompanying statements) 11,747 10,472 - ----------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 4,505 4,481 Deferred credits related to income taxes 640 715 Accumulated deferred investment tax credits 693 723 Employee benefits provisions 513 474 Prepaid capacity revenues 80 96 Other 460 609 - ----------------------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 6,891 7,098 - ----------------------------------------------------------------------------------------------------------------------- Minority interests in subsidiaries 725 535 - ----------------------------------------------------------------------------------------------------------------------- Company or subsidiary obligated mandatorily redeemable capital and preferred securities (See accompanying statements) 2,327 2,179 - ----------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock of subsidiaries (See accompanying statements) 369 369 - ----------------------------------------------------------------------------------------------------------------------- Common stockholders' equity (See accompanying statements) 9,204 9,797 - ----------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $38,396 $36,191 ======================================================================================================================= Commitments and Contingent Matters (Notes 1, 2, 3, 4, 5, 7, 12, and 13) - ----------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these balance sheets.
II-23
CONSOLIDATED STATEMENTS OF CAPITALIZATION At December 31, 1999 and 1998 Southern Company and Subsidiary Companies 1999 Annual Report - ----------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- (in millions) (percent of total) Long-Term Debt of Subsidiaries: First mortgage bonds -- Maturity Interest Rates ------- ------------- 1999 6.13% to 8.67% $ - $ 373 2000 6.00% to 8.67% 200 209 2001 8.67% - 9 2002 8.67% - 10 2003 6.13% to 8.67% 325 635 2004 6.60% to 8.67% 35 45 2005 through 2009 6.07% to 8.67% 105 165 2010 through 2014 8.67% - 80 2015 through 2019 8.67% - 38 2020 through 2024 7.30% to 9.00% 559 764 2025 through 2026 6.88% to 7.88% 117 137 - ----------------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 1,341 2,465 - ----------------------------------------------------------------------------------------------------------------------------------- Long-term notes payable -- 6.13% to 11.00% due 1999-2002 - 437 6.38% to 11.00% due 2000-2002 279 - 5.35% to 9.75% due 2003-2004 901 361 5.49% to 10.50% due 2005 760 551 6.80% to 9.70% due 2006 593 582 5.76% to 10.25% due 2007 583 447 3.07% to 10.56% due 2008-2015 1,605 959 6.38% to 8.12% due 2018-2038 801 803 6.63% to 7.13% due 2039-2048 1,029 729 Adjustable rates (3.81% to 8.63% at 1/1/00) due 1999-2007 1,887 1,958 - ----------------------------------------------------------------------------------------------------------------------------------- Total long-term notes payable 8,438 6,827 - ----------------------------------------------------------------------------------------------------------------------------------- Other long-term debt -- Pollution control revenue bonds -- Collateralized: 4.38% to 6.75% due 2000-2026 617 954 Variable rates (3.70% to 4.85% at 1/1/00) due 2011-2025 120 639 Non-collateralized: 5.25% to 7.25% due 2003-2034 263 110 Variable rates (3.50% to 6.03% at 1/1/00) due 2011-2037 1,510 880 - ----------------------------------------------------------------------------------------------------------------------------------- Total other long-term debt 2,510 2,583 - ----------------------------------------------------------------------------------------------------------------------------------- Capitalized lease obligations 97 135 - ----------------------------------------------------------------------------------------------------------------------------------- Unamortized debt premium (discount), net (63) (98) - ----------------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $800 million) 12,323 11,912 Less amount due within one year 576 1,440 - ----------------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year 11,747 10,472 49.7% 45.9% - -----------------------------------------------------------------------------------------------------------------------------------
11-24
CONSOLIDATED STATEMENTS OF CAPITALIZATION (continued) At December 31, 1999 and 1998 Southern Company and Subsidiary Companies 1999 Annual Report - ----------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- (in millions) (percent of total) Company or Subsidiary Obligated Mandatorily Redeemable Capital and Preferred Securities: $25 liquidation value -- 6.85% to 7.00% 435 235 7.13% to 7.38% 297 297 7.60% to 7.63% 415 415 7.75% 649 649 8.14% to 9.00% 481 583 Auction rate (6.42% at 1/1/00) 50 - - ----------------------------------------------------------------------------------------------------------------------------------- Total company or subsidiary obligated mandatorily redeemable capital and preferred securities (annual distribution requirement -- $176 million) 2,327 2,179 9.8 9.6 - ----------------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock of Subsidiaries: $100 par or stated value -- 4.20% to 7.00% 99 135 $25 par or stated value -- 5.20% to 5.83% 200 200 Adjustable and auction rates -- at 1/1/00: 4.22% to 4.50% 70 120 - ----------------------------------------------------------------------------------------------------------------------------------- Total (annual dividend requirement -- $19 million) 369 455 Less amount due within one year - 86 - ----------------------------------------------------------------------------------------------------------------------------------- Total cumulative preferred stock of subsidiaries excluding amount due within one year 369 369 1.6 1.6 - ----------------------------------------------------------------------------------------------------------------------------------- Common Stockholders' Equity: Common stock, par value $5 per share -- Authorized -- 1 billion shares Issued -- 1999: 701 million shares -- 1998: 700 million shares Treasury -- 1999: 35 million shares -- 1998: 2 million shares Par value 3,503 3,499 Paid-in capital 2,480 2,463 Treasury, at cost (919) (58) Retained earnings 4,232 3,878 Accumulated other comprehensive income (92) 15 - ----------------------------------------------------------------------------------------------------------------------------------- Total common stockholders' equity 9,204 9,797 38.9 42.9 - ----------------------------------------------------------------------------------------------------------------------------------- Total Capitalization $23,647 $22,817 100.0% 100.0% =================================================================================================================================== The accompanying notes are an integral part of these statements.
II-25
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY For the Years Ended December 31, 1999, 1998, and 1997 Southern Company and Subsidiary Companies 1999 Annual Report Common Stock Accumulated --------------------------------------- Other Par Paid In Retained Comprehensive Value Capital Treasury Earnings Income Total - ------------------------------------------------------------------------------------------------------------------------- (in millions) Balance at January 1, 1997 $3,385 $2,053 $ - $3,764 $ 14 $9,216 Net income - - - 972 - 972 Other comprehensive income - - - - (7) (7) Stock issued 82 278 - - - 360 Cash dividends - - - (889) - (889) Other - - - (5) - (5) - ------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 3,467 2,331 - 3,842 7 9,647 Net income - - - 977 - 977 Other comprehensive income - - - - 8 8 Stock issued 32 132 70 - - 234 Stock repurchased, at cost - - (125) - - (125) Cash dividends - - - (933) - (933) Other - - (3) (8) - (11) - ------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 3,499 2,463 (58) 3,878 15 9,797 Net income - - - 1,276 - 1,276 Other comprehensive income - - - - (107) (107) Stock issued 4 17 1 - - 22 Stock repurchased, at cost - - (861) - - (861) Cash dividends - - - (921) - (921) Other - - (1) (1) - (2) - ------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 $3,503 $2,480 $(919) $4,232 $ (92) $9,204 ========================================================================================================================= CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Years Ended December 31, 1999, 1998, and 1997 Southern Company and Subsidiary Companies 1999 Annual Report - ----------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------- (in millions) Consolidated Net Income $1,276 $977 $972 Other comprehensive income: Foreign currency translation adjustments (165) 12 (10) Less applicable income taxes (benefits) (58) 4 (3) - -------------------------------------------------------------------------------------------------------------------------- Consolidated Comprehensive Income $1,169 $985 $965 ========================================================================================================================== The accompanying notes are an integral part of these statements.
II-26 NOTES TO FINANCIAL STATEMENTS Southern Company and Subsidiary Companies 1999 Annual Report 1. Summary of Significant Accounting Policies General Southern Company is the parent company of five integrated Southeast utilities, a system service company, Southern Communications Services (Southern LINC), Southern Company Energy Solutions, Southern Energy, Inc. (Southern Energy), Southern Nuclear Operating Company (Southern Nuclear), and other direct and indirect subsidiaries. The integrated Southeast utilities -- Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Savannah Electric -- provide electric service in four states. Contracts among the integrated Southeast utilities -- related to jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power --are regulated by the Federal Energy Regulatory Commission (FERC) and/or the Securities and Exchange Commission (SEC). The system service company provides, at cost, specialized services to Southern Company and subsidiary companies. Southern LINC provides digital wireless communications services to the integrated Southeast utilities and also markets these services to the public within the Southeast. Southern Company Energy Solutions develops new business opportunities related to energy products and services. Southern Nuclear provides services to Southern Company's nuclear power plants. Southern Energy acquires, develops, builds, owns, and operates power production and delivery facilities and provides a broad range of energy-related services to utilities and industrial companies in selected countries around the world. Southern Energy businesses include independent power projects, integrated utilities, a distribution company, and energy trading and marketing businesses outside the southeastern United States. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both the company and its subsidiaries are subject to the regulatory provisions of the PUHCA. The integrated Southeast utilities also are subject to regulation by the FERC and their respective state public service commissions. The companies follow generally accepted accounting principles and comply with the accounting policies and practices prescribed by their respective commissions. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates, and the actual results may differ from those estimates. All material intercompany items have been eliminated in consolidation. The consolidated financial statements reflect investments in controlled subsidiaries on a consolidated basis. The equity method is used for subsidiaries in which the company has significant influence but does not control. Certain prior years' data presented in the consolidated financial statements have been reclassified to conform with the current year presentation. Regulatory Assets and Liabilities The integrated Southeast utilities are subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are expected to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Consolidated Balance Sheets at December 31 relate to the following: 1999 1998 - --------------------------------------------------------------- (in millions) Deferred income tax charges $ 987 $1,036 Premium on reacquired debt 217 294 Department of Energy assessments 52 57 Vacation pay 87 81 Postretirement benefits 33 36 Deferred income tax credits (640) (715) Storm damage reserves (29) (24) Other, net 144 162 - --------------------------------------------------------------- Total $ 851 $ 927 =============================================================== In the event that a portion of a company's operations is no longer subject to the provisions of FASB Statement No. 71, the company would be required to write off related regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the company would be required to determine if any impairment to other assets exists, including plant, and write down the assets, if impaired, to their fair value. II-27 NOTES (continued) Southern Company and Subsidiary Companies 1999 Annual Report Revenues and Fuel Costs Revenues are accrued for service rendered but unbilled at the end of each fiscal period. Fuel costs are expensed as the fuel is used. Electric rates for the integrated Southeast utilities include provisions to adjust billings for fluctuations in fuel costs, the energy component of purchased power costs, and certain other costs. Revenues are adjusted for differences between recoverable fuel costs and amounts actually recovered in current regulated rates. Southern Company has a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. For all periods presented, uncollectible accounts continued to average less than 1 percent of revenues. Fuel expense includes the amortization of the cost of nuclear fuel and a charge, based on nuclear generation, for the permanent disposal of spent nuclear fuel. Total charges for nuclear fuel included in fuel expense amounted to $137 million in 1999, $133 million in 1998, and $144 million in 1997. Alabama Power and Georgia Power have contracts with the U.S. Department of Energy (DOE) that provide for the permanent disposal of spent nuclear fuel. The DOE failed to begin disposing of spent fuel in January 1998 as required by the contracts, and the companies are pursuing legal remedies against the government for breach of contract. Sufficient storage capacity currently is available to permit operation into 2003 at Plant Hatch, into 2017 at Plant Vogtle, and into 2009 and 2013 at Plant Farley units 1 and 2, respectively. Activities for adding dry cask storage capacity and for potentially increasing spent fuel pool rack capacity at Plant Hatch during 2000 are in progress. Planning for additional on-site spent fuel storage capacity at Plant Farley is also in progress, with the intent to place additional on-site spent fuel storage capacity in operation as early as 2005. In addition, through Southern Nuclear, Alabama Power and Georgia Power are members of Private Fuel Storage, LLC, a joint utility effort to develop a private spent fuel storage facility for temporary storage of spent nuclear fuel. This facility is planned to begin operation as early as the year 2003. Also, the Energy Policy Act of 1992 required the establishment of a Uranium Enrichment Decontamination and Decommissioning Fund, which is funded in part by a special assessment on utilities with nuclear plants. This assessment is being paid over a 15-year period, which began in 1993. This fund will be used by the DOE for the decontamination and decommissioning of its nuclear fuel enrichment facilities. The law provides that utilities will recover these payments in the same manner as any other fuel expense. Alabama Power and Georgia Power -- based on its ownership interests -- estimate their respective remaining liability at December 31, 1999, under this law to be approximately $28 million and $21 million. These obligations are recorded in the Consolidated Balance Sheets. Depreciation and Nuclear Decommissioning Depreciation of the original cost of plant in service is provided primarily by using composite straight-line rates, which approximated 3.5 percent in 1999 and 3.4 percent in 1998 and 1997. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its cost -- together with the cost of removal, less salvage -- is charged to the accumulated provision for depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Depreciation expense includes an amount for the expected costs of decommissioning nuclear facilities and removal of other facilities. Georgia Power recorded additional depreciation of electric plant amounting to $314 million in 1998 and $159 million in 1997. Georgia Power did not record any additional depreciation in 1999. See Note 3 under "Georgia Power 1998 Retail Rate Order" for additional information. The Nuclear Regulatory Commission (NRC) requires all licensees operating commercial power reactors to establish a plan for providing, with reasonable assurance, funds for decommissioning. Alabama Power and Georgia Power have external trust funds to comply with the NRC's regulations. Amounts previously recorded in internal reserves are being transferred into the external trust funds over periods approved by the respective state public service commissions. The NRC's minimum external funding requirements are based on a generic estimate of the cost to decommission the radioactive portions of a nuclear unit based on the size and type of reactor. Alabama Power and Georgia Power have filed plans II-28 NOTES (continued) Southern Company and Subsidiary Companies 1999 Annual Report with the NRC to ensure that -- over time -- the deposits and earnings of the external trust funds will provide the minimum funding amounts prescribed by the NRC. Site study cost is the estimate to decommission a specific facility as of the site study year, and ultimate cost is the estimate to decommission a specific facility as of its retirement date. The estimated costs of decommissioning -- both site study costs and ultimate costs -- based on the most current study as of December 31, 1999, for Alabama Power's Plant Farley and Georgia Power's ownership interests in plants Hatch and Vogtle were as follows: Plant Plant Plant Farley Hatch Vogtle - --------------------------------------------------------------- Site study basis (year) 1998 1997 1997 Decommissioning periods: Beginning year 2017 2014 2027 Completion year 2031 2027 2038 - --------------------------------------------------------------- (in millions) Site study costs: Radiated structures $629 $372 $317 Non-radiated structures 60 33 44 - --------------------------------------------------------------- Total $689 $405 $361 =============================================================== (in millions) Ultimate costs: Radiated structures $1,868 $722 $ 922 Non-radiated structures 178 65 129 - --------------------------------------------------------------- Total $2,046 $787 $1,051 =============================================================== Significant assumptions: Inflation rate 4.5% 3.6% 3.6% Trust earning rate 7.0 6.5 6.5 - --------------------------------------------------------------- The decommissioning cost estimates are based on prompt dismantlement and removal of the plant from service. The actual decommissioning costs may vary from the above estimates because of changes in the assumed date of decommissioning, changes in NRC requirements, or changes in the assumptions used in making these estimates. Rates used in the assumptions were approved by the respective public service commissions. Annual provisions for nuclear decommissioning are based on an annuity method as approved by the respective state public service commissions. The amount expensed in 1999 and fund balances were as follows: Plant Plant Plant Farley Hatch Vogtle - --------------------------------------------------------------- (in millions) Amount expensed in 1999 $18 $17 $9 Accumulated provisions: External trust funds, at fair value $287 $222 $149 Internal reserves 40 22 12 - --------------------------------------------------------------- Total $327 $244 $161 =============================================================== Alabama Power's decommissioning costs for ratemaking are based on the site study. Effective January 1, 1999, the Georgia Public Service Commission (GPSC)increased Georgia Power's annual provision for decommissioning expenses to $26 million. This amount is based on the NRC generic estimate to decommission the radioactive portion of the facilities as of 1997. The estimates are $526 million and $438 million for plants Hatch and Vogtle, respectively. The ultimate costs associated with the 1997 NRC minimum funding requirements are $1.1 billion and $1.3 billion for plants Hatch and Vogtle, respectively. Alabama Power and Georgia Power expect their respective state public service commissions to periodically review and adjust, if necessary, the amounts collected in rates for the anticipated cost of decommissioning. Income Taxes Southern Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. Property, Plant, and Equipment Property, plant, and equipment is stated at original cost less regulatory disallowances and impairments. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and the estimated cost of funds used during construction. The cost of maintenance, repairs, and II-29 NOTES (continued) Southern Company and Subsidiary Companies 1999 Annual Report replacement of minor items of property is charged to maintenance expense. The cost of replacements of property -- exclusive of minor items of property -- is capitalized. Property Rights Property rights primarily consist of leasehold interests in Southern Energy's Asian power generation facilities that are developed under build, operate, and transfer agreements with the government-owned utility. These construction costs for Southern Energy are initially recorded as construction work in progress, and - -- after completion -- they are recorded as leasehold interests. These costs are amortized over the period -- ranging from 12 to 29 years -- that the facility is operated before transfer to the government-owned utility. Goodwill and Other Intangible Assets Goodwill, which represents the excess of cost over the fair value of assets of businesses acquired, is amortized on a straight-line basis over periods from 30 to 40 years. Other intangible assets are amortized on a straight-line basis over periods from 15 to 30 years. Leveraged Leases Southern Energy has several leveraged lease agreements -- ranging from 21 to 30 years -- that primarily relate to international energy generation, distribution, and transportation assets. The investment income earned from these leveraged leases is immaterial for all periods presented. Impairment of Long-Lived Assets and Intangibles Southern Company evaluates long-lived assets -- including goodwill and identifiable intangibles -- when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. The determination of whether an impairment has occurred is based on an estimate of undiscounted future cash flows attributable to the assets, as compared to the carrying value of the assets. If an impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value of the assets and recording a provision for loss if the carrying value is greater than the fair value. For assets identified as held for sale, the carrying value is compared to their estimated fair value less the cost to sell in order to determine if an impairment provision is required. Until the assets are disposed of, their estimated fair value is reevaluated when circumstances or events change. Cash and Cash Equivalents For purposes of the consolidated financial statements, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. Materials and Supplies Generally, materials and supplies include the costs of transmission, distribution, and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when installed. Foreign Currency Translation Assets and liabilities of Southern Energy's international operations, where the local currency is the functional currency, have been translated at year-end exchange rates, and revenues and expenses have been translated using average exchange rates prevailing during the year. Adjustments resulting from translation have been recorded in other comprehensive income. The financial statements of international operations, where the U.S. dollar is the functional currency, reflect certain transactions denominated in the local currency that have been remeasured in U.S. dollars. The remeasurement of local currencies into U.S. dollars creates gains and losses from foreign currency transactions that are included in consolidated net income. Gains and losses on foreign currency transactions are not material for all periods presented. Comprehensive Income Comprehensive income -- consisting of net income and foreign currency translation adjustments net of taxes -- is presented in the consolidated financial statements. The objective of the statement is to report a measure of all changes in common stock equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners. II-30 NOTES (continued) Southern Company and Subsidiary Companies 1999 Annual Report Financial Instruments for Non-Trading Activities Non-trading derivative financial instruments are used to hedge exposures to fluctuations in interest rates, foreign currency exchange rates, and certain commodity prices. Gains and losses on qualifying hedges are deferred and recognized either in income or as an adjustment to the carrying amount of the hedged item when the transaction occurs. The company utilizes interest rate swaps and cross currency interest rate swaps to minimize borrowing costs by changing the interest rate and currency of the original borrowing. For qualifying hedges, the interest rate differential is reflected as an adjustment to interest expense over the life of the swaps. Southern Energy's international operations are exposed to the effects of foreign currency exchange rate fluctuations. To protect against this exposure, currency swaps are used to hedge the net investment in certain foreign subsidiaries, which has the effect of converting foreign currency cash inflows into U.S. dollars at fixed exchange rates. Gains or losses on these currency swaps, designated as hedges of net investments, are offset against the translation effects reflected in other comprehensive income. Non-trading hedging activities are classified in the same category as the item hedged in the company's cash flow statement. Non-trading financial derivative instruments held at December 31, 1999, were as follows: Year of Unrecognized Maturity or Notional Gain Type Termination Amount (Loss) - ------------------------------- -------------------------- (in millions) Interest rate swaps: 2000-2012 $1,910 $(3) 2001-2012 (pound)600 $(49) 2002-2007 DM691 $(5) Cross currency swaps 2001-2007 (pound)414 $(11) Cross currency swaption 2003 DM435 $11 - ----------------------------------------------------------------- (pound) - Denotes British pound sterling. DM - Denotes Deutschemark. The company is exposed to losses related to financial instruments in the event of counterparties' nonperformance. The company has established controls to determine and monitor the creditworthiness of counterparties in order to mitigate the company's exposure to counterparty credit risk. The company is unaware of any counterparties that will fail to meet their obligations. Other Southern Company financial instruments for which the carrying amount did not equal fair value at December 31 were as follows: Carrying Fair Amount Value - -------------------------------------------------------------- (in millions) Long-term debt: At December 31, 1999 $12,226 $11,557 At December 31, 1998 11,777 11,626 Capital and preferred securities: At December 31, 1999 2,327 2,015 At December 31, 1998 2,179 2,288 - -------------------------------------------------------------- The fair values for long-term debt and capital and preferred securities were based on either closing market price or closing price of comparable instruments. Financial Instruments for Trading Activities During 1999, Southern Energy created an energy trading company in Amsterdam, which provides risk management services associated with the energy industry to its customers in the European market. These services are provided primarily through a variety of exchange-traded energy contracts including forward contracts, futures contracts, option contracts, and financial swap agreements. These contractual commitments, which represent risk management assets and liabilities, are accounted for using the mark-to-market method of accounting. Accordingly, they are reflected at fair value, net of future delivery costs, in the Consolidated Balance Sheets. Net unrealized gains from risk management services are immaterial at December 31, 1999. The volumetric weighted average maturity of the contractual commitments was 1.35 years. The net notional amount of the risk management assets and liabilities at December 31, 1999 was 5.3 billion kilowatt-hours. The notional amount is indicative only of the volume of activity and not of the amount exchanged by the parties to the financial instruments. Consequently, II-31 NOTES (continued) Southern Company and Subsidiary Companies 1999 Annual Report these amounts are not a measure of market risk. The averages for 1999 were based on month-end balances. The fair value of these assets and liabilities at December 31, 1999 was $1 million and $5 million, respectively. The Amsterdam trading operations involve elements of credit risk. The trading operation has attempted to mitigate this risk by establishing controls to determine and monitor the creditworthiness of counterparties. The company monitors credit risk on both an individual and group counterparty basis. Accordingly, the company does not anticipate any material impact to its financial position or results of operations as a result of counterparty nonperformance. 2. Retirement Benefits Southern Company has defined benefit, trusteed, pension plans that cover substantially all employees. In the United States, Southern Company provides certain medical care and life insurance benefits for retired employees. Substantially all these employees may become eligible for such benefits when they retire. The integrated Southeast utilities fund trusts to the extent required by their respective regulatory commissions. The measurement date for plan assets and obligations is September 30 for each year. Pension Plans Changes during the year in the projected benefit obligations and in the fair value of plan assets were as follows: Projected Benefit Obligations ------------------- 1999 1998 - -------------------------------------------------------------- (in millions) Balance at beginning of year $4,170 $3,701 Service cost 111 99 Interest cost 265 273 Benefits paid (213) (201) Actuarial (gain) loss (251) 298 - -------------------------------------------------------------- Balance at end of year $4,082 $4,170 ============================================================== Plan Assets ----------------- 1999 1998 - -------------------------------------------------------------- (in millions) Balance at beginning of year $5,978 $5,931 Actual return on plan assets 1,008 223 Employer contributions - 4 Benefits paid (308) (180) - -------------------------------------------------------------- Balance at end of year $6,678 $5,978 ============================================================== The accrued pension costs recognized in the Consolidated Balance Sheets were as follows: 1999 1998 - --------------------------------------------------------------- (in millions) Funded status $ 2,596 $ 1,808 Unrecognized transition obligation (76) (89) Unrecognized prior service cost 149 119 Unrecognized net gain (2,079) (1,347) - --------------------------------------------------------------- Prepaid asset recognized in the Consolidated Balance Sheets $ 590 $ 491 =============================================================== Components of the pension plans' net periodic cost were as follows: 1999 1998 1997 - --------------------------------------------------------------- (in millions) Service cost $ 111 $ 99 $ 94 Interest cost 265 273 271 Expected return on plan assets (451) (425) (394) Recognized net gain (42) (47) (42) Net amortization 2 (9) (9) - --------------------------------------------------------------- Net pension cost (income) $(115) $(109) $ (80) =============================================================== Postretirement Benefits Changes during the year in the accumulated benefit obligations and in the fair value of plan assets were as follows: Accumulated Benefit Obligations -------------------- 1999 1998 - --------------------------------------------------------------- (in millions) Balance at beginning of year $1,037 $ 935 Service cost 21 18 Interest cost 69 69 Benefits paid (36) (35) Actuarial (gain) loss (95) 50 - ---------------------------------------------------------------- Balance at end of year $ 996 $1,037 ================================================================ II-32 NOTES (continued) Southern Company and Subsidiary Companies 1999 Annual Report Plan Assets ------------------ 1999 1998 - --------------------------------------------------------------- (in millions) Balance at beginning of year $336 $294 Actual return on plan assets 36 8 Employer contributions 60 69 Benefits paid (37) (35) - --------------------------------------------------------------- Balance at end of year $395 $336 =============================================================== The accrued postretirement costs recognized in the Consolidated Balance Sheets were as follows: 1999 1998 - --------------------------------------------------------------- (in millions) Funded status $(601) $(701) Unrecognized transition obligation 203 219 Unrecognized prior service cost 1 - Unrecognized net loss (gain) 11 117 Fourth quarter contributions 25 30 - --------------------------------------------------------------- Accrued liability recognized in the Consolidated Balance Sheets $(361) $(335) =============================================================== Components of the postretirement plans' net periodic cost were as follows: 1999 1998 1997 - -------------------------------------------------------------- (in millions) Service cost $ 21 $ 18 $ 18 Interest cost 69 69 66 Expected return on plan assets (26) (21) (18) Recognized net gain 2 2 3 Net amortization 15 14 17 - -------------------------------------------------------------- Net postretirement cost $ 81 $ 82 $ 86 ============================================================== The weighted average rates assumed in the actuarial calculations for both the pension plans and postretirement benefits were: 1999 1998 - --------------------------------------------------------------- Discount 7.50% 6.75% Annual salary increase 5.00 4.25 Long-term return on plan assets 8.50 8.50 - --------------------------------------------------------------- An additional assumption used in measuring the accumulated postretirement benefit obligation was a weighted average medical care cost trend rate of 7.74 percent for 1999, decreasing gradually to 5.50 percent through the year 2005, and remaining at that level thereafter. An annual increase or decrease in the assumed medical care cost trend rate of 1 percent would affect the accumulated benefit obligation and the service and interest cost components at December 31, 1999 as follows: 1 Percent 1 Percent Increase Decrease - ---------------------------------------------------------------- (in millions) Benefit obligation $73 $(62) Service and interest costs 6 (5) - ---------------------------------------------------------------- Work Force Reduction Programs Southern Company has incurred additional costs for work force reduction programs. The costs related to these programs were $30 million, $32 million, and $50 million for the years 1999, 1998, and 1997, respectively. In addition, certain costs of these programs were deferred and are being amortized in accordance with regulatory treatment. 3. CONTINGENCIES AND REGULATORY MATTERS Alabama Power Lake Martin Litigation On November 30, 1998, total judgments of nearly $53 million were entered in favor of five plaintiffs against Alabama Power and two large textile manufacturers. The plaintiffs alleged that the manufacturers had discharged certain polluting substances into a stream that empties into Lake Martin, a hydroelectric reservoir owned by Alabama Power, and that such discharges had reduced the value of the plaintiffs' residential lots on Lake Martin. Of the total amount of the judgments, $155 thousand was compensatory damages and the remainder was punitive damages. The damages were assessed against all three defendants jointly. Alabama Power has appealed these judgments to the Supreme Court of Alabama. While Alabama Power believes that these judgments should be reversed or set aside, the final outcome of this matter cannot now be determined. Additional actions have been filed by other land owners in the same subdivision on Lake Martin against the same defendants, including Alabama Power. The plaintiffs assert substantially the same allegations as in the current proceeding being appealed. The final outcome of these actions cannot now be determined. II-33 NOTES (continued) Southern Company and Subsidiary Companies 1999 Annual Report Georgia Power Potentially Responsible Party Status In January 1995, Georgia Power and four other unrelated entities were notified by the Environmental Protection Agency (EPA) that they have been designated as potentially responsible parties under the Comprehensive Environmental Response, Compensation, and Liability Act with respect to a site in Brunswick, Georgia. As of December 31, 1999, Georgia Power had recorded approximately $5 million in cumulative expenses associated with the site. This represents Georgia Power's agreed-upon share of the removal and remedial investigation and feasibility study costs. The final outcome of this matter cannot now be determined. However, based on the nature and extent of Georgia Power's activities relating to the site, management believes that the company's portion of any remaining remediation costs should not be material to the financial statements. Environmental Litigation On November 3, 1999, the EPA brought a civil action in the U.S. District Court against Alabama Power, Georgia Power, and the system service company. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The Clean Air Act authorizes civil penalties of up to $27,500 per day, per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. The EPA concurrently issued to the integrated Southeast utilities a notice of violation related to 10 generating facilities, which includes the five facilities mentioned previously. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation, and to add Gulf Power, Mississippi Power, and Savannah Electric as defendants. The complaint and notice of violations are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. Southern Company believes that its integrated utilities complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. Mobile Energy Services Petition for Bankruptcy On January 14, 1999, Mobile Energy Services Company, LLC (MESC) -- an indirect subsidiary of Southern Company -- filed a petition for Chapter 11 bankruptcy relief in the U.S. Bankruptcy Court. As a result of the bankruptcy filing, the investment in MESC was deconsolidated. MESC is the owner and operator of a facility that generates electricity, produces steam, and processes black liquor as part of a pulp and paper complex in Mobile, Alabama. This action was in response to Kimberly-Clark Tissue Company's (Kimberly-Clark) announcement in May 1998 of plans to close its pulp mill, effective September 1, 1999. The pulp mill had historically provided 50 percent of MESC's revenues. As a result of settlement discussions with Kimberly-Clark and MESC's bondholders, Southern Company recorded in September 1999 an after-tax write down of $69 million, primarily representing Southern Company's investment in MESC. At December 31, 1999, MESC had total assets of $395 million and senior debt outstanding of $193 million of first mortgage bonds and $73 million related to tax-exempt bonds. In connection with MESC's bond financings, Southern Company provided certain limited guarantees, in lieu of funding debt service and maintenance reserve accounts with cash. As of December 31, 1999, Southern Company had paid $38 million pursuant to the guarantees. Southern Company continues to have guarantees outstanding of certain potential environmental and other obligations of MESC that represent a maximum contingent liability of $21 million at December 31, 1999. MESC, an unofficial committee of its bondholders, and Kimberly-Clark have reached a tentative agreement to settle disputes arising from the shutdown of Kimberly-Clark's pulp mill in Mobile, Alabama, and to reconfigure energy services at the site. MESC has reached a separate agreement with Southern Energy to develop and operate a 165-megawatt cogeneration facility at the site, including providing a combustion turbine for such facility. The bankruptcy court approved both agreements. II-34 NOTES (continued) Southern Company and Subsidiary Companies 1999 Annual Report The finalization of the proposed settlement between MESC and Kimberly-Clark requires further agreements to be negotiated between the parties and certain other conditions to be met, including having a plan of reorganization for MESC be approved by the bankruptcy court and become effective by no later than October 30, 2000. If these conditions, as well as others set out in the settlement agreement filed with the bankruptcy court, are not met, then the proposed settlement would no longer be effective. The final outcome of this matter cannot now be determined. Southern Energy Brazilian Investment In September 1999, a Brazilian appellate court granted a temporary injunction that suspended the effectiveness of a shareholders' agreement for Companhia Energetica de Minas Gerais (CEMIG). This ruling suspends the shareholders' agreement -- including Southern Energy's super majority voting rights -- while the action to determine the validity of the agreement is litigated in the lower court. Southern Energy intends to pursue its legal rights in this matter and to have all of its rights restored regarding CEMIG. Southern Energy does not anticipate that this temporary suspension of the shareholders' agreement will have a significant effect on its financial condition or results of operation. Alabama Power Rate Adjustment Procedures In November 1982, the Alabama Public Service Commission (APSC) adopted rates that provide for periodic adjustments based upon Alabama Power's earned return on end-of-period retail common equity. The rates also provide for adjustments to recognize the placing of new generating facilities in retail service. Both increases and decreases have been placed into effect since the adoption of these rates. The rate adjustment procedures allow a return on common equity range of 13 percent to 14.5 percent and limit increases or decreases in rates to 4 percent in any calendar year. In June 1995, the APSC issued a rate order granting Alabama Power's request for gradual adjustments to move toward parity among customer classes. This order also calls for a moratorium on any periodic retail rate increases (but not decreases) until July 2001. In December 1995, the APSC issued an order authorizing Alabama Power to reduce balance sheet items -- such as plant and deferred charges -- at any time the company's actual base rate revenues exceed the budgeted revenues. In April 1997, the APSC issued an additional order authorizing Alabama Power to reduce balance sheet asset items. This order authorizes the reduction of such items up to an amount equal to five times the total estimated annual revenue reduction resulting from future rate reductions initiated by Alabama Power. In 1998, Alabama Power -- in accordance with the 1995 rate order -- recorded $33 million of additional amortization of premium on reacquired debt. Alabama Power did not record any additional amounts in 1999 or 1997. The ratemaking procedures will remain in effect until the APSC votes to modify or discontinue them. Georgia Power Investment in Rocky Mountain In its 1985 financing order, the GPSC concluded that completion of the Rocky Mountain pumped storage hydroelectric plant in 1991 as then planned was not economically justifiable and reasonable and withheld authorization for Georgia Power to spend funds from approved securities issuances on the plant. In 1988, Georgia Power and Oglethorpe Power Corporation (OPC) entered into a joint ownership agreement for OPC to assume responsibility for the construction and operation of the plant. The plant went into commercial operation in 1995. In June 1996, the GPSC initiated a review of this plant. On January 14, 1998, the GPSC ordered that Georgia Power be allowed to include approximately $108 million of its $142 million investment in rate base as of December 31, 1998. In December 1998, Georgia Power recorded a write down of $34 million -- $21 million after taxes -- on its investment in Rocky Mountain as a result of the GPSC's 1998 retail rate order discussed later. This matter is now concluded. Georgia Power 1998 Retail Rate Order As required by the GPSC, Georgia Power filed a general rate case in 1998. On December 18, 1998, the GPSC approved a new three-year rate order for Georgia Power. Under the terms of the order, Georgia Power's earnings will continue to be evaluated against a retail return on common equity range of 10 percent to 12.5 percent. Georgia Power's annual retail rates were decreased by $262 million effective January 1, 1999, and by an additional $24 million effective January 1, 2000. In addition, the order provided for $85 million annually to be applied to accelerated amortization or depreciation of assets, and up to an additional $50 million annually in 2000 and 2001 of any earnings above the 12.5 percent return. In 1999, Georgia Power -- in accordance with the rate order -- recorded $85 million of additional amortization of premium on reacquired debt. II-35 NOTES (continued) Southern Company and Subsidiary Companies 1999 Annual Report Two-thirds of any additional earnings above the 12.5 percent return in any year will be applied to rate reductions and the remaining one-third retained by Georgia Power. In 1999, Georgia Power's return was above 12.5 percent, and accordingly, it recorded $79 million as an estimate of revenues to be refunded to customers in 2000. During the term of the order, Georgia Power will not file for a general base rate increase unless its projected retail return on common equity falls below 10 percent. Georgia Power is required to file a general rate case on July 1, 2001. At that time, the GPSC would be expected to determine whether the rate order should be continued, modified, or discontinued. 4. CONSTRUCTION PROGRAM Southern Company is engaged in continuous construction programs, currently estimated to total some $3.0 billion in 2000, $3.8 billion in 2001, and $3.9 billion in 2002. The construction programs are subject to periodic review and revision, and actual construction costs may vary from the above estimates because of numerous factors. These factors include: changes in business conditions; acquisition of additional generating assets; revised load growth estimates; changes in environmental regulations; changes in existing nuclear plants to meet new regulatory requirements; increasing costs of labor, equipment, and materials; and cost of capital. At December 31, 1999, significant purchase commitments were outstanding in connection with the construction program. The integrated Southeast utilities have approximately 5,200 megawatts of combustion turbine generating capacity scheduled to be placed in service by 2002. Southern Energy has under construction approximately 1,000 megawatts of owned capacity. In addition, significant construction will continue related to transmission and distribution facilities and the upgrading of generating plants. See Management's Discussion and Analysis under "Environmental Matters" for information on the impact of the Clean Air Act Amendments of 1990 and other environmental matters. 5. FINANCING AND COMMITMENTS Financing The amount and timing of additional equity capital to be raised in 2000 -- as well as in subsequent years -- will be contingent on Southern Company's investment opportunities. Equity capital may be provided from any combination of public offerings, private placements, or the company's stock plans. The integrated Southeast utilities' construction programs are expected to be financed primarily from internal sources. Short-term debt is often utilized and the amounts available are discussed below. The companies may issue additional long-term debt and preferred securities primarily for debt maturities and for redeeming higher-cost securities if market conditions permit. Bank Credit Arrangements At the beginning of 2000, unused credit arrangements with banks totaled $5.7 billion, of which $3.1 billion expires during 2000, $1.1 billion during 2001 and 2002, and $1.5 billion during 2003 and 2004. The following table outlines the credit arrangements by company: Amount of Credit ------------------------------------- Expires -------------------- 2001 & Company Total Unused 2000 beyond - -------- --------------------------------------- (in millions) Alabama Power $ 907 $ 907 $ 517 $ 390 Georgia Power 1,252 1,252 752 500 Gulf Power 103 103 103 - Mississippi Power 104 104 104 - Savannah Electric 61 26 26 - Southern Company 2,000 2,000 1,000 1,000 Southern Energy 3,021 1,256 574 682 Other 60 51 51 - - -------------------------------------------------------------- Total $7,508 $5,699 $3,127 $2,572 ============================================================== Approximately $2.5 billion of the credit facilities allows for term loans ranging from one to three years. Most of the agreements include stated borrowing rates but also allow for competitive bid loans. All of the credit arrangements require payment of commitment fees based on the unused portion of the commitments or the maintenance of compensating balances with the banks. These balances are not legally restricted from withdrawal. Of the total $5.7 billion in unused credit, $1.85 billion, $1.0 billion, $800 million, and $780 million are syndicated credit arrangements of Southern Company, Georgia Power, Southern Energy, and Alabama Power, respectively. These facilities also require the payment of agent fees. II-36 NOTES (continued) Southern Company and Subsidiary Companies 1999 Annual Report A portion of the $5.7 billion unused credit with banks is allocated to provide liquidity support to the companies' variable rate pollution control bonds. The amount of variable rate pollution control bonds requiring liquidity support as of December 31, 1999, was $674 million. In addition, the companies from time to time borrow under uncommitted lines of credit with banks. Also, Southern Company, Alabama Power, Georgia Power, and Southern Energy borrow through commercial paper programs that have the liquidity support of committed bank credit arrangements. Fuel and Purchased Power Commitments To supply a portion of the fuel requirements of the generating plants, Southern Company has entered into various long-term commitments for the procurement of fossil and nuclear fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels, and other financial commitments. Also, Southern Company has entered into various long-term commitments for the purchase of electricity. Total estimated long-term obligations at December 31, 1999, were as follows: Purchased Year Fuel Power - ----- ------------------------ (in millions) 2000 $1,629 $ 81 2001 1,351 81 2002 1,153 97 2003 1,012 99 2004 872 95 2005 and thereafter 3,429 1,006 - --------------------------------------------------------------- Total commitments $9,446 $1,459 =============================================================== Operating Leases Southern Company has operating lease agreements with various terms and expiration dates. These expenses totaled $67 million, $56 million, and $36 million for 1999, 1998, and 1997, respectively. At December 31, 1999, estimated minimum rental commitments for noncancelable operating leases were as follows: Year Amounts - ---- ------------ (in millions) 2000 $ 64 2001 83 2002 89 2003 82 2004 82 2005 and thereafter 526 - ------------------------------------------------------------------ Total minimum payments $926 ================================================================== Long-Term Service Agreements Southern Energy has entered into several long-term service agreements for the maintenance and repair of its combustion turbine or combined cycle generating plants. These agreements may be terminated in the event a planned construction project is canceled. At December 31, 1999, the annual amounts committed are as follows: Year Amounts - ---- --------------- (in millions) 2000 $ 3 2001 8 2002 28 2003 51 2004 62 2005 and thereafter 591 - ---------------------------------------------------------------- Total minimum payments $743 ================================================================ Energy Trading and Marketing Commitments In 1998, Southern Energy and Vastar Resources (Vastar) completed the combination of their energy trading and marketing activities to form a joint venture, Southern Company Energy Marketing (SCEM). SCEM buys and sells physical and financial energy commodities and financial instruments and provides energy-related products and services. SCEM's gross revenues and cost of sales for 1999 were $12.0 billion and $11.9 billion, respectively. Southern Energy's current ownership interest in SCEM is 60 percent. The equity method of accounting is used because of Vastar's significant II-37 NOTES (continued) Southern Company and Subsidiary Companies 1999 Annual Report participation rights. On July 1, 2001, this ownership interest will automatically increase to 75 percent. Southern Energy has the right -- exercisable during fiscal year 2002 -- to acquire an additional 5 percent interest from Vastar for $80 million. Also, Vastar has the right -- exercisable in the period from December 1, 2002 through January 2, 2003 -- to sell its remaining interest in SCEM to Southern Energy. The price will range from $130 million to $210 million depending on the interest owned by Vastar at that time, plus certain other contractual considerations. Southern Company and Vastar have separately made guarantees to certain counterparties regarding performance of contractual commitments by SCEM. Southern Company and Vastar have agreed to indemnify each other against losses under such guarantees in proportion to their respective ownership shares of SCEM. At December 31, 1999, outstanding guarantees related to the estimated fair value of net contractual commitments were approximately $146 million. Based upon SCEM's statistical analysis of its credit risk, Southern Company's potential exposure under these contractual commitments would not materially differ from the estimated fair value. Southern Energy has guaranteed certain minimum annual cash distributions, subject to exclusions, payable by SCEM to Vastar. For 1999, this distribution, after adjustments, was $17 million. These distributions before any adjustments total $85 million for the period 2000-2002. Assets Subject to Lien Each of Southern Company's subsidiaries is organized as a legal entity, separate and apart from Southern Company and its other subsidiaries. The subsidiary companies' mortgages, which secure the first mortgage bonds issued by the companies, constitute a direct first lien on substantially all of the companies' respective fixed property and franchises. There are no agreements or other arrangements among the subsidiary companies under which the assets of one company have been pledged or otherwise made available to satisfy obligations of Southern Company or any of its other subsidiaries. 6. JOINT OWNERSHIP AGREEMENTS Alabama Power owns an undivided interest in units 1 and 2 of Plant Miller and related facilities jointly with Alabama Electric Cooperative, Inc. Georgia Power owns undivided interests in plants Vogtle, Hatch, Scherer, and Wansley in varying amounts jointly with OPC, the Municipal Electric Authority of Georgia, the city of Dalton, Georgia, Florida Power &Light Company (FP&L), and Jacksonville Electric Authority (JEA). In addition, Georgia Power has joint ownership agreements with OPC for the Rocky Mountain project and with Florida Power Corporation (FPC) for a combustion turbine unit at Intercession City, Florida. At December 31, 1999, Alabama Power's and Georgia Power's ownership and investment (exclusive of nuclear fuel) in jointly owned facilities with the above entities were as follows: Jointly Owned Facilities ---------------------------------------- Percent Amount of Accumulated Ownership Investment Depreciation --------- --------------------------- (in millions) Plant Vogtle (nuclear) 45.7% $3,297 $1,630 Plant Hatch (nuclear) 50.1 857 604 Plant Miller (coal) Units 1 and 2 91.8 740 297 Plant Scherer (coal) Units 1 and 2 8.4 112 51 Plant Wansley (coal) 53.5 299 145 Rocky Mountain (pumped storage) 25.4 169 66 Intercession City (combustion turbine) 33.3 11 * - --------------------------------------------------------------- *Less than $1 million. Alabama Power and Georgia Power have contracted to operate and maintain the jointly owned facilities -- except for the Rocky Mountain project and Intercession City -- as agents for their respective co-owners. The companies' proportionate share of their plant operating expenses is included in the corresponding operating expenses in the Consolidated Statements of Income. 7. Long-Term Power Sales Agreements The integrated Southeast utilities have long-term contractual agreements for the sale of capacity and energy to certain non-affiliated utilities located outside the system's service area. These agreements -- expiring at various dates II-38 NOTES (continued) Southern Company and Subsidiary Companies 1999 Annual Report discussed below -- are firm and pertain to capacity related to specific generating units. Because the energy is generally sold at cost under these agreements, profitability is primarily affected by revenues from capacity sales. The capacity revenues amounted to $174 million in 1999, $196 million in 1998, and $203 million in 1997. Unit power from specific generating plants is currently being sold to FP&L, FPC, JEA, and the city of Tallahassee, Florida. Under these agreements, approximately 1,600 megawatts of capacity is scheduled to be sold in 2000. Thereafter, these sales will decline to some 1,500 megawatts and remain at that approximate level -- unless reduced by FP&L, FPC, and JEA for the periods after 2000 with a minimum of three years notice -- until the expiration of the contracts in 2010. 8. INCOME TAXES At December 31, 1999, the tax-related regulatory assets and liabilities were $987 million and $640 million, respectively. These assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized AFUDC. These liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. Details of income tax provisions are as follows: 1999 1998 1997 - -------------------------------------------------------------- (in millions) Total provision for income taxes: Federal -- Current $ 486 $ 451 $ 547 Deferred -- current year 186 195 188 -- reversal of prior years (145) (208) (160) - -------------------------------------------------------------- 527 438 575 - -------------------------------------------------------------- State -- Current 85 106 104 Deferred -- current year 16 28 15 -- reversal of prior years (10) (31) (19) - -------------------------------------------------------------- 91 103 100 - -------------------------------------------------------------- International 108 8 164 - -------------------------------------------------------------- Total $ 726 $ 549 $ 839 ============================================================== The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows: 1999 1998 - -------------------------------------------------------------- (in millions) Deferred tax liabilities: Accelerated depreciation $3,439 $3,315 Property basis differences 1,516 1,667 Other 585 403 - -------------------------------------------------------------- Total 5,540 5,385 - -------------------------------------------------------------- Deferred tax assets: Federal effect of state deferred taxes 102 104 Other property basis differences 221 239 Deferred costs 134 132 Pension and other benefits 90 79 Other 420 293 - --------------------------------------------------------------- Total 967 847 - --------------------------------------------------------------- Net deferred tax liabilities 4,573 4,538 Portion included in current assets, net (68) (57) - --------------------------------------------------------------- Accumulated deferred income taxes in the Consolidated Balance Sheets $4,505 $4,481 =============================================================== Deferred investment tax credits are amortized over the lives of the related property with such amortization normally applied as a credit to reduce depreciation in the Consolidated Statements of Income. Credits amortized in this manner amounted to $35 million in 1999, $38 million in 1998, and $30 million in 1997. At December 31, 1999, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory income tax rate -- which excludes the effect of minority interests and preferred dividends -- to the effective income tax rate is as follows: 1999 1998 1997 - --------------------------------------------------------------- Federal statutory rate 35.0% 35.0% 35.0% State income tax, net of federal deduction 2.8 4.1 3.4 Non-deductible book depreciation 1.3 4.1 2.3 Differences in foreign tax rates (5.1) (6.4) - Windfall profits tax - - 8.0 Difference in prior years' deferred and current tax rate (0.9) (1.3) (1.5) Other (0.2) (1.8) (1.9) - --------------------------------------------------------------- Effective income tax rate 32.9% 33.7% 45.3% =============================================================== Southern Company files a consolidated federal income tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. II-39 NOTES (continued) Southern Company and Subsidiary Companies 1999 Annual Report The undistributed earnings of foreign subsidiaries aggregated $435 million as of December 31, 1999, and these subsidiaries' earnings are not subject to U.S. income tax until distributed. Of the total undistributed earnings, provisions for U.S. taxes have not been made on $210 million related to earnings that are intended to be reinvested indefinitely. 9. COMMON STOCK Stock Repurchase Programs In April 1999, Southern Company's Board of Directors approved the repurchase of up to 50 million shares of Southern Company's common stock over a two-year period through open market or privately negotiated transactions. The program did not establish a target stock price or timetable for specific repurchases. Under this program, 32.8 million shares have been repurchased through December 31, 1999. Funding for the program was provided from Southern Company's commercial paper program. In July 1998, Southern Company's Board of Directors authorized the company to make open market purchases of its common stock in an aggregate amount not to exceed $300 million through March 31, 1999. The purpose of the program was to provide shares of common stock for the purchase requirements of Southern Company's various stockholder, employee, and outside director stock purchase plans. Under the program, 4.4 million shares were repurchased and 2.4 million shares were reissued. Shares Reserved At December 31, 1999, a total of 47 million shares was reserved for issuance pursuant to the Southern Investment Plan, the Employee Savings Plan, the Outside Directors Stock Plan, and the Performance Stock Plan. Performance Stock Plan As of December 31, 1999, 355 current and former employees participated in the Performance Stock Plan. The maximum number of shares of common stock that may be issued under the plan may not exceed 40 million. The prices of options granted to date have been at the fair market value of the shares on the dates of grant. Options granted to date become exercisable pro rata over a maximum period of three years from the date of grant. Options outstanding will expire no later than 10 years after the date of grant, unless terminated earlier by the Southern Company Board of Directors in accordance with the plan. Stock option activity in 1998 and 1999 for the plan is summarized below: Shares Average Subject Option Price To Option Per Share - -------------------------------------------------------------- Balance at December 31, 1997 5,399,506 $21.15 Options granted 1,659,519 27.03 Options canceled (23,495) 23.18 Options exercised (604,238) 20.21 - -------------------------------------------------------------- Balance at December 31, 1998 6,431,292 22.77 Options granted 2,108,818 26.56 Options canceled (27,995) 25.54 Options exercised (56,708) 19.51 - -------------------------------------------------------------- Balance at December 31, 1999 8,455,407 $23.73 ============================================================== Shares reserved for future grants: At December 31, 1997 38,241,376 At December 31, 1998 36,598,001 At December 31, 1999 34,515,156 - -------------------------------------------------------------- Options exercisable: At December 31, 1998 2,653,591 At December 31, 1999 4,525,349 - -------------------------------------------------------------- Southern Company accounts for its stock-based compensation plans in accordance with Accounting Principles Board Opinion No. 25. Accordingly, no compensation expense has been recognized. The pro forma impact on earnings of fair-value accounting for options granted - -- as required by FASB Statement No. 123, Accounting for Stock-Based Compensation -- is less than 1 cent per share and is not significant to the consolidated financial statements. Earnings Per Share FASB Statement No. 128, Earnings per Share, simplifies the methodology for computing both basic and diluted earnings per share. The only difference in the two methods for computing Southern Company's per share amounts is attributable to outstanding options under the Performance Stock Plan. The effect of the stock options was determined using the treasury stock method. Consolidated net income as reported was not affected. Shares used to compute diluted earnings per share are as follows: Average Common Stock Shares ------------------------------ 1999 1998 1997 - -------------------------------------------------------------- (in thousands) As reported shares 685,163 696,944 685,033 Effect of options 580 739 201 - -------------------------------------------------------------- Diluted shares 685,743 697,683 685,234 ============================================================== II-40 NOTES (continued) Southern Company and Subsidiary Companies 1999 Annual Report Common Stock Dividend Restrictions The income of Southern Company is derived primarily from equity in earnings of its subsidiaries. At December 31, 1999, consolidated retained earnings included $3.5 billion of undistributed retained earnings of the subsidiaries. Of this amount, $2.0 billion was restricted against the payment by the subsidiary companies of cash dividends on common stock under terms of bond indentures. 10. CAPITAL AND PREFERRED SECURITIES Company or subsidiary obligated mandatorily redeemable capital and preferred securities have been issued by special purpose financing entities of Southern Company and its subsidiaries. Substantially all the assets of these special financing entities are junior subordinated notes issued by the related company seeking financing. Each of these companies considers that the mechanisms and obligations relating to the capital or preferred securities issued for its benefit, taken together, constitute a full and unconditional guarantee by it of the respective special financing entities' payment obligations with respect to the capital or preferred securities. At December 31, 1999, capital securities of $950 million and preferred securities of $1.4 billion were outstanding. Southern Company guarantees the notes related to $950 million of capital securities issued on its behalf. 11. LONG-TERM DEBT DUE WITHIN ONE YEAR A summary of the improvement fund requirements and scheduled maturities and redemptions of long-term debt due within one year at December 31 is as follows: 1999 1998 - -------------------------------------------------------------- (in millions) Bond improvement fund requirements $ 14 $ 23 Less: Portion to be satisfied by certifying property additions 9 14 - -------------------------------------------------------------- Cash requirements 5 9 First mortgage bond maturities and redemptions 200 868 Other long-term debt maturities 371 563 - -------------------------------------------------------------- Total $576 $1,440 ============================================================== The first mortgage bond improvement fund requirements amount to 1 percent of each outstanding series of bonds authenticated under the indentures prior to January 1 of each year, other than those issued to collateralize pollution control revenue bonds and other obligations. The requirements may be satisfied by depositing cash or reacquiring bonds, or by pledging additional property equal to 166 2/3 percent of such requirements. With respect to the collateralized pollution control revenue bonds, the integrated Southeast utilities have authenticated and delivered to trustees a like principal amount of first mortgage bonds as security for obligations under installment sale or loan agreements. The principal and interest on the first mortgage bonds will be payable only in the event of default under the agreements. Improvement fund requirements and/or serial maturities through 2004 applicable to other long-term debt are as follows: $371 million in 2000; $501 million in 2001; $1.0 billion in 2002; $435 million in 2003; and $1.46 billion in 2004. 12. NUCLEAR INSURANCE Under the Price-Anderson Amendments Act of 1988, Alabama Power and Georgia Power maintain agreements of indemnity with the NRC that, together with private insurance, cover third-party liability arising from any nuclear incident occurring at the companies' nuclear power plants. The act provides funds up to $9.5 billion for public liability claims that could arise from a single nuclear incident. Each nuclear plant is insured against this liability to a maximum of $200 million by private insurance, with the remaining coverage provided by a mandatory program of deferred premiums that could be assessed, after a nuclear incident, against all owners of nuclear reactors. A company could be assessed up to $88 million per incident for each licensed reactor it operates, but not more than an aggregate of $10 million per incident to be paid in a calendar year for each reactor. Such maximum assessment, excluding any applicable state premium taxes, for Alabama Power and Georgia Power -- based on its ownership and buyback interests -- is $176 million and $178 million, respectively, per incident, but not more than an aggregate of $20 million per company to be paid for each incident in any one year. Alabama Power and Georgia Power are members of Nuclear Electric Insurance Limited (NEIL), a mutual insurer established to provide property damage insurance in an amount up to $500 million for members' nuclear generating facilities. II-41 NOTES (continued) Southern Company and Subsidiary Companies 1999 Annual Report Additionally, both companies have policies that currently provide decontamination, excess property insurance, and premature decommissioning coverage up to $2.25 billion for losses in excess of the $500 million primary coverage. This excess insurance is also provided by NEIL. NEIL also covers the additional costs that would be incurred in obtaining replacement power during a prolonged accidental outage at a member's nuclear plant. Members can be insured against increased costs of replacement power in an amount up to $3.5 million per week -- starting 12 weeks after the outage -- for one year and up to $2.8 million per week for the second and third years. Under each of the NEIL policies, members are subject to assessments if losses each year exceed the accumulated funds available to the insurer under that policy. The current maximum annual assessments for Alabama Power and Georgia Power under the three NEIL policies would be $19 million and $21 million, respectively. For all on-site property damage insurance policies for commercial nuclear power plants, the NRC requires that the proceeds of such policies shall be dedicated first for the sole purpose of placing the reactor in a safe and stable condition after an accident. Any remaining proceeds are to be applied next toward the costs of decontamination and debris removal operations ordered by the NRC, and any further remaining proceeds are to be paid either to the company or to its bond trustees as may be appropriate under the policies and applicable trust indentures. All retrospective assessments -- whether generated for liability, property, or replacement power -- may be subject to applicable state premium taxes. 13. ACQUISITIONS AND ASSET SALES Acquisitions Southern Energy completed several acquisitions in both 1999 and 1998. In 1999, a $801 million acquisition of 3,065 megawatts of generating capacity from Pacific Gas &Electric in northern California was completed. Additionally, Southern Energy acquired 1,794 megawatts of generating capacity from Orange and Rockland Utilities Inc. and Consolidated Edison Inc. for $476 million. A 9.9 percent interest in Shandong International Power Development Company was purchased in 1999 for $107 million. Southern Energy paid $537 million in 1998 to Commonwealth Electric for 1,245 megawatts of generating capacity. Also in 1998, Southern Energy acquired a 3.6 percent economic interest in CEMIG -- a Brazilian utility -- for $274 million. Assets Sold Southern Energy's significant asset sales in 1999 and 1998 related to its United Kingdom subsidiary South Western Electricity (SWEB). The supply system of SWEB was sold in 1999 for $256 million of which Southern Energy owned 49 percent. The remaining distribution business was renamed Western Power Distribution. In 1998, Southern Energy sold a 26 percent interest in SWEB for $170 million. Assets for Sale In December 1998, Southern Energy designed and implemented a plan to dispose of its Argentinean and Chilean investments. As a result, Southern Energy recorded an after-tax write down of approximately $200 million in 1998 to reflect the difference between the carrying value of these assets and the estimated fair value of the businesses. Southern Energy estimated the fair value of the businesses held for sale based upon bids received from prospective buyers, if available, or the discounted expected future cash flows to be generated by the assets. The adjusted carrying value of these assets held for disposal at December 31, 1999 was $92 million. These assets impacted the Consolidated Statements of Income as follows: Operating Operating Consolidated Year Revenues Income Net Income - ---- ----------------------------------------- (in millions) 1999 $171 $23 $2 1998 180 37 5 1997 180 37 5 Depreciation expense was suspended beginning January 1999, and the after-tax amount of depreciation recorded in 1998 was $16 million. Southern Energy has been actively pursuing and/or negotiating with potential buyers for its assets in Argentina and Chile. In early 2000, Southern Energy announced an agreement to sell its Argentinean assets substantially at the adjusted carrying value with no material gain or loss expected to be recognized in 2000. II-42 NOTES (continued) Southern Company and Subsidiary Companies 1999 Annual Report 14. SEGMENT AND RELATED INFORMATION Southern Company's principal business segment is the five integrated Southeast utilities that provide electric service in four states. The other reportable business segment is Southern Energy, which includes international operations and the competitive energy supply businesses in North America outside the Southeast. Intersegment revenues are not material. Financial data for business segments, products and services, and geographic areas are as follows:
Business Segments Integrated Southern Energy All Southeast ------------------------------------------ Other Reconciling Year Utilities International Domestic Total (Note) Eliminations Consolidated - ---- ------------------------------------------------------------------------------------------------- (in millions) 1999 - ---- Operating revenues $ 9,125 $1,532 $ 736 $ 2,268 $ 222 $ (30) $11,585 Depreciation and amortization 961 261 61 322 24 - 1,307 Interest income 64 88 86 174 42 (116) 164 Net interest charges 700 264 219 483 136 (78) 1,241 Income taxes 675 85 41 126 (62) (13) 726 Write down of generating assets - - 69 69 - - 69 Net income from equity method subsidiaries - 100 (6) 94 - - 94 Segment net income (loss) 1,073 346 (18) 328 (101) (24) 1,276 Total assets 25,251 9,370 4,502 13,872 461 (1,188) 38,396 Investments in equity method subsidiaries 11 1,195 171 1,366 - (1) 1,376 Gross property additions 1,854 447 232 679 27 - 2,560 Increase in goodwill - - 48 48 - - 48 - ----------------------------------------------------------------------------------------------------------------------------------- Integrated Southern Energy All Southeast -------------------------------------------- Other Reconciling Year Utilities International Domestic Total (Note) Eliminations Consolidated - ----- ------------------------------------------------------------------------------------------------- (in millions) 1998 - ---- Operating revenues $ 9,363 $1,766 $ 137 $ 1,903 $ 166 $ (29) $11,403 Depreciation and amortization 1,289 216 18 234 16 - 1,539 Interest income 150 86 61 147 57 (111) 243 Net interest charges 654 318 91 409 97 (58) 1,102 Income taxes 703 (101) (22) (123) (12) (19) 549 Write down of generating assets 34 308 - 308 - - 342 Net income from equity method subsidiaries 2 126 (5) 121 - - 123 Segment net income (loss) 1,083 23 16 39 (110) (35) 977 Total assets 24,420 9,578 2,869 12,447 1,438 (2,114) 36,191 Investments in equity method subsidiaries 10 1,363 176 1,539 - - 1,549 Gross property additions 1,298 586 63 649 58 - 2,005 Increase in goodwill - 30 261 291 - - 291 - -----------------------------------------------------------------------------------------------------------------------------------
II-43 NOTES (continued) Southern Company and Subsidiary Companies 1999 Annual Report
Integrated Southern Energy All Southeast -------------------------------------------- Other Reconciling Year Utilities International Domestic Total (Note) Eliminations Consolidated - ---- -------------------------------------------------------------------------------------------------- (in millions) 1997 - ----- Operating revenues $ 8,688 $1,748 $2,089 $ 3,837 $ 98 $ (12) $12,611 Depreciation and amortization 1,156 179 15 194 17 - 1,367 Interest income 51 96 42 138 21 (58) 152 Net interest charges 588 289 73 362 84 (41) 993 Income taxes 687 181 (6) 175 (17) (154) 691 Windfall profits tax - 148 - 148 - - 148 Net income from equity method subsidiaries 1 41 7 48 - (14) 35 Segment net income (loss) 1,105 (4) 5 1 (123) (11) 972 Total assets 24,796 9,225 1,832 11,057 1,225 (1,823) 35,255 Investments in equity method subsidiaries 10 1,024 134 1,158 - - 1,168 Gross property additions 1,080 720 1 721 58 - 1,859 Increase in goodwill - 1,649 - 1,649 - - 1,649 - ----------------------------------------------------------------------------------------------------------------------------------- (Note) The all other category includes parent Southern Company, which does not allocate operating expenses to business segments. Also, this category includes segments below the quantitative threshold for separate disclosure. These segments include a wireless communication company and a developmental company for energy products and services. Amounts for Southern Energy exclude interest expense to parent Southern Company.
Products and Services Revenues ------------------------------------------------------------------------------------------------------------------ Integrated Southeast Utilities Southern Energy --------------------------------------------- ---------------------------------------------------------------- Energy Trading And Year Retail Wholesale Other Total Generation Distribution Marketing Other Total - ---- ------------------------------------------------------------------------------------------------------------------ (in millions) 1999 $8,086 $823 $216 $9,125 $1,222 $ 976 $ - $70 $2,268 1998 8,272 896 195 9,363 578 1,273 - 52 1,903 1997 7,647 886 155 8,688 513 1,282 1,982 60 3,837 - ----------------------------------------------------------------------------------------------------------------------------------- Geographic Areas Revenues ---------------------------------------------------------------------------------------------------- International ------------------------------------------------------------- All Year Domestic Europe Asia Other Total Consolidated - ---- ---------------------------------------------------------------------------------------------------- (in millions) 1999 $10,053 $ 976 $342 $214 $1,532 $11,585 1998 9,637 1,273 273 220 1,766 11,403 1997 10,863 1,282 247 219 1,748 12,611 - -----------------------------------------------------------------------------------------------------------------------------------
II-44 NOTES (continued) Southern Company and Subsidiary Companies 1999 Annual Report
Long-Lived Assets -------------------------------------------------------------------------------------------------- International ----------------------------------------------------------------------------- All Year Domestic Europe Asia Other Total Consolidated - ---- -------------------------------------------------------------------------------------------------- (in millions) 1999 $24,266 $2,449 $4,029 $1,725 $8,203 $32,469 1998 22,005 2,463 3,772 1,856 8,091 30,096 1997 21,282 2,428 3,628 1,888 7,944 29,226 - ----------------------------------------------------------------------------------------------------------------------------------
15. Quarterly Financial Information (Unaudited)
Summarized quarterly financial data for 1999 and 1998 are as follows: Per Common Share ------------------------------------------------------- Operating Operating Consolidated Price Range Quarter Ended Revenues Income Net Income Earnings Dividends High Low - -------------- ------------------------------------ -------------------------------------------------------- (in millions) March 1999 $2,442 $ 485 $224 $0.32 $0.335 29 5/8 23 1/4 June 1999 2,791 668 314 0.45 0.335 29 3/16 22 3/4 September 1999 3,736 1,109 615 0.90 0.335 28 25 December 1999 2,616 517 123 0.19 0.335 27 1/8 22 1/16 March 1998 $2,495 $ 573 $242 $0.35 $0.335 28 11/16 23 15/16 June 1998 2,913 648 270 0.39 0.335 29 25 1/16 September 1998 3,457 1,068 517 0.74 0.335 29 13/16 25 1/4 December 1998 2,538 21 (52) (0.08) 0.335 31 9/16 27 3/16 - --------------------------------------------------------------------------------------------------------------------------- Southern Company's business is influenced by seasonal weather conditions. Earnings for the fourth quarter 1998 declined by $221 million, or 32 cents per share, as a result of write downs in certain generating assets as discussed in notes 3 and 13.
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SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA 1995-1999 Southern Company and Subsidiary Companies 1999 Annual Report 1999 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in millions) $11,595 $11,403 $12,611 $10,358 $9,180 Consolidated Net Income (in millions) $1,276 $977 $972 $1,127 $1,103 Basic and Diluted Earnings Per Share of Common Stock $1.86 $1.40 $1.42 $1.68 $1.66 Cash Dividends Paid Per Share of Common Stock $1.34 $1.34 $1.30 $1.26 $1.22 Return on Average Common Equity (percent) 13.43 10.04 10.30 12.53 13.01 Total Assets (in millions) $38,396 $36,191 $35,255 $30,230 $30,522 Gross Property Additions (in millions) $2,560 $2,005 $1,859 $1,229 $1,401 Southern Energy Business and Asset Acquisitions $1,800 $998 $2,925 $- $1,416 - ---------------------------------------------------------------------------------------------------------------------------- Capitalization (in millions): Common stock equity $ 9,204 $ 9,797 $ 9,647 $ 9,216 $ 8,772 Preferred stock and securities 2,696 2,548 2,237 1,402 1,432 Long-term debt 11,747 10,472 10,274 7,938 8,274 - ---------------------------------------------------------------------------------------------------------------------------- Total excluding amounts due within one year $23,647 $22,817 $22,158 $18,556 $18,478 ============================================================================================================================ Capitalization Ratios (percent): Common stock equity 38.9 42.9 43.5 49.7 47.5 Preferred stock and securities 11.4 11.2 10.1 7.6 7.7 Long-term debt 49.7 45.9 46.4 42.7 44.8 - ---------------------------------------------------------------------------------------------------------------------------- Total excluding amounts due within one year 100.0 100.0 100.0 100.0 100.0 ============================================================================================================================ Other Common Stock Data: Book value per share (year-end) $13.82 $14.04 $13.91 $13.61 $13.10 Market price per share: High 29 5/8 31 9/16 26 1/4 25 7/8 25 Low 22 1/16 23 15/16 19 7/8 21 1/8 19 3/8 Close 23 1/2 29 1/16 25 7/8 22 5/8 24 5/8 Market-to-book ratio (year-end) (percent) 170.0 207.0 186.0 166.2 188.0 Price-earnings ratio (year-end) (times) 12.6 20.8 18.2 13.5 14.8 Dividends paid (in millions) $921 $933 $889 $846 $811 Dividend yield (year-end) (percent) 5.7 4.6 5.0 5.6 5.0 Dividend payout ratio (percent) 72.2 95.6 91.5 75.1 73.5 Shares outstanding (in thousands): Average 685,163 696,944 685,033 672,590 665,064 Year-end 665,796 697,747 693,423 677,036 669,543 Stockholders of record (year-end) 174,179 187,053 200,508 215,246 225,739 - ----------------------------------------------------------------------------------------------------------------------------- Customers for Integrated Southeast Utilities (year-end) (in thousands): Residential 3,339 3,277 3,220 3,157 3,100 Commercial 513 497 479 464 450 Industrial 15 15 16 17 17 Other 4 5 5 5 5 - ----------------------------------------------------------------------------------------------------------------------------- Total 3,871 3,794 3,720 3,643 3,572 ============================================================================================================================= Employees (year-end): Traditional business 26,269 25,206 24,682 25,034 26,452 Southern Energy 6,680 6,642 5,620 3,743 5,430 - ----------------------------------------------------------------------------------------------------------------------------- Total 32,949 31,848 30,302 28,777 31,882 =============================================================================================================================
II-46
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA 1995-1999 (continued) Southern Company and Subsidiary Companies 1999 Annual Report 1999 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in millions): Residential $ 3,105 $ 3,163 $ 2,837 $ 2,894 $2,840 Commercial 2,743 2,763 2,595 2,559 2,485 Industrial 2,237 2,267 2,139 2,136 2,206 Other 1 79 76 76 72 - ---------------------------------------------------------------------------------------------------------------------------- Total retail 8,086 8,272 7,647 7,665 7,603 Sales for resale within service area 350 374 376 409 399 Sales for resale outside service area 473 522 510 429 415 - ---------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 8,909 9,168 8,533 8,503 8,417 Southern Energy 2,268 1,903 3,837 1,683 643 Other revenues 408 332 241 172 120 - ---------------------------------------------------------------------------------------------------------------------------- Total $11,585 $11,403 $12,611 $10,358 $9,180 ============================================================================================================================ Kilowatt-Hour Sales (in millions): Residential 43,402 43,503 39,217 40,117 39,147 Commercial 43,387 41,737 38,926 37,993 35,938 Industrial 56,210 55,331 54,196 52,798 51,644 Other 945 929 903 911 863 - ---------------------------------------------------------------------------------------------------------------------------- Total retail 143,944 141,500 133,242 131,819 127,592 Sales for resale within service area 9,440 9,847 9,884 10,935 9,472 Sales for resale outside service area 12,929 12,988 13,761 10,777 9,143 - ---------------------------------------------------------------------------------------------------------------------------- Total 166,313 164,335 156,887 153,531 146,207 ============================================================================================================================ Average Revenue Per Kilowatt-Hour (cents): Residential 7.15 7.27 7.23 7.21 7.25 Commercial 6.32 6.62 6.67 6.74 6.91 Industrial 3.98 4.10 3.95 4.04 4.27 Total retail 5.62 5.85 5.74 5.81 5.96 Sales for resale 3.68 3.92 3.75 3.86 4.38 Total sales 5.36 5.58 5.44 5.54 5.76 Average Annual Kilowatt-Hour Use Per Residential Customer 13,107 13,379 12,296 12,824 12,722 Average Annual Revenue Per Residential Customer $937.81 $972.89 $889.50 $925.12 $922.83 Plant Nameplate Capacity Owned (year-end) (megawatts) 31,197 31,161 31,146 31,076 30,733 Maximum Peak-Hour Demand (megawatts): Winter 25,203 21,108 22,969 22,631 21,422 Summer 30,578 28,934 27,334 27,190 27,420 System Reserve Margin (at peak) (percent) 8.5 12.8 15.0 14.0 9.4 Annual Load Factor (percent) 59.2 60.0 59.4 62.3 59.5 Plant Availability (percent): Fossil-steam 83.3 85.2 88.2 86.4 86.7 Nuclear 89.9 87.8 88.8 89.7 88.3 - ---------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 73.1 72.8 74.7 73.3 72.5 Nuclear 15.7 15.4 16.5 16.7 16.4 Hydro 2.3 3.9 4.3 4.1 4.1 Oil and gas 2.8 3.3 1.7 1.5 1.7 Purchased power 6.1 4.6 2.8 4.4 5.3 - ---------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 100.0 ============================================================================================================================
II-47 ALABAMA POWER COMPANY FINANCIAL SECTION II-48 MANAGEMENT'S REPORT Alabama Power Company 1999 Annual Report The management of Alabama Power Company has prepared -- and is responsible for - -- the financial statements and related information included in this report. These statements were prepared in accordance with generally accepted accounting principles appropriate in the circumstances and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that the books and records reflect only authorized transactions of the Company. Limitations exist in any system of internal controls, however, based on a recognition that the cost of the system should not exceed its benefits. The Company believes its system of internal accounting controls maintains an appropriate cost/benefit relationship. The Company's system of internal accounting controls is evaluated on an ongoing basis by the Company's internal audit staff. The Company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, composed of directors who are not employees, provides a broad overview of management's financial reporting and control functions. Periodically, this committee meets with management, the internal auditors and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal controls, and financial reporting matters. The internal auditors and independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the Company's operations are conducted according to a high standard of business ethics. In management's opinion, the financial statements present fairly, in all material respects, the financial position, results of operations and cash flows of Alabama Power Company in conformity with generally accepted accounting principles. /s/Elmer B. Harris Elmer B. Harris President and Chief Executive Officer /s/William B. Hutchins, III William B. Hutchins, III Executive Vice President, Chief Financial Officer, and Treasurer February 16, 2000 II-49 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Alabama Power Company: We have audited the accompanying balance sheets and statements of capitalization of Alabama Power Company (an Alabama corporation and a wholly owned subsidiary of Southern Company) as of December 31, 1999 and 1998, and the related statements of income, common stockholder's equity, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements (pages 11-59 through 11-77) referred to above present fairly, in all material respects, the financial position of Alabama Power Company as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/Arthur Andersen LLP Birmingham, Alabama February 16, 2000 II-50 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Alabama Power Company 1999 Annual Report RESULTS OF OPERATIONS Earnings Alabama Power Company's 1999 net income after dividends on preferred stock was $400 million, representing a $23 million (6 percent) increase from the prior year. This improvement is primarily attributable to a decrease in amortization related to premiums paid to reacquire debt pursuant to an Alabama Public Service Commission (APSC) order. See Note 3 to the financial statements under "Retail Rate Adjustment Procedures" for additional details. In 1998, earnings were $377 million, representing a 0.3 percent increase from the prior year. This increase was due to increased retail energy sales as a result of hot weather in the second quarter of 1998, compared to very mild weather for the same period in 1997 and a strong economy in the Company's service territory. However, earnings were offset by an increase in non-fuel operation and maintenance expenses and an increase in the amortization related to premiums paid to reacquire debt pursuant to an APSC order. The return on average common equity for 1999 was 13.85 percent compared to 13.63 percent in 1998, and 13.76 percent in 1997. Revenues Operating revenues for 1999 were $3.4 billion, reflecting a slight decrease from 1998. The following table summarizes the principal factors that have affected operating revenues for the past three years: Increase (Decrease) From Prior Year ----------------------------------------- 1999 1998 1997 ----------------------------------------- (in thousands) Retail -- Growth and price changes $ 27,893 $ 75,642 $ 33,813 Weather (17,871) 55,282 (22,973) Fuel cost recovery and other 20,418 138,944 31,353 - --------------------------------------------------------------------- Total retail 30,440 269,868 42,193 - --------------------------------------------------------------------- Sales for resale -- Non affiliates (33,596) 17,950 39,354 Affiliates (11,123) (58,233) (54,825) - --------------------------------------------------------------------- Total sales for resale (44,719) (40,283) (15,471) Other operating revenues 13,380 7,677 1,614 - --------------------------------------------------------------------- Total operating revenues $ (899) $237,262 $ 28,336 ===================================================================== Percent change (0.03)% 7.53% 0.91% - --------------------------------------------------------------------- Retail revenues of $2.8 billion in 1999 increased $30 million (1.1 percent) from the prior year, compared with an increase of $270 million (10.7 percent) in 1998. The primary contributors to the increase in revenues in 1999 were continued growth in the Company's service territory, as well as an increase in fuel revenues. These increases were offset by the effect of milder temperatures in 1999 as compared to 1998. The $13 million (25.2 percent) increase in other operating revenues in 1999 as compared to 1998 was due primarily to an increase in steam sales in conjunction with the operation of the Company's co-generation facilities. The increase is the result of two new co-generation facilities placed in service in 1999. Retail revenues in 1998 increased $270 million (10.7 percent) over 1997. The predominant factors causing the rise in revenues in 1998 were the positive impact of weather on energy sales, continued growth throughout the state, and II-51 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 1999 Annual Report increased fuel revenues. Fuel revenues were higher in 1998 as compared to 1997 due to higher fuel costs and an increase in purchased power. Fuel revenues generally represent the direct recovery of fuel expense, including the fuel component of purchased energy, and therefore have no effect on net income. Energy sales for resale outside the service area are predominantly unit power sales under long-term contracts to Florida utilities. Economy sales and amounts sold under short-term contracts are also sold for resale outside the service area. Revenues from long-term power contracts have both a capacity and energy component. Capacity revenues reflect the recovery of fixed costs and a return on investment under the contracts. Energy is generally sold at variable cost. These capacity and energy components of the unit power contracts were as follows: 1999 1998 1997 ------------------------------------------- (in millions) Capacity $122 $142 $136 Energy 112 118 135 ------------------------------------------------------------ Total $234 $260 $271 ============================================================= Capacity revenues from non-affiliates decreased 13.9 percent in 1999 compared to the prior year. This decrease is attributable to the lowering of the equity return under formula rate contracts, as well as other adjustments and true-ups related to contractual pricing. Capacity revenues from non-affiliates in 1998 increased 4.1 percent compared to 1997. Revenues from sales to affiliated companies within the Southern electric system, as well as purchases of energy, will vary from year to year depending on demand and the availability and cost of generating resources at each company. These transactions did not have a significant impact on earnings. Kilowatt-hour (KWH) sales for 1999 and the percent change by year were as follows: KWH Percent Change ------------------------------------------- 1999 1999 1998 1997 ------------------------------------------- (millions) Residential 15,699 (0.6)% 10.2% (1.8)% Commercial 12,314 3.4 5.1 3.9 Industrial 21,943 1.7 4.2 3.6 Other 201 2.3 8.3 (6.3) ----------- Total retail 50,157 1.4 6.2 1.9 Sales for resale - Non-affiliates 12,438 5.0 (3.2) 29.9 Affiliates 5,032 (15.8) (33.5) (12.6) ----------- Total 67,627 0.5% (0.9)% 3.7% - ------------------------------------------------------------------ The increases in 1999 and 1998 retail energy sales were primarily due to the strength of business and economic conditions in the Company's service area. In 1998, residential energy sales experienced a 10.2 percent increase over the prior year primarily as a result of hot weather in the second quarter, compared to very mild weather in the second quarter of 1997. Assuming normal weather, sales to retail customers are projected to grow approximately 2.9 percent annually on average during 2000 through 2004. Expenses Total operating expenses of $2.5 billion for 1999 were down $13.4 million or 0.5 percent compared with 1998. This decrease was mainly due to a $15 million decrease in fuel and purchased power costs and a $23 million decrease in maintenance expense, offset by an increase in taxes other than income taxes of $12 million. Total operating expenses of $2.5 billion for 1998 were up $203 million or 8.8 percent compared with 1997. This increase was mainly due to a $107 million increase in purchased power expenses, accompanied by a $58 million increase in maintenance expense. Fuel costs constitute the single largest expense for the Company. The mix of fuel sources for generation of electricity is determined primarily by system load, the unit cost of fuel consumed, and the availability of hydro and nuclear generating units. The amount and sources of generation and the average cost of II-52 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 1999 Annual Report fuel per net KWH generated were as follows: ---------------------------- 1999 1998 1997 ---------------------------- Total generation (billions of KWHs) 63 63 65 Sources of generation (percent) -- Coal 72 72 72 Nuclear 20 18 20 Hydro 5 8 8 Oil & Gas 3 2 * Average cost of fuel per net KWH generated (cents) -- 1.44 1.54 1.49 - ---------------------------------------------------------------- * Not meaningful because of minimal generation from fuel source. Total fuel and purchased power costs of $1.1 billion in 1999 decreased $15 million (1 percent), while total energy sales increased 329 million kilowatt hours (0.5 percent) compared with the amounts recorded in 1998. Continued efforts to control energy costs helped lower the average cost of fuel per net kilowatt hour generated in 1999. Fuel and purchased power costs in 1998 increased $111 million (11 percent) over 1997 due primarily to lower levels of nuclear and hydro generation, which were replaced by the use of peaking units and purchased power. Purchased power consists primarily of purchases from affiliates in the Southern electric system. Purchased power transactions among the Company and its affiliates will vary from period to period depending on demand, the availability, and the variable production cost of generating resources at each company. The 7.5 percent decrease in maintenance expense in 1999 as compared to 1998 is primarily attributable to a decrease in distribution expenses. The 23.8 percent increase in maintenance expenses in 1998 is attributable to (i) an increase in the maintenance of overhead lines, (ii) the write-off of obsolete steam and nuclear generating plant inventory, and (iii) additional accruals to partially replenish the natural disaster reserve. Depreciation and amortization expense increased 2.6 percent in 1999 and 1998. These increases reflect additions to property, plant, and equipment. Taxes other than income taxes increased $12 million (6.0 percent) in 1999 as compared to 1998. This increase is attributable to increases in real and personal property taxes and public utility license taxes. Total net interest and other charges decreased $38 million (12.3 percent) in 1999. This decrease results primarily from a decrease in the amortization of premiums on reacquired debt pursuant to an APSC order. Total net interest and other charges increased $55.7 million (22 percent) in 1998 primarily due to an increase in the amortization of premiums on reacquired debt, pursuant to an APSC order. See Note 3 to the financial statements under "Retail Rate Adjustment Procedures" for additional details. Effects of Inflation The Company is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the Company is recovering its costs of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on the Company because of the large investment in utility plants 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 and preferred securities. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. Future Earnings Potential The results of operations for the past three years are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors, including the ability of the Company to achieve energy sales growth in a less regulated, more competitive environment. The Company currently operates as a vertically integrated utility providing electricity to customers within its traditional service area located in the state of Alabama. Prices for electricity provided by the Company to retail customers are set by the APSC under cost-based regulatory principles. II-53 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 1999 Annual Report Future earnings in the near term will depend upon growth in energy sales, which is subject to a number of factors. Traditionally, these factors have included 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 the Company's traditional service area. The electric utility industry in the United States is currently undergoing a period of dramatic change as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). The Energy Act allows independent power producers (IPPs) to access a utility's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for a utility's large industrial and/or commercial customers and sell excess energy generation to other utilities. Also, electricity sales for resale rates are being driven down by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. The Company is aggressively working to maintain and expand its share of wholesale business in the Southeastern power markets. Although the Energy Act does not permit retail customer access, it was a major catalyst for the current restructuring and consolidation taking place within the utility industry. Numerous federal and state initiatives are in varying stages to promote wholesale and retail competition. Among other things, these initiatives allow customers to choose their electricity provider. As these initiatives materialize, the structure of the utility industry continues to change. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While various restructuring and competition initiatives have been or are being discussed in Alabama, Florida, Georgia, and Mississippi, none have been enacted to date. Enactment would require numerous issues to be resolved, including significant ones relating to transmission pricing and recovery of any stranded investments. The inability of the Company to recover its investments, including the regulatory assets described in Note 1 to the financial statements, could have a material adverse effect on the financial condition and results of operations. Continuing to be a low-cost producer could provide opportunities to increase market share and profitability in markets that evolve with changing regulation. Conversely, if the Company does not remain a low-cost producer and provide quality service, then energy sales growth could be limited, and this could significantly erode earnings. On December 20, 1999, the Federal Energy Regulatory Commission (FERC) issued its final rule on Regional Transmission Organizations (RTOs). The order encourages utilities owning transmission systems to form RTOs on a voluntary basis. To facilitate the development of RTOs, the FERC will convene regional conferences for utilities, customers, and other members of the public to discuss the formation of RTOs. In addition to participating in the regional conferences, utilities owning transmission systems, including Southern Company, are required to make a filing by October 15, 2000. The filing must contain either a proposal for RTO participation or a description of the efforts made to participate in an RTO, the reasons for non-participation, any obstacles to participation, and any plans for further work toward participation. The RTOs that are proposed in the filings should be operational by December 15, 2001. The Company is evaluating this issue and formulating its response. The outcome of this matter cannot presently be determined. Rates to retail customers served by the Company are regulated by the APSC. Rates for the Company can be adjusted periodically within certain limitations based on earned retail rate of return compared with an allowed return. In June 1995, the APSC issued an order granting the Company's request for gradual adjustments to move toward parity among customer classes. This order also calls for a moratorium on any periodic retail rate increases (but not decreases) until 2001. In December 1995, the APSC issued an order authorizing the Company to reduce balance sheet items -- such as plant and deferred charges -- at any time the Company's actual base rate revenues exceed the budgeted revenues. In April 1997, the APSC issued an additional order authorizing the Company to reduce balance sheet asset items. This order authorizes the reduction of such items up to an amount equal to five times the total estimated annual revenue reduction resulting from future rate reductions initiated by the Company. See Note 3 to the financial statements for II-54 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 1999 Annual Report information about this and other matters. The Company is involved in various matters being litigated. See Note 3 to the financial statements for information regarding material issues that could possibly affect future earnings. Compliance costs related to current and future environmental laws and regulations could affect earnings if such costs are not fully recovered. The Clean Air Act and other important environmental items are discussed later under "Environmental Matters." The staff of the Securities and Exchange Commission has questioned certain of the current accounting practices of the electric utility industry -- including the Company -- regarding the recognition, measurement, and classification in the financial statements of decommissioning costs for nuclear generating facilities. In response to these questions, the Financial Accounting Standards Board (FASB) has decided to review the accounting for liabilities related to the retirement of long-lived assets, including nuclear decommissioning. If the FASB issues new accounting rules, the estimated costs of retiring the Company's nuclear and other facilities may be required to be recorded as liabilities in the Balance Sheets. Also, the annual provisions for such costs could change. Because of the Company's current ability to recover asset retirement costs through rates, these changes would not have a significant adverse effect on results of operations. See Note 1 to the financial statements under "Depreciation and Nuclear Decommissioning" for additional information. The Company 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 the 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. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. New Accounting Standard The FASB has issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which must be adopted by January 1, 2001. This statement establishes accounting and reporting standards for derivative instruments - including certain derivative instruments embedded in other contracts - and for hedging activities. The Company has not yet quantified the impact of adopting this statement on its financial statements; however, the adoption could increase volatility in earnings. Year 2000 Challenge The work undertaken by the Company to prepare critical computer systems and other date sensitive devices to function correctly in the Year 2000 was successful. There were no material incidents reported and no disruption of electric service within the service area. There were no reports of significant events regarding third parties that impacted revenues or expenses. For the Company, original projected total costs for Year 2000 readiness, including the Company's share of costs of Southern Nuclear Operating Company, were approximately $36 million; revised projected costs are $33 million. These costs include labor necessary to identify, test, and renovate affected devices and systems, and costs for fulfilling reporting requirements to state and federal agencies. From its inception through December 31, 1999, the Year 2000 program costs, recognized primarily as expense, amounted to $32 million. Exposure to Market Risk Due to cost-based rate regulation, the Company 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, the Company enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market. Realized gains and losses are recognized in the income statement as incurred. At December 31, 1999, exposure from these activities was not material to the Company's financial position, results of operations, or cash flows. Also, based on the Company's overall interest rate exposure at December 31, 1999, a near-term 100 basis point change in interest rates would not materially affect the financial statements. II-55 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 1999 Annual Report FINANCIAL CONDITION Overview The Company's financial condition remained stable in 1999. This stability is the continuation over recent years of growth in retail energy sales and cost control measures combined with a significant lowering of the cost of capital, achieved through the refinancing and/or redemption of higher-cost long-term debt and preferred stock. The Company had gross property additions of $809 million in 1999. The majority of funds needed for gross property additions for the last several years have been provided from operating activities, principally from earnings and non-cash charges to income such as depreciation and deferred income taxes. The Statements of Cash Flows provide additional details. Capital Structure The Company's ratio of common equity to total capitalization -- including short-term debt -- was 42.4 percent in 1999 and 1998, and 44.7 percent in 1997. During 1999, the Company issued $650 million of senior notes, the proceeds of which were used primarily to redeem first mortgage bonds and repay short-term indebtedness, and the Company redeemed $50 million of preferred stock. Additionally, in February 1999, Alabama Power Capital Trust III, of which the Company owns all of the common securities, issued $50 million of auction rate mandatorily redeemable preferred securities. See Note 9 to the financial statements for additional information. Capital Requirements Capital expenditures are estimated to be $831 million for 2000, $743 million for 2001, and $860 million for 2002. See Note 4 to the financial statements for additional details. Actual construction costs may vary from estimates because of changes in such factors as: business conditions; environmental regulations; nuclear plant regulations; load projections; the cost and efficiency of construction labor, equipment, and materials; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. Other Capital Requirements In addition to the funds needed for the capital budget, approximately $100 million will be required by the end of 2000 for maturities of first mortgage bonds. Also, the Company will continue to retire higher-cost debt and preferred stock and replace these obligations with lower-cost capital if market conditions permit. Environmental Matters On November 3, 1999, the Environmental Protection Agency (EPA), brought a civil action against the Company in the U. S. District Court. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to coal-fired generating facilities at the Company's Plants Miller, Barry and Gorgas. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The EPA concurrently issued a notice of violation to the Company relating to these specific facilities, as well as Plants Greene County and Gaston. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation. The complaint and the notice of violation are similar to those brought against and issued to several other electric utilities. The complaint and the notice of violation allege that the Company failed to secure necessary permits or install additional pollution control equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. The Company believes that it complied with applicable laws and EPA regulations and interpretations in effect at the time the work in question took place. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. II-56 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 1999 Annual Report In November 1990, the Clean Air Act was signed into law. Title IV of the Clean Air Act -- the acid rain compliance provision of the law - significantly affected the integrated Southeast utilities of Southern Company, including Alabama Power. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants are required in two phases. Phase I compliance began in 1995 and initially affected 28 generating units of Southern Company. As a result of Southern Company's compliance strategy, an additional 22 generating units were brought into compliance with Phase I requirements. Phase II compliance is required in 2000, and all fossil-fired generating plants will be affected. Southern Company achieved Phase I sulfur dioxide compliance at the affected plants by switching to low-sulfur coal, which required some equipment upgrades. Construction expenditures for Phase I compliance totaled approximately $25 million for the Company. For Phase II sulfur dioxide compliance, the Company currently uses emission allowances and increased fuel switching, and/or the installation of flue gas desulfurization equipment at selected plants. Also, equipment to control nitrogen oxide emissions was installed on additional system fossil-fired units as necessary to meet Phase II limits. Compliance for Phase II increased total estimated construction expenditures in 1999 by approximately $65 million. The State of Alabama and the EPA are currently evaluating draft plans to reach attainment with the one hour standard for ozone in the Birmingham non-attainment area. Provisions of that plan would require nitrogen oxide reductions at certain Company facilities by May 2003. The Company estimates the capital cost to comply with the plan to be approximately $138 million, all of which remains to be spent. A significant portion of costs related to the acid rain and ozone non-attainment provision of the Clean Air Act is expected to be recovered through existing ratemaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. In July 1997, the EPA revised the national ambient air quality standards for ozone and particulate matter. This revision makes the standards significantly more stringent. In September 1998, the EPA issued the final regional nitrogen oxide reduction rule to the states for implementation. The final rule affects 22 states including Alabama. The EPA's July 1997 standards and the September 1998 rule are being challenged in the courts by several states and industry groups. Implementation of the final state rules for these three initiatives could require substantial further reductions in nitrogen oxide and sulfur dioxide emissions from fossil-fired generating facilities and other industries in these states. Additional compliance costs and capital expenditures resulting from the implementation of these rules and standards cannot be determined until the results of legal challenges are known, and the states have adopted their final rules. The EPA and state environmental regulatory agencies are reviewing and evaluating various other matters including: additional controls for hazardous air pollutant emissions and control strategies to reduce regional haze. The impact of any new standards will depend on the development and implementation of applicable regulations. In addition to rules and pending changes to rules under the Clean Air Act, the Company must comply with other environmental laws and regulations including water discharge permits, solid and hazardous waste disposal, use of materials controlled by the Toxic Substances Control Act, and reporting requirements under the Comprehensive Environmental Response, Compensation, and Liability Act. Under these various requirements and regulations, the Company could incur costs to implement water discharge requirements, clean up properties containing hazardous substances, or replace equipment rendered useless by changing requirements. The exact impact of any requirements would depend on specific regulatory actions and cannot be determined at this time. Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of the Company's operations. The full impact of any such changes cannot be determined at this time. II-57 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 1999 Annual Report Compliance with possible additional legislation related to global climate change, electromagnetic fields, and other environmental and health concerns could significantly affect Southern Company. The impact of new legislation -- if any -- will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electromagnetic fields. Sources of Capital The Company historically has relied on issuances of first mortgage bonds and preferred stock, in addition to pollution control revenue bonds issued for its benefit by public authorities, to meet its long-term external financing requirements. Recently, the Company's financings have consisted of unsecured debt and trust preferred securities. The Company has no restrictions on the amounts of unsecured indebtedness it may incur. However, to issue additional first mortgage bonds and preferred stock, the Company must comply with certain earnings coverage requirements designated in its mortgage indenture and corporate charter. The Company's coverages are at a level that would permit any necessary amount of security sales at current interest and dividend rates. As required by the Nuclear Regulatory Commission and as ordered by the APSC, the Company has established external trust funds for nuclear decommissioning costs. In 1994, the Company also established an external trust fund for postretirement benefits as ordered by the APSC. The cumulative effect of funding these items over a long period will diminish internally funded capital and may require capital from other sources. For additional information concerning nuclear decommissioning costs, see Note 1 to the financial statements under "Depreciation and Nuclear Decommissioning." Cautionary Statement Regarding Forward-Looking Information The Company's 1999 Annual Report contains forward-looking and historical information. The Company cautions that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking information. Accordingly, there can be no assurance that such indicated results will be realized. These factors include legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry; the extent and timing of the entry of additional competition in the Company's markets; potential business strategies -- including acquisitions or dispositions of assets or internal restructuring -- that may be pursued by Southern Company; state and federal rate regulation; changes in or application of environmental and other laws and regulations to which the Company is subject; political, legal and economic conditions and developments; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather and other natural phenomena; and other factors discussed in the reports--including Form 10-K--filed from time to time by the Company with the Securities and Exchange Commission. II-58
STATEMENTS OF INCOME For the Years Ended December 31, 1999, 1998, and 1997 Alabama Power Company 1999 Annual Report - ------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------ (in thousands) Operating Revenues: Retail sales $2,811,117 $2,780,677 $2,510,809 Sales for resale -- Non-affiliates 415,377 448,973 431,023 Affiliates 92,439 103,562 161,795 Other revenues 66,541 53,161 45,484 - ------------------------------------------------------------------------------------------------------------------------ Total operating revenues 3,385,474 3,386,373 3,149,111 - ------------------------------------------------------------------------------------------------------------------------ Operating Expenses: Operation -- Fuel 855,632 900,309 896,014 Purchased power -- Non-affiliates 93,204 92,998 41,795 Affiliates 180,563 150,897 95,538 Other 531,696 527,954 510,203 Maintenance 277,724 300,383 242,691 Depreciation and amortization 347,574 338,822 330,377 Taxes other than income taxes 204,645 193,049 185,062 - ------------------------------------------------------------------------------------------------------------------------ Total operating expenses 2,491,038 2,504,412 2,301,680 - ------------------------------------------------------------------------------------------------------------------------ Operating Income 894,436 881,961 847,431 Other Income (Expense): Interest income 55,896 68,553 37,844 Equity in earnings of unconsolidated subsidiaries (Note 6) 2,650 5,271 5,250 Other, net (24,861) (37,050) (39,506) - ------------------------------------------------------------------------------------------------------------------------ Earnings Before Interest and Income Taxes 928,121 918,735 851,019 - ------------------------------------------------------------------------------------------------------------------------ Interest Charges and Other: Interest on long-term debt 191,895 192,426 167,172 Interest on notes payable 9,865 11,012 22,787 Amortization of debt discount, premium and expense, net (Note 3) 11,159 42,494 9,645 Other interest charges 32,316 40,008 31,250 Distributions on preferred securities of subsidiary (Note 9) 24,662 22,354 21,763 - ------------------------------------------------------------------------------------------------------------------------ Total interest charges and other, net 269,897 308,294 252,617 - ------------------------------------------------------------------------------------------------------------------------ Earnings Before Income Taxes 658,224 610,441 598,402 Income taxes (Note 8) 241,880 218,575 207,877 - ------------------------------------------------------------------------------------------------------------------------ Net Income 416,344 391,866 390,525 Dividends on Preferred Stock 16,464 14,643 14,586 - ------------------------------------------------------------------------------------------------------------------------ Net Income After Dividends on Preferred Stock $ 399,880 $ 377,223 $ 375,939 ======================================================================================================================== The accompanying notes are an integral part of these statements.
II-59
STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1999, 1998, and 1997 Alabama Power Company 1999 Annual Report - ------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $ 416,344 $ 391,866 $ 390,525 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 403,332 425,167 394,572 Deferred income taxes and investment tax credits, net 29,039 79,430 (12,429) Other, net (12,661) (66,739) (11,353) Changes in certain current assets and liabilities -- Receivables, net 33,509 49,747 (30,268) Fossil fuel stock (1,344) (9,052) 7,518 Materials and supplies (17,968) 11,932 6,191 Accounts payable (38,556) 26,583 (9,745) Energy cost recovery, retail (97,869) (95,427) 7,108 Other 5,930 (9,803) 13,318 - ------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 719,756 803,704 755,437 - ------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (809,044) (610,132) (451,167) Other (72,218) (52,940) (51,791) - ------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (881,262) (663,072) (502,958) - ------------------------------------------------------------------------------------------------------------------------- Financing Activities: Increase (decrease) in notes payable, net 96,824 (306,882) (57,971) Proceeds -- Other long-term debt 751,650 1,462,990 258,800 Preferred securities 50,000 - 200,000 Preferred stock - 200,000 - Capital contributions from parent company 204,347 30,000 - Redemptions -- First mortgage bonds (470,000) (771,108) (74,951) Other long-term debt (104,836) (107,776) (951) Preferred stock (50,000) (88,000) (184,888) Payment of preferred stock dividends (15,788) (15,596) (22,524) Payment of common stock dividends (399,600) (367,100) (339,600) Other (15,864) (66,869) (16,024) - ------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities 46,733 (30,341) (238,109) - ------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents (114,773) 110,291 14,370 Cash and Cash Equivalents at Beginning of Period 134,248 23,957 9,587 - ------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 19,475 $ 134,248 $ 23,957 ========================================================================================================================= Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of amount capitalized) $229,305 $234,360 $209,919 Income taxes (net of refunds) 170,121 188,942 207,653 - ------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements. II-60
BALANCE SHEETS At December 31, 1999 and 1998 Alabama Power Company 1999 Annual Report - ----------------------------------------------------------------------------------------------------------------- Assets 1999 1998 - ----------------------------------------------------------------------------------------------------------------- (in thousands) Current Assets: Cash and cash equivalents $ 19,475 $ 134,248 Receivables -- Customer accounts receivable 265,900 272,872 Unrecovered retail fuel clause revenue 168,627 70,758 Other accounts and notes receivable 42,137 32,394 Affiliated companies 40,083 39,981 Accumulated provision for uncollectible accounts (4,117) (1,855) Refundable income taxes 17,997 52,117 Fossil fuel stock, at average cost 84,582 83,238 Materials and supplies, at average cost 167,637 149,669 Other 46,011 45,550 - ----------------------------------------------------------------------------------------------------------------- Total current assets 848,332 878,972 - ----------------------------------------------------------------------------------------------------------------- Property, Plant, and Equipment: In service (Note 1) 11,783,078 11,352,838 Less accumulated provision for depreciation 4,901,384 4,666,513 - ----------------------------------------------------------------------------------------------------------------- 6,881,694 6,686,325 Nuclear fuel, at amortized cost 106,836 95,575 Construction work in progress 715,153 525,359 - ----------------------------------------------------------------------------------------------------------------- Total property, plant, and equipment 7,703,683 7,307,259 - ----------------------------------------------------------------------------------------------------------------- Other Property and Investments: Equity investments in unconsolidated subsidiaries (Note 6) 34,891 34,298 Nuclear decommissioning trusts (Note 1) 286,653 232,183 Other 12,156 12,915 - ----------------------------------------------------------------------------------------------------------------- Total other property and investments 333,700 279,396 - ----------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes (Note 8) 330,405 362,953 Prepaid pension costs 213,971 169,393 Debt expense, being amortized 9,563 8,602 Premium on reacquired debt, being amortized 83,895 83,440 Department of Energy assessments (Note 1) 27,685 31,088 Other 97,470 104,595 - ----------------------------------------------------------------------------------------------------------------- Total deferred charges and other assets 762,989 760,071 - ----------------------------------------------------------------------------------------------------------------- Total Assets $9,648,704 $9,225,698 ================================================================================================================= The accompanying notes are an integral part of these balance sheets.
II-61
BALANCE SHEETS At December 31, 1999 and 1998 Alabama Power Company 1999 Annual Report - ------------------------------------------------------------------------------------------------------------------ Liabilities and Stockholder's Equity 1999 1998 - ------------------------------------------------------------------------------------------------------------------ (in thousands) Current Liabilities: Securities due within one year (Note 11) $ 100,943 $ 521,209 Notes payable 96,824 - Accounts payable -- Affiliated 91,315 79,844 Other 140,842 188,074 Customer deposits 31,704 29,235 Taxes accrued -- Income taxes 100,569 82,219 Other 18,295 17,559 Interest accrued 26,365 38,166 Vacation pay accrued 30,112 28,390 Other 84,267 79,095 - ------------------------------------------------------------------------------------------------------------------ Total current liabilities 721,236 1,063,791 - ------------------------------------------------------------------------------------------------------------------ Long-term debt (See accompanying statements) 3,190,378 2,646,566 - ------------------------------------------------------------------------------------------------------------------ Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 8) 1,240,344 1,202,971 Deferred credits related to income taxes (Note 8) 265,102 315,735 Accumulated deferred investment tax credits 260,367 271,611 Employee benefits provisions 82,298 81,115 Prepaid capacity revenues (Note 7) 79,703 96,080 Other 155,901 149,250 - ------------------------------------------------------------------------------------------------------------------ Total deferred credits and other liabilities 2,083,715 2,116,762 - ------------------------------------------------------------------------------------------------------------------ Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding company junior subordinated notes (See accompanying statements) (Note 9) 347,000 297,000 - ------------------------------------------------------------------------------------------------------------------ Cumulative preferred stock (See accompanying statements) 317,512 317,512 - ------------------------------------------------------------------------------------------------------------------ Common stockholder's equity (See accompanying statements) 2,988,863 2,784,067 - ------------------------------------------------------------------------------------------------------------------ Total Liabilities and Stockholder's Equity $9,648,704 $9,225,698 ================================================================================================================== The accompanying notes are an integral part of these balance sheets.
II-62
STATEMENTS OF CAPITALIZATION At December 31, 1999 and 1998 Alabama Power Company 1999 Annual Report - ---------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Long-Term Debt: First mortgage bonds -- Maturity Interest Rates -------- -------------- August 1, 1999 6.375% $ - $ 170,000 March 1, 2000 6.00% 100,000 100,000 January 1, 2003 7.00% - 125,000 February 1, 2003 6.75% - 175,000 2023 through 2024 7.30% - 9.00% 500,000 500,000 - ---------------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 600,000 1,070,000 - ---------------------------------------------------------------------------------------------------------------------------------- Senior notes -- 5.35% due November 15, 2003 156,200 156,200 7.125% due August 15, 2004 250,000 - 5.49% due November 1, 2005 225,000 225,000 7.125% due October 1, 2007 200,000 - 5.375% due October 1, 2008 160,000 160,000 6.25% to 7.125% due 2010-2048 1,207,622 1,008,800 - ---------------------------------------------------------------------------------------------------------------------------------- Total senior notes 2,198,822 1,550,000 - ---------------------------------------------------------------------------------------------------------------------------------- Other long-term debt -- Pollution control revenue bonds -- Collateralized: 5.50% to 6.50% due 2023-2024 24,400 126,050 Variable rates (4.75% to 4.85% at 1/1/00) due 2015-2017 89,800 89,800 Non-collateralized: 7.25% due 2003 - 1,000 Variable rates (3.50% to 6.03% at 1/1/00) due 2021-2028 425,940 324,290 - ---------------------------------------------------------------------------------------------------------------------------------- Total other long-term debt 540,140 541,140 - ---------------------------------------------------------------------------------------------------------------------------------- Capitalized lease obligations 5,111 6,119 - ---------------------------------------------------------------------------------------------------------------------------------- Unamortized debt premium (discount), net (52,752) (49,484) - ---------------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $215.9 million) 3,291,321 3,117,775 Less amount due within one year 100,943 471,209 - ---------------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year $3,190,378 $2,646,566 46.6% 43.8% - ----------------------------------------------------------------------------------------------------------------------------------
II-63
STATEMENTS OF CAPITALIZATION (continued) At December 31, 1999 and 1998 Alabama Power Company 1999 Annual Report - ---------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Company Obligated Mandatorily Redeemable Preferred Securities: $25 liquidation value -- 7.375% $ 97,000 $97,000 7.60% 200,000 200,000 Auction rate (6.42% at 1/1/00) 50,000 - - --------------------------------------------------------------------------------------------------------------------------------- Total (annual distribution requirement -- $25.6 million) 347,000 297,000 5.1 4.9 - ---------------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock: $100 par or stated value -- 4.20% to 4.92% 47,512 47,512 $25 par or stated value -- 5.20% to 5.83% 200,000 200,000 Auction rates -- at 1/1/00 4.22% to 4.50% 70,000 120,000 - ---------------------------------------------------------------------------------------------------------------------------------- Total (annual dividend requirement -- $15.9 million) 317,512 367,512 Less amount due within one year - 50,000 - ---------------------------------------------------------------------------------------------------------------------------------- Total excluding amount due within one year 317,512 317,512 4.6 5.2 - ---------------------------------------------------------------------------------------------------------------------------------- Common Stockholder's Equity: Common stock, par value $40 per share -- Authorized - 6,000,000 shares Outstanding - 5,608,955 shares in 1999 and 1998 Par value 224,358 224,358 Paid-in capital 1,538,992 1,334,645 Premium on Preferred Stock 99 99 Retained earnings 1,225,414 1,224,965 - ---------------------------------------------------------------------------------------------------------------------------------- Total common stockholder's equity 2,988,863 2,784,067 43.7 46.1 - ---------------------------------------------------------------------------------------------------------------------------------- Total Capitalization $6,843,753 $6,045,145 100.0% 100.0% ================================================================================================================================== The accompanying notes are an integral part of these statements.
II-64
STATEMENTS OF COMMON STOCKHOLDER'S EQUITY For the Years Ended December 31, 1999, 1998, and 1997 Alabama Power Company 1999 Annual Report - ----------------------------------------------------------------------------------------------------------------------------- Premium on Common Paid-In Preferred Retained Stock Capital Stock Earnings Total - ----------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at January 1, 1997 $224,358 $1,304,645 $146 $1,185,128 $2,714,277 Net income after dividends on preferred stock - - - 375,939 375,939 Cash dividends on common stock - - - (339,600) (339,600) Other - - (47) - (47) - ----------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 224,358 1,304,645 99 1,221,467 2,750,569 Net income after dividends on preferred stock - - - 377,223 377,223 Capital contributions from parent company - 30,000 - - 30,000 Cash dividends on common stock - - - (367,100) (367,100) Other - - - (6,625) (6,625) - ----------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 224,358 1,334,645 99 1,224,965 2,784,067 Net income after dividends on preferred stock - - - 399,880 399,880 Capital contributions from parent company - 204,347 - - 204,347 Cash dividends on common stock - - - (399,600) (399,600) Other - - - 169 169 - ----------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 $224,358 $1,538,992 $99 $1,225,414 $2,988,863 ============================================================================================================================= The accompanying notes are an integral part of these statements.
II-65 NOTES TO FINANCIAL STATEMENTS Alabama Power Company 1999 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Alabama Power Company (the Company) is a wholly owned subsidiary of Southern Company, which is the parent company of five integrated Southeast utilities, Southern Company Services (SCS), Southern Communications Services (Southern LINC), Southern Company Energy Solutions, Southern Energy, Inc. (Southern Energy), Southern Nuclear Operating Company (Southern Nuclear), and other direct and indirect subsidiaries. The integrated Southeast utilities --Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Savannah Electric and Power Company-- provide electric service in four states. Contracts among the integrated Southeast utilities - related to jointly-owned generating facilities, interconnecting transmission lines, and the exchange of electric power -- are regulated by the Federal Energy Regulatory Commission (FERC) and/or the Securities and Exchange Commission (SEC). SCS provides, at cost, specialized services to Southern Company and its subsidiary companies. Southern LINC provides digital wireless communications services to the integrated Southeast utilities and also markets these services to the public within the Southeast. Southern Company Energy Solutions develops new business opportunities related to energy products and services. Southern Nuclear provides services to Southern Company's nuclear power plants. Southern Energy acquires, develops, builds, owns, and operates power production and delivery facilities and provides a broad range of energy-related services to utilities and industrial companies in selected countries around the world. Southern Energy businesses include independent power projects, integrated utilities, a distribution company, and energy trading and marketing businesses outside the southeastern United States. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries are subject to the regulatory provisions of the PUHCA. The Company is also subject to regulation by the FERC and the Alabama Public Service Commission (APSC). The Company follows generally accepted accounting principles (GAAP) and complies with the accounting policies and practices prescribed by its respective regulatory commissions. The preparation of financial statements in conformity with GAAP requires the use of estimates, and the actual results may differ from those estimates. Certain prior years' data presented in the financial statements have been reclassified to conform with current year presentation. Related-Party Transactions The Company has an agreement with SCS under which the following services are rendered to the Company at cost: general and design engineering, purchasing, accounting and statistical, finance and treasury, tax, information resources, marketing, auditing, insurance and pension, human resources, systems and procedures, and other services with respect to business and operations and power pool transactions. Costs for these services amounted to $218 million, $201 million, and $154 million during 1999, 1998, and 1997, respectively. The Company also has an agreement with Southern Nuclear to operate Plant Farley and provide the following nuclear-related services at cost: general executive and advisory services; general operations, management and technical services; administrative services including procurement, accounting, statistical, and employee relations; and other services with respect to business and operations. Costs for these services amounted to $135 million, $137 million, and $117 million during 1999, 1998, and 1997, respectively. Regulatory Assets and Liabilities The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues to the Company associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are expected to be credited to customers through the ratemaking process. II-66 NOTES (continued) Alabama Power Company 1999 Annual Report Regulatory assets and (liabilities) reflected in the Balance Sheets at December 31 relate to the following: 1999 1998 ----------------------- (in millions) Deferred income tax charges $ 330 $ 363 Deferred income tax credits (265) (316) Premium on reacquired debt 84 83 Department of Energy assessments 28 31 Vacation pay 30 28 Natural disaster reserve (19) (19) Other, net 59 51 - ---------------------------------------------------------------- Total $ 247 $ 221 ================================================================ In the event that a portion of the Company's operations is no longer subject to the provisions of FASB Statement No. 71, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the Company would be required to determine if any impairment to other assets exists, including plant, and write down the assets, if impaired, to their fair values. Revenues and Fuel Costs The Company currently operates as a vertically integrated utility providing electricity to retail customers within its traditional service area located within the state of Alabama, and to wholesale customers in the southeast. The Company accrues revenues for services rendered but unbilled at the end of each fiscal period. Fuel costs are expensed as the fuel is used. The Company's electric rates include provisions to adjust billings for fluctuations in fuel and the energy component of purchased power costs. Revenues are adjusted for differences between recoverable fuel costs and amounts actually recovered in current regulated rates. The Company has a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. For all periods presented, uncollectible accounts continue to average less than 1 percent of revenues. Fuel expense includes the amortization of the cost of nuclear fuel and a charge, based on nuclear generation, for the permanent disposal of spent nuclear fuel. Total charges for nuclear fuel included in fuel expense amounted to $63 million in 1999, $59 million in 1998, and $68 million in 1997. The Company has a contract with the U.S. Department of Energy (DOE) that provides for the permanent disposal of spent nuclear fuel. The DOE failed to begin disposing of spent fuel in January 1998 as required by the contract, and the Company is pursuing legal remedies against the government for breach of contract. Sufficient storage capacity currently is available to permit operation into 2009 and 2013 at Plant Farley units 1 and 2, respectively. Planning for additional on-site spent fuel storage capacity at Plant Farley is in progress, with the intent to place additional on-site spent fuel storage capacity in operation as early as 2005. In addition, through Southern Nuclear, the Company is a member of Private Fuel Storage, LLC, a joint utility effort to develop a private spent fuel storage facility for temporary storage of spent nuclear fuel. This facility is planned to begin operation as early as the year 2003. Also, the Energy Policy Act of 1992 required the establishment of a Uranium Enrichment Decontamination and Decommissioning Fund, which is funded in part by a special assessment on utilities with nuclear plants. This assessment will be paid over a 15-year period, which began in 1993. This fund will be used by the DOE for the decontamination and decommissioning of its nuclear fuel enrichment facilities. The law provides that utilities will recover these payments in the same manner as any other fuel expense. The Company estimates its remaining liability at December 31, 1999, under this law to be approximately $28 million. This obligation is recognized in the accompanying Balance Sheets. Depreciation and Nuclear Decommissioning Depreciation of the original cost of depreciable utility plant in service is provided primarily by using composite straight-line rates, which approximated 3.2 percent in 1999 and 1998, and 3.3 percent in 1997. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its cost -- together with the cost of removal, less salvage -- is charged to the accumulated provision for depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Depreciation expense includes an amount for the expected cost of decommissioning nuclear facilities and removal of other facilities. Nuclear Regulatory Commission (NRC) regulations require all licensees operating commercial nuclear power reactors to establish a plan for providing, with reasonable assurance, funds for decommissioning. The Company has II-67 NOTES (continued) Alabama Power Company 1999 Annual Report established external trust funds to comply with the NRC's regulations. Amounts previously recorded in internal reserves are being transferred into the external trust funds over periods approved by the APSC. The NRC's minimum external funding requirements are based on a generic estimate of the cost to decommission the radioactive portions of a nuclear unit based on the size and type of reactor. The Company has filed plans with the NRC to ensure that -- over time -- the deposits and earnings of the external trust funds will provide the minimum funding amounts prescribed by the NRC. Site study cost is the estimate to decommission the facility as of the site study year, and ultimate cost is the estimate to decommission the facility as of retirement date. The estimated costs of decommissioning -- both site study costs and ultimate costs -- based on the most current study for Plant Farley were as follows: Site study basis (year) 1998 Decommissioning periods: Beginning year 2017 Completion year 2031 ------------------------------------------------------------- (in millions) Site study costs: Radiated structures $ 629 Non-radiated structures 60 ------------------------------------------------------------- Total $ 689 ============================================================= (in millions) Ultimate costs: Radiated structures $ 1,868 Non-radiated structures 178 ------------------------------------------------------------- Total $ 2,046 ============================================================= The decommissioning cost estimates are based on prompt dismantlement and removal of the plant from service. The actual decommissioning costs may vary from the above estimates because of changes in the assumed date of decommissioning, changes in NRC requirements, or changes in the assumptions used in making estimates. Annual provisions for nuclear decommissioning are based on an annuity method as approved by the APSC. The amount expensed in 1999 and fund balances as of December 31, 1999 were: (in millions) Amount expensed in 1999 $ 18 ------------------------------------------------------------- Accumulated provisions: External trust funds, at fair value $ 287 Internal reserves 40 ------------------------------------------------------------- Total $ 327 ============================================================= All of the Company's decommissioning costs are approved for ratemaking. Significant assumptions include an estimated inflation rate of 4.5 percent and an estimated trust earnings rate of 7.0 percent. The Company expects the APSC to periodically review and adjust, if necessary, the amounts collected in rates for the anticipated cost of decommissioning. Income Taxes The Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. Allowance For Funds Used During Construction (AFUDC) AFUDC represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new facilities. While cash is not realized currently from such allowance, it increases the revenue requirement over the service life of the plant through a higher rate base and higher depreciation expense. The composite rate used to determine the amount of allowance was 8.8 percent in 1999, 9.0 percent in 1998, and 5.8 percent in 1997. AFUDC, net of income tax, as a percent of net income after dividends on preferred stock was 4.7 percent in 1999, 1.8 percent in 1998, and 0.8 percent in 1997. Property, Plant, and Equipment Property, plant, and equipment is stated at original cost. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other II-68 NOTES (continued) Alabama Power Company 1999 Annual Report benefits; and the estimated cost of funds used during construction. The cost of maintenance, repairs and replacement of minor items of property is charged to maintenance expense. The cost of replacements of property (exclusive of minor items of property) is capitalized. Financial Instruments The Company's financial instruments for which the carrying amount did not approximate fair value at December 31 are as follows: Carrying Fair Amount Value ------------------------- (in millions) Long-term debt: At December 31, 1999 $3,286 $3,045 At December 31, 1998 3,112 3,195 Preferred Securities: At December 31, 1999 347 299 At December 31, 1998 297 307 -------------------------------------------------------------- The fair value for long-term debt and preferred securities was based on either closing market prices or closing prices of comparable instruments. Cash and Cash Equivalents For purposes of the financial statements, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. Materials and Supplies Generally, materials and supplies include the cost of transmission, distribution, and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when installed. Natural Disaster Reserve In September 1994, in response to a request by the Company, the APSC issued an order allowing the Company to establish a Natural Disaster Reserve. Regulatory treatment allows the Company to accrue $250 thousand per month, until the maximum accumulated provision of $32 million is attained. However, in December 1995, the APSC approved higher accruals to restore the reserve to its authorized level whenever the balance in the reserve declines below $22.4 million. At December 31, 1999, the reserve balance was $19 million. 2. RETIREMENT BENEFITS The Company has defined benefit, trusteed, pension plans that cover substantially all employees. The Company provides certain medical care and life insurance benefits for retired employees. Substantially all employees may become eligible for such benefits when they retire. The Company funds trusts to the extent deductible under federal income tax regulations or to the extent required by the APSC and FERC. The measurement date for plan assets and obligations is September 30 of each year. The weighted average rates assumed in the actuarial calculations for both the pension and postretirement benefit plans were: 1999 1998 - --------------------------------------------------------------- Discount 7.50% 6.75% Annual salary increase 5.00 4.25 Long-term return on plan assets 8.50 8.50 - --------------------------------------------------------------- Pension Plan Changes during the year in the projected benefit obligations and in the fair value of plan assets were as follows: Projected Benefit Obligations --------------------------- 1999 1998 - --------------------------------------------------------------- (in millions) Balance at beginning of year $868 $813 Service cost 23 22 Interest cost 57 59 Benefits paid (51) (51) Actuarial (gain) loss and employee transfers (24) 25 - --------------------------------------------------------------- Balance at end of year $873 $868 =============================================================== Plan Assets --------------------------- 1999 1998 - --------------------------------------------------------------- (in millions) Balance at beginning of year $1,461 $1,521 Actual return on plan assets 245 9 Benefits paid (51) (51) Employee transfers (8) (18) - --------------------------------------------------------------- Balance at end of year $1,647 $1,461 =============================================================== II-69 NOTES (continued) Alabama Power Company 1999 Annual Report The accrued pension costs recognized in the Balance Sheets were as follows: 1999 1998 - --------------------------------------------------------------- (in millions) Funded status $ 774 $ 593 Unrecognized transition obligation (25) (30) Unrecognized prior service cost 36 39 Unrecognized net actuarial gain (571) (433) - --------------------------------------------------------------- Prepaid asset recognized in the Balance Sheets $ 214 $ 169 =============================================================== Components of the pension plans' net periodic cost were as follows: 1999 1998 1997 - --------------------------------------------------------------- (in millions) Service cost $ 23 $ 22 $ 20 Interest cost 57 59 58 Expected return on plan assets (109) (102) (95) Recognized net actuarial gain (14) (16) (13) Net amortization (2) (2) (2) - --------------------------------------------------------------- Net pension income $ (45) $ (39) $(32) =============================================================== Postretirement Benefits Changes during the year in the accumulated benefit obligations and in the fair value of plan assets were as follows: Accumulated Benefit Obligations --------------------------- 1999 1998 - --------------------------------------------------------------- (in millions) Balance at beginning of year $278 $252 Service cost 5 5 Interest cost 18 19 Benefits paid (10) (12) Actuarial (gain) loss and employee transfers (27) 14 - --------------------------------------------------------------- Balance at end of year $264 $278 =============================================================== Plan Assets --------------------------- 1999 1998 - --------------------------------------------------------------- (in millions) Balance at beginning of year $137 $125 Actual return on plan assets 18 4 Employer contributions 16 20 Benefits paid (10) (12) - --------------------------------------------------------------- Balance at end of year $161 $137 =============================================================== The accrued postretirement costs recognized in the Balance Sheets were as follows: 1999 1998 - --------------------------------------------------------------- (in millions) Funded status $(103) $(141) Unrecognized transition obligation 53 57 Unrecognized net actuarial (gain) loss (12) 22 Fourth quarter contributions 8 8 - --------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $ (54) $ (54) =============================================================== Components of the plans' net periodic cost were as follows: 1999 1998 1997 - --------------------------------------------------------------- (in millions) Service cost $ 5 $ 5 $ 4 Interest cost 18 18 18 Expected return on plan assets (11) (9) (7) Net amortization 4 4 4 - --------------------------------------------------------------- Net postretirement cost $ 16 $ 18 $ 19 =============================================================== An additional assumption used in measuring the accumulated postretirement benefit obligations was a weighted average medical care cost trend rate of 7.74 percent for 1999, decreasing gradually to 5.50 percent through the year 2005, and remaining at that level thereafter. An annual increase or decrease in the assumed medical care cost trend rate of 1 percent would affect the accumulated benefit obligation and the service and interest cost components at December 31, 1999 as follows: 1 Percent 1 Percent Increase Decrease - --------------------------------------------------------------- (in millions) Benefit obligation $ 17 $ (15) Service and interest costs 1 (1) =============================================================== Work Force Reduction Programs The Company has incurred additional costs for work force reduction programs. The costs related to these programs were $5.6 million, $19.4 million and $33.0 million for the years 1999, 1998 and 1997, respectively. In addition, certain costs of these programs were deferred and are being amortized in accordance with regulatory treatment. The unamortized balance of these costs was $1.2 million at December 31, 1999. II-70 NOTES (continued) Alabama Power Company 1999 Annual Report 3. CONTINGENCIES AND REGULATORY MATTERS Lake Martin Litigation On November 30, 1998, total judgments of nearly $53 million were entered in favor of five plaintiffs against the Company and two large textile manufacturers. The plaintiffs alleged that the manufacturers had discharged certain polluting substances into a stream that empties into Lake Martin, a hydroelectric reservoir owned by the Company, and that such discharges had reduced the value of the plaintiffs' residential lots on Lake Martin. Of the total amount of the judgments, $155 thousand was compensatory damages and the remainder was punitive damages. The damages were assessed against all three defendants jointly. The Company has appealed these judgments to the Supreme Court of Alabama. While the Company believes that these judgments should be reversed or set aside, the final outcome of this matter cannot now be determined. Additional actions have been filed by other landowners in the same subdivision on Lake Martin against the same defendants, including the Company. The plaintiffs assert substantially the same allegations as in the current proceeding being appealed. The final outcome of these actions cannot now be determined. Environmental Protection Agency Litigation On November 3, 1999, the Environmental Protection Agency (EPA), brought a civil action against the Company in the U. S. District Court. The complaint alleges violations of the prevention of significant deterioration and new source review provision of the Clean Air Act with respect to coal-fired generating facilities at the Company's Plants Miller, Barry and Gorgas. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units beginning at the point of the alleged violations. The EPA concurrently issued a notice of violation to the Company relating to these specific facilities, as well as Plants Greene County and Gaston. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation. The complaint and the notice of violation are similar to those brought against and issued to several other electric utilities. The complaint and the notice of violation allege that the Company failed to secure necessary permits or install additional pollution control equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. The Company believes that it complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. Retail Rate Adjustment Procedures In November 1982, the APSC adopted rates that provide for periodic adjustments based upon the Company's earned return on end-of-period retail common equity. The rates also provide for adjustments to recognize the placing of new generating facilities in retail service. Both increases and decreases have been placed into effect since the adoption of these rates. The rate adjustment procedures allow a return on common equity range of 13.0 percent to 14.5 percent and limit increases or decreases in rates to 4 percent in any calendar year. In June 1995, the APSC issued a rate order granting the Company's request for gradual adjustments to move toward parity among customer classes. This order also calls for a moratorium on any periodic retail rate increases (but not decreases) until July 2001. In December 1995, the APSC issued an order authorizing the Company to reduce balance sheet items -- such as plant and deferred charges -- at any time the Company's actual base rate revenues exceed the budgeted revenues. In April 1997, the APSC issued an additional order authorizing the Company to reduce balance sheet asset items. This order authorizes the reduction of such items up to an amount equal to five times the total estimated annual revenue reduction resulting from future rate reductions initiated by the Company. In 1998, the Company - in accordance with the 1995 rate order - recorded $33 million of additional amortization of premium on reacquired debt. The Company did not record any additional amounts in 1999 or 1997. II-71 NOTES (continued) Alabama Power Company 1999 Annual Report The Company's ratemaking procedures will remain in effect until the APSC votes to modify or discontinue them. 4. CAPITAL BUDGET The Company's capital expenditures are currently estimated to total $831 million in 2000, $743 million in 2001, and $860 million in 2002. Some of the more significant items included in the Company's capital budget are as follows: (i) The Company is replacing all six steam generators at Plant Farley. The estimated remaining costs associated with this project, which will be completed in 2001, amount to $100 million. (ii) The Company is also constructing and installing 1,075 megawatts of capacity and associated substation facilities at Plant Barry. Half of the capacity is scheduled to go in service in 2000, with the remainder going in service in 2001. The remaining projected expenditures related to these facilities are $181 million. (iii)Cogeneration facilities, with a capacity of 200 megawatts, are being constructed in Theodore, Alabama, and will go in service in 2001. The estimated remaining costs associated with this project total $81 million. (iv) The capital budget reflects $472 million related to projected generation capacity scheduled to be placed into service in 2003 and beyond. In addition to the above items, significant construction will continue related to transmission and distribution facilities and the upgrading of generating plants. The capital budget is subject to periodic review and revision, and actual capital costs incurred may vary from estimates because of changes in such factors as: business conditions; environmental regulations; nuclear plant regulations; load projections; the cost and efficiency of construction labor, equipment, and materials; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. 5. FINANCING AND COMMITMENTS General To the extent possible, the Company's construction program is expected to be financed primarily from internal sources. Short-term debt is often utilized and the amounts available are discussed below. The Company may issue additional long-term debt and preferred securities for debt maturities, redeeming higher-cost securities, and meeting additional capital requirements. Financing The ability of the Company to finance its capital budget depends on the amount of funds generated internally and the funds it can raise by external financing. The Company historically has relied on issuances of first mortgage bonds and preferred stock, in addition to pollution control revenue bonds issued for its benefit by public authorities, to meet its long-term external financing requirements. Recently, the Company's financings have consisted of unsecured debt and trust preferred securities. The Company has no restrictions on the amounts of unsecured indebtedness it may incur. However, to issue additional first mortgage bonds and preferred stock, the Company must comply with certain earnings coverage requirements designated in its mortgage indenture and corporate charter. The most restrictive of these provisions requires, for the issuance of additional first mortgage bonds, that before-income-tax earnings, as defined, cover pro forma annual interest charges on outstanding first mortgage bonds at least twice; and for the issuance of additional preferred stock, that gross income available for interest cover pro forma annual interest charges and preferred stock dividends at least one and one-half times. The Company's coverages are at a level that would permit any necessary amount of security sales at current interest and dividend rates. Bank Credit Arrangements The Company maintains committed lines of credit in the amount of $907 million (including $418 million of such lines which are dedicated to funding purchase obligations relating to variable rate pollution control bonds). Of these lines, $517 million expire at various times during 2000 and $390 million expire in 2004. In certain cases, such lines require payment of a commitment fee based on the unused portion of the commitment or the maintenance of compensating balances with the banks. Because the arrangements are based on an average balance, the II-72 NOTES (continued) Alabama Power Company 1999 Annual Report Company does not consider any of its cash balances to be restricted as of any specific date. Moreover, the Company borrows from time to time pursuant to arrangements with banks for uncommitted lines of credit. At December 31, 1999, the Company had regulatory approval to have outstanding up to $750 million of short-term borrowings. Assets Subject to Lien The Company's mortgage, as amended and supplemented, securing the first mortgage bonds issued by the Company, constitutes a direct lien on substantially all of the Company's fixed property and franchises. Fuel Commitments To supply a portion of the fuel requirements of its generating plants, the Company has entered into various long-term commitments for the procurement of fossil and nuclear fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels and other financial commitments. Total estimated long-term obligations at December 31, 1999, were as follows: Year Commitments - ---- ---------------- (in millions) 2000 $ 715 2001 672 2002 561 2003 469 2004 472 2005 - 2026 2,019 - --------------------------------------------------------------- Total commitments $4,908 =============================================================== Operating Leases The Company has entered into coal rail car rental agreements with various terms and expiration dates. These expenses totaled $17.8 million in 1999, $5.8 million in 1998, and $3.0 million in 1997. At December 31, 1999, estimated minimum rental commitments for noncancellable operating leases were as follows: Year Commitments - ---- ----------------- (in millions) 2000 $ 20.0 2001 19.6 2002 19.2 2003 18.8 2004 18.4 2005 - 2017 64.3 - -------------------------------------------------------------- Total minimum payments $160.3 ============================================================== 6. JOINT OWNERSHIP AGREEMENTS The Company and Georgia Power Company own equally all of the outstanding capital stock of Southern Electric Generating Company (SEGCO), which owns electric generating units with a total rated capacity of 1,020 megawatts, together with associated transmission facilities. The capacity of these units is sold equally to the Company and Georgia Power Company under a contract which, in substance, requires payments sufficient to provide for the operating expenses, taxes, interest expense and a return on equity, whether or not SEGCO has any capacity and energy available. The term of the contract extends automatically for two-year periods, subject to either party's right to cancel upon two year's notice. The Company's share of expenses totaled $92 million in 1999, $74 million in 1998 and $73 million in 1997, and is included in "Purchased power from affiliates" in the Statements of Income. In addition, the Company has guaranteed unconditionally the obligation of SEGCO under an installment sale agreement for the purchase of certain pollution control facilities at SEGCO's generating units, pursuant to which $24.5 million principal amount of pollution control revenue bonds are outstanding. Georgia Power Company has agreed to reimburse the Company for the pro rata portion of such obligation corresponding to its then proportionate ownership of stock of SEGCO if the Company is called upon to make such payment under its guaranty. II-73 NOTES (continued) Alabama Power Company 1999 Annual Report At December 31, 1999, the capitalization of SEGCO consisted of $50 million of equity and $72 million of long-term debt on which the annual interest requirement is $4.3 million. SEGCO paid dividends totaling $4.3 million in 1999, $8.7 million in 1998, and $10.6 million in 1997, of which one-half of each was paid to the Company. SEGCO's net income was $5.4 million, $7.5 million, and $8.5 million for 1999, 1998 and 1997, respectively. The Company's percentage ownership and investment in jointly-owned generating plants at December 31, 1999, follows: Total Megawatt Company Facility (Type) Capacity Ownership --------------------- ---------------- ------------- Greene County 500 60.00% (1) (coal) Plant Miller Units 1 and 2 1,320 91.84% (2) (coal) ---------------------------------------------------------- (1) Jointly owned with an affiliate, Mississippi Power Company. (2) Jointly owned with Alabama Electric Cooperative, Inc. Company Accumulated Facility Investment Depreciation --------------------- -------------- --------------- (in millions) Greene County $ 97 $ 45 Plant Miller Units 1 and 2 740 297 ---------------------------------------------------------- 7. LONG-TERM POWER SALES AGREEMENTS General The Company and the operating affiliates of Southern Company have entered into long-term contractual agreements for the sale of capacity and energy to certain non-affiliated utilities located outside the system's service area. These agreements -- expiring at various dates discussed below -- are firm and pertain to capacity related to specific generating units. Because the energy is generally sold at cost under these agreements, profitability is primarily affected by revenues from capacity sales. The Company's capacity revenues amounted to $122 million in 1999, $142 million in 1998, and $136 million in 1997. Unit power from Plant Miller is being sold to Florida Power Corporation (FPC), Florida Power & Light Company (FP&L), Jacksonville Electric Authority (JEA) and the City of Tallahassee, Florida. Under these agreements, approximately 1,250 megawatts of capacity are scheduled to be sold through 2000. Thereafter, these sales will remain at that approximate level -- unless reduced by FP&L, FPC, and JEA for the periods after 2000 with a minimum of three years notice -- until the expiration of the contracts in 2010. Alabama Municipal Electric Authority (AMEA) Capacity Contracts In August 1986, the Company entered into a firm power sales contract with AMEA entitling AMEA to scheduled amounts of capacity (to a maximum 100 megawatts) for a period of 15 years commencing September 1, 1986 (1986 Contract). In October 1991, the Company entered into a second firm power sales contract with AMEA entitling AMEA to scheduled amounts of additional capacity (to a maximum 80 megawatts) for a period of 15 years commencing October 1, 1991 (1991 Contract). In both contracts the power will be sold to AMEA for its member municipalities that previously were served directly by the Company as wholesale customers. Under the terms of the contracts, the Company received payments from AMEA representing the net present value of the revenues associated with the respective capacity entitlements, discounted at effective annual rates of 9.96 percent and 11.19 percent for the 1986 and 1991 contracts, respectively. These payments are being recognized as operating revenues and the discounts are being amortized to other interest expense as scheduled capacity is made available over the terms of the contracts. In order to secure AMEA's advance payments and the Company's performance obligation under the contracts, the Company issued and delivered to an escrow agent first mortgage bonds representing the maximum amount of liquidated damages payable by the Company in the event of a default under the contracts. No principal or interest is payable on such bonds unless and until a default by the Company occurs. As the liquidated damages decline under the contracts, a portion of the bonds equal to the decreases are returned to the Company. At December 31, 1999, $81.5 million of such bonds was held by the escrow agent under the contracts. 8. INCOME TAXES At December 31, 1999, the tax-related regulatory assets and liabilities were $330 million and $265 million, respectively. These assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable II-74 NOTES (continued) Alabama Power Company 1999 Annual Report to capitalized AFUDC. These liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. Details of the income tax provisions are as follows: 1999 1998 1997 -------------------------------- (in millions) Total provision for income taxes: Federal -- Current $194 $123 $197 Deferred -- Current year (6) 59 33 Reversal of prior years 30 13 (44) - ----------------------------------------------------------------- 218 195 186 - ----------------------------------------------------------------- State -- Current 19 16 23 Deferred -- Current year 1 5 1 Reversal of prior years 4 2 (2) - ----------------------------------------------------------------- 24 23 22 - ----------------------------------------------------------------- Total $242 $218 $208 ================================================================= The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows: 1999 1998 ------------------- (in millions) Deferred tax liabilities: Accelerated depreciation $ 884 $ 861 Property basis differences 419 435 Fuel cost adjustment 65 29 Premium on reacquired debt 31 29 Pensions 60 50 Other 11 17 - ----------------------------------------------------------------- Total 1,470 1,421 - ----------------------------------------------------------------- Deferred tax assets: Capacity prepayments 24 28 Other deferred costs 25 25 Postretirement benefits 22 20 Unbilled revenue 13 16 Other 63 56 - ----------------------------------------------------------------- Total 147 145 - ----------------------------------------------------------------- Net deferred tax liabilities 1,323 1,276 Portion included in current liabilities, net (83) (73) - ----------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $1,240 $1,203 ================================================================= Deferred investment tax credits are amortized over the lives of the related property with such amortization normally applied as a credit to reduce depreciation in the Statements of Income. Credits amortized in this manner amounted to $11 million in 1999, 1998, and 1997. At December 31, 1999, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: 1999 1998 1997 -------------------------- Federal statutory rate 35.0% 35.0% 35.0% State income tax, net of federal deduction 2.4 2.5 2.4 Non-deductible book depreciation 1.6 1.5 1.5 Differences in prior years' deferred and current tax rates (1.3) (1.6) (2.3) Other (0.9) (1.6) (1.9) - --------------------------------------------------------------- Effective income tax rate 36.8% 35.8% 34.7% =============================================================== II-75 NOTES (continued) Alabama Power Company 1999 Annual Report Southern Company files a consolidated federal income tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. 9. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES Statutory business trusts formed by the Company, of which the Company owns all the common securities, have issued mandatorily redeemable preferred securities as follows: Date of Maturity Issue Amount Rate Notes Date --------------------------------------------------- (millions) (millions) Trust I 1/1996 $ 97 7.375% $100 3/2026 Trust II 1/1997 200 7.60 206 12/2036 Trust III 2/1999 50 Auction 52 2/2029 Substantially all of the assets of each trust are junior subordinated notes issued by the Company in the respective approximate principal amounts set forth above. In February 1999, Alabama Power Capital Trust III (Trust III), of which the Company owns all of the common securities, issued $50 million of auction rate mandatorily redeemable preferred securities. The distribution rate of these variable securities was 6.42% at January 1, 2000. The Company considers that the mechanisms and obligations relating to the preferred securities, taken together, constitute a full and unconditional guarantee by the Company of the Trusts' payment obligations with respect to the preferred securities. The Trusts are subsidiaries of the Company and, accordingly, are consolidated in the Company's financial statements. 10. OTHER LONG-TERM DEBT Pollution control obligations represent installment purchases of pollution control facilities financed by funds derived from sales by public authorities of revenue bonds. The Company is required to make payments sufficient for the authorities to meet principal and interest requirements of such bonds. With respect to $215.9 million of such pollution control obligations, the Company has authenticated and delivered to the trustees a like principal amount of first mortgage bonds as security for its obligations under the installment purchase agreements. No principal or interest on these first mortgage bonds is payable unless and until a default occurs on the installment purchase agreements. In 1997, 1998, and 1999 the Company issued unsecured senior notes. The senior notes are, in effect, subordinated to all secured debt of the Company, including its first mortgage bonds. The estimated aggregate annual maturities of capitalized lease obligations through 2004 are as follows: $0.9 million in 2000, $0.8 million in 2001, $0.9 million in 2002, $0.9 million in 2003 and $1.0 million in 2004. 11. SECURITIES DUE WITHIN ONE YEAR A summary of the improvement fund requirements and scheduled maturities and redemptions of long-term debt and preferred stock due within one year at December 31 is as follows: 1999 1998 ------------------------ (in thousands) First mortgage bond maturities and redemptions $100,000 $470,000 Other long-term debt maturities (Note 10) 943 1,209 ------------------------------------------------------------- Total long-term debt due within one year 100,943 471,209 ------------------------------------------------------------- Preferred stock to be redeemed - 50,000 ------------------------------------------------------------- Total $100,943 $521,209 ============================================================= The annual first mortgage bond improvement fund requirement is 1 percent of the aggregate principal amount of bonds of each series authenticated, so long as a portion of that series is outstanding, and may be satisfied by the deposit of cash and/or reacquired bonds, the certification of unfunded property additions or a combination thereof. 12. NUCLEAR INSURANCE Under the Price-Anderson Amendments Act of 1988 (the Act), the Company maintains agreements of indemnity with the NRC that, together with private insurance, cover third-party liability arising from any nuclear incident occurring at Plant Farley. The Act provides funds up to $9.5 billion for public liability claims II-76 NOTES (continued) Alabama Power Company 1999 Annual Report that could arise from a single nuclear incident. Plant Farley is insured against this liability to a maximum of $200 million by private insurance, with the remaining coverage provided by a mandatory program of deferred premiums which could be assessed, after a nuclear incident, against all owners of nuclear reactors. The Company could be assessed up to $88 million per incident for each licensed reactor it operates but not more than an aggregate of $10 million per incident to be paid in a calendar year for each reactor. Such maximum assessment, excluding any applicable state premium taxes, for the Company is $176 million per incident but not more than an aggregate of $20 million to be paid for each incident in any one year. The Company is a member of Nuclear Electric Insurance Limited (NEIL), a mutual insurer established to provide property damage insurance in an amount up to $500 million for members' nuclear generating facilities. Additionally, the Company has policies that currently provide decontamination, excess property insurance, and premature decommissioning coverage up to $2.25 billion for losses in excess of the $500 million primary coverage. This excess insurance is also provided by NEIL. NEIL also covers the additional cost that would be incurred in obtaining replacement power during a prolonged accidental outage at a member's nuclear plant. Members can be insured against increased costs of replacement power in an amount up to $3.5 million per week (starting 12 weeks after the outage) for one year and up to $2.8 million per week for the second and third years. Under each of the NEIL policies, members are subject to assessments if losses each year exceed the accumulated funds available to the insurer under that policy. The current maximum annual assessments for the Company under the three NEIL policies would be $19 million. For all on-site property damage insurance policies for commercial nuclear power plants, the NRC requires that the proceeds of such policies shall be dedicated first for the sole purpose of placing the reactor in a safe and stable condition after an accident. Any remaining proceeds are to be applied next toward the costs of decontamination and debris removal operations ordered by the NRC, and any further remaining proceeds are to be paid either to the Company or to its bond trustees as may be appropriate under the policies and applicable trust indentures. All retrospective assessments, whether generated for liability, property or replacement power may be subject to applicable state premium taxes. 13. COMMON STOCK DIVIDEND RESTRICTIONS The Company's first mortgage bond indenture contains various common stock dividend restrictions that remain in effect as long as the bonds are outstanding. At December 31, 1999, retained earnings of $796 million were restricted against the payment of cash dividends on common stock under terms of the mortgage indenture. 14. QUARTERLY FINANCIAL INFORMATION (Unaudited) Summarized quarterly financial data for 1999 and 1998 are as follows: Net Income After Dividends Quarter Operating Operating on Preferred Ended Revenues Income Stock - -------------------- -------------------------------------------- (in millions) March 1999 $ 714 $162 $ 63 June 1999 823 209 93 September 1999 1,116 388 201 December 1999 733 136 43 March 1998 $ 717 $173 $ 66 June 1998 864 235 95 September 1998 1,058 342 174 December 1998 748 132 42 - ----------------------------------------------------------------- The Company's business is influenced by seasonal weather conditions. II-77
SELECTED FINANCIAL AND OPERATING DATA 1995-1999 Alabama Power Company 1999 Annual Report - ---------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $3,385,474 $3,386,373 $3,149,111 $3,120,775 $3,024,774 Net Income after Dividends on Preferred Stock (in thousands) $399,880 $377,223 $375,939 $371,490 $360,894 Cash Dividends on Common Stock (in thousands) $399,600 $367,100 $339,600 $347,500 $285,000 Return on Average Common Equity (percent) 13.85 13.63 13.76 13.75 13.61 Total Assets (in thousands) $9,648,704 $9,225,698 $8,812,867 $8,733,846 $8,744,360 Gross Property Additions (in thousands) $809,044 $610,132 $451,167 $425,024 $551,781 - ---------------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $2,988,863 $2,784,067 $2,750,569 $2,714,277 $2,690,374 Preferred stock 317,512 317,512 255,512 340,400 440,400 Company obligated mandatorily redeemable preferred securities 347,000 297,000 297,000 97,000 - Long-term debt 3,190,378 2,646,566 2,473,202 2,354,006 2,374,948 - ---------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $6,843,753 $6,045,145 $5,776,283 $5,505,683 $5,505,722 ================================================================================================================================== Capitalization Ratios (percent): Common stock equity 43.7 46.1 47.6 49.3 48.9 Preferred stock 4.6 5.3 4.4 6.2 8.0 Company obligated mandatorily redeemable preferred securities 5.1 4.9 5.2 1.7 - Long-term debt 46.6 43.7 42.8 42.8 43.1 - ---------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 100.0 ================================================================================================================================== Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 A1 A1 Standard and Poor's A+ A+ A+ A+ A+ Duff & Phelps AA- AA- AA- AA- A+ Preferred Stock - Moody's a2 a2 a2 a2 a2 Standard and Poor's A- A A A A Duff & Phelps A A A+ A+ A Unsecured Long-Term Debt - Moody's A2 A2 A2 - - Standard and Poor's A A A - - Duff & Phelps A+ A+ A+ - - ================================================================================================================================== Customers (year-end): Residential 1,120,574 1,106,217 1,092,161 1,073,559 1,058,197 Commercial 188,368 182,738 177,362 171,827 166,480 Industrial 4,897 5,020 5,076 5,100 5,338 Other 735 733 728 732 725 - ---------------------------------------------------------------------------------------------------------------------------------- Total 1,314,574 1,294,708 1,275,327 1,251,218 1,230,740 ================================================================================================================================== Employees (year-end): 6,792 6,631 6,531 6,865 7,261 - ----------------------------------------------------------------------------------------------------------------------------------
II-78
SELECTED FINANCIAL AND OPERATING DATA 1995-1999 (continued) Alabama Power Company 1999 Annual Report - --------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $ 1,145,646 $1,133,435 $ 997,507 $ 998,806 $ 997,069 Commercial 807,098 779,169 724,148 696,453 670,453 Industrial 843,090 853,550 775,591 759,628 805,596 Other 15,283 14,523 13,563 13,729 13,619 - --------------------------------------------------------------------------------------------------------------------------------- Total retail 2,811,117 2,780,677 2,510,809 2,468,616 2,486,737 Sales for resale - non-affiliates 415,377 448,973 431,023 391,669 370,140 Sales for resale - affiliates 92,439 103,562 161,795 216,620 127,730 - --------------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 3,318,933 3,333,212 3,103,627 3,076,905 2,984,607 Other revenues 66,541 53,161 45,484 43,870 40,167 - --------------------------------------------------------------------------------------------------------------------------------- Total $3,385,474 $3,386,373 $3,149,111 $3,120,775 $3,024,774 ================================================================================================================================= Kilowatt-Hour Sales (in thousands): Residential 15,699,081 15,794,543 14,336,408 14,593,761 14,383,231 Commercial 12,314,085 11,904,509 11,330,312 10,904,476 10,043,220 Industrial 21,942,889 21,585,117 20,727,912 19,999,258 19,862,577 Other 201,149 196,647 180,389 192,573 186,848 - --------------------------------------------------------------------------------------------------------------------------------- Total retail 50,157,204 49,480,816 46,575,021 45,690,068 44,475,876 Sales for resale - non-affiliates 12,437,599 11,840,910 12,329,480 9,491,237 8,046,189 Sales for resale - affiliates 5,031,781 5,976,099 8,993,326 10,292,066 6,705,174 - --------------------------------------------------------------------------------------------------------------------------------- Total 67,626,584 67,297,825 67,897,827 65,473,371 59,227,239 ================================================================================================================================= Average Revenue Per Kilowatt-Hour (cents): Residential 7.30 7.18 6.96 6.84 6.93 Commercial 6.55 6.55 6.39 6.39 6.68 Industrial 3.84 3.95 3.74 3.80 4.06 Total retail 5.60 5.62 5.39 5.40 5.59 Sales for resale 2.91 3.10 2.78 3.07 3.38 Total sales 4.91 4.95 4.57 4.70 5.04 Residential Average Annual Kilowatt-Hour Use Per Customer 14,097 14,370 13,254 13,705 13,686 Residential Average Annual Revenue Per Customer $1,028.76 $1,031.21 $922.21 $937.95 $948.71 Plant Nameplate Capacity Ratings (year-end) (megawatts) 11,151 11,151 11,151 11,151 10,831 Maximum Peak-Hour Demand (megawatts): Winter 8,863 7,757 8,478 8,413 7,958 Summer 10,739 10,329 9,778 9,912 10,090 Annual Load Factor (percent) 59.7 62.9 62.7 61.3 59.2 Plant Availability (percent): Fossil-steam 80.4 85.6 86.3 86.6 88.3 Nuclear 91.0 80.2 88.8 90.5 81.1 - --------------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 64.1 65.3 65.7 67.0 67.1 Nuclear 17.8 16.3 17.9 18.5 17.1 Hydro 4.7 6.9 7.5 7.1 7.0 Oil and gas 1.1 1.5 0.7 0.4 0.4 Purchased power - From non-affiliates 4.5 3.3 2.4 2.4 2.7 From affiliates 7.8 6.7 5.8 4.6 5.7 - --------------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 100.0 =================================================================================================================================
II-79 GEORGIA POWER COMPANY FINANCIAL SECTION II-80 MANAGEMENT'S REPORT Georgia Power Company 1999 Annual Report The management of Georgia Power Company has prepared this annual report and is responsible for the financial statements and related information. These statements were prepared in accordance with generally accepted accounting principles appropriate in the circumstances, and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that the books and records reflect only authorized transactions of the Company. Limitations exist in any system of internal controls based upon the recognition that the cost of the system should not exceed its benefits. The Company believes that its system of internal accounting controls maintains an appropriate cost/benefit relationship. The Company's system of internal accounting controls is evaluated on an ongoing basis by the Company's internal audit staff. The Company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, which is composed of three directors who are not employees, provides a broad overview of management's financial reporting and control functions. At least three times a year this committee meets with management, the internal auditors, and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal control and financial reporting matters. The internal auditors and the independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the Company's operations are conducted with a high standard of business ethics. In management's opinion, the financial statements present fairly, in all material respects, the financial position, results of operations and cash flows of Georgia Power Company in conformity with generally accepted accounting principles. /s/David M. Ratcliffe David M. Ratcliffe President and Chief Executive Officer /s/Thomas A. Fanning Thomas A. Fanning Executive Vice President, Treasurer and Chief Financial Officer February 16, 2000 II-81 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Georgia Power Company: We have audited the accompanying balance sheets and statements of capitalization of Georgia Power Company (a Georgia corporation and a wholly owned subsidiary of Southern Company) as of December 31, 1999 and 1998, and the related statements of income, common stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements (pages 11-91 through 11-110) referred to above present fairly, in all material respects, the financial position of Georgia Power Company as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/Arthur Andersen LLP Atlanta, Georgia February 16, 2000 II-82 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Georgia Power Company 1999 Annual Report RESULTS OF OPERATIONS Earnings Georgia Power Company's 1999 earnings totaled $541 million, representing a $29 million (5.1 percent) decrease from 1998. This earnings decrease is primarily due to the recognition of interest income in 1998 as a result of the resolution of tax issues with the Internal Revenue Service (IRS). Earnings from normal operations increased due primarily to lower accelerated depreciation under the 1998 Georgia Public Service Commission (GPSC) rate order, sales growth and decreased financing costs, partially offset by retail rate reductions under the new order and lower wholesale revenues. Earnings for 1998 totaled $570 million, representing a $24 million (4.0 percent) decrease from 1997. This earnings decrease resulted primarily from higher operating expenses, accelerated depreciation charges pursuant to a previous GPSC retail accounting order ending December 1998, lower wholesale revenues, and the write-off of a portion of the Rocky Mountain plant investment. These decreases to earnings were partially offset by higher retail revenues, lower financing costs and the effect of the IRS settlement. Revenues The following table summarizes the factors impacting operating revenues for the 1997-1999 period: Increase (Decrease) From Prior Year -------------------------------- 1999 1998 1997 -------------------------------- Retail - (in millions) 1998 GPSC rate order $(262) $ - $ - Revenue subject to refund (79) - - Sales growth 102 174 62 Weather (53) 101 (74) Fuel cost recovery and other 44 45 (33) - -------------------------------------------------------------------- Total retail (248) 320 (45) - -------------------------------------------------------------------- Sales for resale - Non-affiliates (49) (23) 1 Affiliates (5) 43 3 - -------------------------------------------------------------------- Total sales for resale (54) 20 4 - -------------------------------------------------------------------- Other operating revenues 21 13 10 - -------------------------------------------------------------------- Total operating revenues $(281) $ 353 $ (31) ==================================================================== Percent change (5.9)% 8.0% (0.7)% - -------------------------------------------------------------------- Retail revenues of $4.1 billion in 1999 decreased $248 million (5.8 percent) primarily due to retail rate reductions under the 1998 GPSC rate order. Pursuant to the order, in 1999 the Company also recorded $79 million of revenue subject to refund for estimated earnings above 12.5 percent retail return on common equity. Refunds will be made to customers in 2000. See Note 3 to the financial statements under "Retail Rate Orders" for additional information. Retail revenues of $4.3 billion in 1998 increased $320 million (8.0 percent) from 1997 primarily due to higher energy sales to residential and commercial customers. Fuel revenues generally represent the direct recovery of fuel expense, including the fuel component of purchased energy, and do not affect net income. Wholesale revenues from sales to non-affiliated utilities decreased in 1999 and 1998 and were as follows: 1999 1998 1997 ------------------------------- (in millions) Outside service area - Long-term contracts $ 55 $ 51 $ 71 Other sales 74 93 79 Inside service area 81 115 132 - --------------------------------------------------------------- Total $ 210 $ 259 $ 282 =============================================================== Revenues from long-term contracts outside the service area increased slightly in 1999 due to increased energy sales and decreased in 1998 primarily due to lower capacity charges and decreased energy sales. See Note 7 to the financial statements for further information regarding these sales. Revenues from other sales outside the service area decreased in 1999 and increased in 1998 primarily due to the effect of power marketing activities and were generally offset by a corresponding decrease and increase, respectively, in purchased power from non-affiliates. Wholesale revenues from customers within the service area decreased in 1999 and 1998 primarily due to a decrease in revenues under a power supply agreement with Oglethorpe Power Corporation (OPC). Revenues from sales to affiliated companies within the Southern electric system, as well as purchases of energy, will vary from year to year depending on demand and the availability and cost of generating resources at each company. These transactions do not have a significant impact on earnings. II-83 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1999 Annual Report Other operating revenues increased $21 million (21 percent) primarily due to increased revenues from equipment rentals. In 1998, other operating revenues increased $13 million (14.9 percent) primarily due to increased revenues from the transmission of electricity. Kilowatt-hour (KWH) sales for 1999 and the percent change by year were as follows: Percent Change ---------------------------- 1999 KWH 1999 1998 1997 --------- ----------------------------- (in billions) Residential 19.4 (0.4)% 12.6% (3.0)% Commercial 23.7 3.7 8.2 1.5 Industrial 27.3 0.1 2.2 1.9 Other 0.6 1.5 1.0 0.4 -------- Total retail 71.0 1.1 6.9 0.4 -------- Sales for resale - Non-affiliates 5.0 (21.4) (5.2) (13.6) Affiliates 1.8 (11.9) 19.4 44.6 -------- Total sales for resale 6.8 (19.1) (0.3) (6.0) -------- Total sales 77.8 (1.0) 6.0 (0.3) ======== - ------------------------------------------------------------------ Residential sales decreased 0.4 percent in 1999 due to moderate summer temperatures, while commercial sales increased 3.7 percent due to strong regional economic growth. Industrial sales remained fairly constant. Residential and commercial sales increased in 1998 12.6 percent and 8.2 percent, respectively, and industrial sales increased slightly by 2.2 percent. The increases are attributed primarily to sales growth and hotter temperatures in the summer months. Expenses Fuel costs constitute the single largest expense for the Company. The mix of fuel sources for generation of electricity is determined primarily by system load, the unit cost of fuel consumed, and the availability of hydro and nuclear generating units. The amount and sources of generation and the average cost of fuel per net KWH generated were as follows: 1999 1998 1997 ------------------------- Total generation (billions of KWH) 69.3 69.1 66.5 Sources of generation (percent) -- Coal 75.5 73.3 74.8 Nuclear 21.6 21.6 21.8 Hydro 1.0 2.6 2.7 Oil and gas 1.9 2.5 0.7 Average cost of fuel per net KWH generated (cents) -- 1.34 1.36 1.32 - --------------------------------------------------------------- Fuel expense increased 0.3 percent in 1999 due to a slight increase in generation, partially offset by a lower average cost of fuel. Fuel expense increased 7.0 percent in 1998 primarily due to an increase in generation to meet higher energy demands and a higher average cost of fuel. Purchased power expense decreased slightly in 1999. Purchased power expense in 1998 increased $70 million (21.9 percent) over the prior year primarily due to higher energy demands and power marketing activities. As discussed earlier, the expense associated with energy purchased for power marketing activities is generally offset by revenue when resold to non-affiliates. Other operation and maintenance expenses increased 1.6 percent in 1999 primarily due to increased generating plant maintenance, partially offset by a reduction in the charges related to the implementation of a customer service system in 1998, decreased year 2000 readiness costs, and decreased employee benefit provisions. Other operation and maintenance expenses increased 15.5 percent in 1998 primarily due to expenses related to the customer service system discussed above, modification of certain information systems for year 2000 compliance discussed below, an increase in outage costs at generating facilities, and increased line maintenance. II-84 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1999 Annual Report Depreciation and amortization decreased $346 million in 1999 primarily due to higher depreciation charges recognized in 1998 under the prior GPSC accounting order and the completion in 1998 of the amortization of deferred Plant Vogtle costs. Depreciation and amortization increased $121 million in 1998 primarily due to accelerated depreciation of generating plant pursuant to the previous retail accounting order and an increase in plant-in-service. See Note 3 to the financial statements under "Retail Rate Orders" for additional information. As a result of the 1998 retail rate order, the Company recorded a $34 million pre-tax write-off associated with a portion of its investment in the Rocky Mountain plant in 1998. See Note 3 to the financial statements under "Rocky Mountain Status" for additional information. Interest income decreased in 1999 primarily due to the 1998 recognition of $73 million in interest income resulting from the resolution of tax issues with the IRS and the State of Georgia. Other, net decreased in 1999 due primarily to increased bad debt expense related to consumer energy efficiency improvement financing. Financing costs decreased in 1999 and 1998. These changes were primarily due to the refinancing or retirement of securities. The Company refinanced or retired $775 million and $754 million of securities in 1999 and 1998, respectively. Dividends on preferred stock decreased $4 million and $13 million in 1999 and 1998, respectively. Pursuant to the new three-year retail rate order which the Company began operating under on January 1, 1999, the Company recorded $85 million in accelerated amortization of premium on reacquired debt. Other interest charges decreased $12 million in 1999 primarily due to the recognition in 1998 of interest related to tax issues. Distributions on preferred securities of subsidiary companies increased $11 million and $7 million in 1999 and 1998, respectively, primarily due to the issuance of additional mandatorily redeemable preferred securities in 1999 and 1997. Effects of Inflation The Company is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the Company is recovering its costs of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on the Company because of the large investment in utility plants with long economic life. 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 and preferred securities. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. FUTURE EARNINGS POTENTIAL The results of operations for the past three years are not necessarily indicative of future earnings. The level of future earnings depends on numerous factors including regulatory matters and energy sales. The Company currently operates as a vertically integrated utility providing electricity to customers within its traditional service area located in the State of Georgia. Prices for electricity provided by the Company to retail customers are set by the GPSC under cost-based regulatory principles. On January 1, 1999, the Company began operating under a new three-year retail rate order. The Company's earnings will continue to be evaluated against a retail return on common equity range of 10 percent to 12.5 percent, with rate reductions of $262 million in 1999 and an additional reduction of $24 million in 2000. The order provides for $85 million in each year, plus up to $50 million of any earnings above the 12.5 percent return during the second and third years, to be applied to accelerated amortization or depreciation of assets. Two-thirds of any additional earnings above the 12.5 percent return will be applied to rate reductions, with the remaining one-third retained by the Company. Pursuant to the order, in 1999 the Company recorded $85 million in accelerated amortization of premium on reacquired debt. The Company also recorded $79 million of revenue subject to refund for estimated earnings above 12.5 percent. Refunds will be made to customers in 2000. The Company will not file for a general base rate increase unless its projected retail return on common equity falls below 10 percent, and will be required to file a general rate case on July 1, 2001 in response to which the GPSC would be expected to determine whether the rate order should be continued, modified, or discontinued. See Note 3 to the financial statements under "Retail Rate Orders" for additional information. II-85 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1999 Annual Report Growth in energy sales is subject to a number of factors which traditionally have included changes in contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, weather, competition, initiatives to increase sales to existing customers, and the rate of economic growth in the Company's service area. Assuming normal weather, retail sales growth from 1999 is projected to be approximately 2.9 percent annually on average during 2000 through 2002. The Company has entered into two purchase power agreements scheduled to begin after 1999. The first agreement is for five years and will begin in June 2000. The agreement is for approximately 215 megawatts, and capacity payments are estimated to be between $7 million and $8 million each year. The second agreement is for seven years and will begin in June 2002. The agreement is for approximately 310 megawatts during the first three years and approximately 465 megawatts during the remaining four years. Capacity payments are estimated to be between $16 million and $17 million in each of the first three years and then between $23 million and $24 million in each of the last four years of the contract. The Company is constructing a ten unit, 800 megawatt combustion turbine peaking power plant that will serve the wholesale market. Units one through eight will begin operation in 2000; units nine and ten will begin operation in 2001. The Company also plans to construct a 570 megawatt combined cycle unit that will begin operation in 2002 and will also serve the wholesale market. The Company has entered into wholesale contracts to sell 560 megawatts of the new capacity. The Company is also planning to construct two 568 megawatt combined cycle units at Plant Wansley, to begin operation in 2002. The Company has applied to the GPSC for certification of these units to serve retail customers. Savannah Electric (also a wholly-owned subsidiary of Southern Company) will purchase 200 megawatts of capacity from these units. See Note 4 to the financial statements under "Construction Program" for additional information. Compliance costs related to current and future environmental laws, regulations, and litigation could affect earnings if such costs are not fully recovered. See "Environmental Issues" for further discussion of these matters. The electric utility industry in the United States is currently undergoing a period of dramatic change as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). The Energy Act allows independent power producers (IPPs) to access a utility's transmission network in order to sell electricity to other utilities. The Company is aggressively working to maintain and expand its share of wholesale sales in the Southeastern power markets. Although the Energy Act does not permit retail customer access, it was a major catalyst for the current restructuring and consolidation taking place within the utility industry. On December 20, 1999, the Federal Energy Regulatory Commission (FERC) issued its final rule on Regional Transmission Organizations (RTOs). The order encourages utilities owning transmission systems to form RTOs on a voluntary basis. To facilitate the development of RTOs, the FERC will convene regional conferences for utilities, customers, and other members of the public to discuss formation of RTOs. In addition to participating in the regional conferences, utilities owning transmission systems, including the Company, are required to make a filing by October 15, 2000. The filing must contain either a proposal for RTO participation or a description of the efforts made to participate in an RTO, the reasons for non-participation, any obstacles to participation, and any plans for further work toward participation. The RTOs that are proposed in the filings should be operational by December 15, 2001. The Company is evaluating the issue and the outcome cannot now be determined. The Company continues to compete with other electric suppliers within the state. In Georgia, most new retail customers with at least 900 kilowatts of connected load may choose their electricity supplier. Numerous federal and state initiatives are in varying stages to promote wholesale and retail competition across the nation. Among other things, these initiatives allow customers to choose their electricity provider. As these initiatives materialize, the structure of the utility industry could radically change. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While the GPSC has held workshops to discuss retail competition and industry restructuring, there has been no proposed or enacted legislation to date in Georgia. Enactment would require numerous issues to be resolved, including significant ones relating to II-86 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1999 Annual Report transmission pricing and recovery of costs. The GPSC plans to release a report on an initial assessment of the range of potential stranded costs in 2000. The inability of the Company to recover all its costs, including the regulatory assets described in Note 1 to the financial statements, could have a material effect on the financial condition of the Company. The Company is attempting to reduce regulatory assets and other costs through the three-year retail rate order. See Note 3 to the financial statements under "Retail Rate Orders" for additional information. Unless the Company remains a low-cost producer and provides quality service, the Company's retail energy sales growth could be limited as competition increases. Conversely, continuing to be a low-cost producer could provide opportunities to increase market share and profitability in markets that evolve with changing regulation. The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of the 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. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. The staff of the Securities and Exchange Commission has questioned certain of the current accounting practices of the electric utility industry - including the Company's - regarding the recognition, measurement, and classification of decommissioning costs for nuclear generating facilities in the financial statements. In response to these questions, the FASB has decided to review the accounting for liabilities related to the retirement of long-lived assets, including nuclear decommissioning. If the FASB issues new accounting rules, the estimated costs of retiring the Company's nuclear and other facilities may be required to be recorded as liabilities in the Balance Sheets. Also, the annual provisions for such costs could change. Because of the Company's current ability to recover asset retirement costs through rates, these changes would not have a significant adverse effect on results of operations. See Note 1 to the financial statements under "Depreciation and Nuclear Decommissioning" for additional information. Year 2000 Challenge The work undertaken by the Company to prepare critical computer systems and other date sensitive devices to function correctly in the Year 2000 was successful. There were no material incidents reported and no disruption of electric service within the service area. There were no reports of significant events regarding third parties that impacted revenues or expenses. For the Company, original projected total costs for Year 2000 readiness, including the Company's share of costs of Southern Nuclear Operating Company, were approximately $38 million. These costs include labor necessary to identify, test, and renovate affected devices and systems, and costs for reporting requirements to state and federal agencies. From its inception through December 31, 1999, the Year 2000 program costs, recognized as expense, amounted to $41 million. An additional $2 million is projected to be spent in 2000. Exposure to Market Risks Due to cost-based rate regulation, the Company currently has limited exposure to market volatility in interest rates and prices of electricity. See the discussion above for potential changes in industry structure. To mitigate residual risks relative to movements in electricity prices, the Company enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market. Realized gains and losses are recognized in the income statement as incurred. At December 31, 1999, exposure from these activities was not material to the Company's financial position, results of operations, or cash flows. Also, based on the Company's overall interest rate exposure at December 31, 1999, a near-term 100 basis point change in interest rates would not materially affect the financial statements. New Accounting Standard The FASB has issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which must be adopted by January 2001. This statement establishes accounting and reporting standards for derivative instruments - including certain derivative instruments embedded in other contracts - and for II-87 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1999 Annual Report hedging activities. The Company has not yet quantified the impact of adopting this statement on its financial statements; however, the adoption could increase volatility in earnings. FINANCIAL CONDITION Plant Additions In 1999 gross utility plant additions were $790 million. These additions were primarily related to transmission and distribution facilities, the purchase of nuclear fuel and the construction of additional combustion turbine and combined cycle units. The funds needed for gross property additions are currently provided from operations, short or long-term debt, and from equity from Southern. The Statements of Cash Flows provide additional details. Financing Activities In 1999 the Company continued to lower its financing costs by refinancing higher-cost issues. New issues during 1997 through 1999 totaled $1.8 billion and retirement or repayment of securities totaled $2.2 billion. Special purpose subsidiaries of the Company have issued mandatorily redeemable preferred securities. See Note 9 to the financial statements under "Preferred Securities" for additional information. Composite financing rates for long-term debt, preferred stock and preferred securities for the years 1997 through 1999, as of year-end, were as follows: 1999 1998 1997 ---------------------------------- Composite interest rate on long-term debt 5.48% 5.64% 6.11% Composite preferred stock dividend rate 4.60 5.52 5.18 Composite preferred securities dividend rate 7.49 7.89 7.89 - ------------------------------------------------------------------ Liquidity and Capital Requirements Cash provided from operations decreased by $206 million in 1999, primarily due to lower retail revenues. The Company estimates that construction expenditures for the years 2000 through 2002 will total $1.2 billion, $1.5 billion and $1.5 billion, respectively. Investments in additional combustion turbine and combined cycle generating units, transmission and distribution facilities, enhancements to existing generating plants, and equipment to comply with environmental requirements are planned. Cash requirements for improvement fund requirements, redemptions announced, and maturities of long-term debt are expected to total $168 million during 2000 through 2002. As a result of requirements by the Nuclear Regulatory Commission, the Company has established external trust funds for the purpose of funding nuclear decommissioning costs. The amount to be funded is $30 million each year in 2000, 2001 and 2002. For additional information concerning nuclear decommissioning costs, see Note 1 to the financial statements under "Depreciation and Nuclear Decommissioning." Sources of Capital The Company expects to meet future capital requirements primarily using funds generated from operations and equity funds from Southern and, if needed, by the issuance of new debt and equity securities, term loans, and short-term borrowings. To meet short-term cash needs and contingencies, the Company had approximately $1.3 billion of unused credit arrangements with banks at the beginning of 2000. See Note 9 to the financial statements under "Bank Credit Arrangements" for additional information. The Company historically has relied on issuances of first mortgage bonds and preferred stock, in addition to pollution control revenue bonds issued for its benefit by public authorities, to meet its long-term external financing requirements. Recently, the Company's financings have also consisted of unsecured debt and trust preferred securities. In this regard, the Company II-88 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1999 Annual Report sought and obtained stockholder approval in 1997 to amend its corporate charter eliminating restrictions on the amounts of unsecured indebtedness it may incur. If the Company chooses to issue first mortgage bonds or preferred stock, it is required to meet certain coverage requirements specified in its mortgage indenture and corporate charter. The Company's ability to satisfy all coverage requirements is such that it could issue new first mortgage bonds and preferred stock to provide sufficient funds for all anticipated requirements. ENVIRONMENTAL ISSUES Clean Air Act In November 1990, the Clean Air Act was signed into law. Title IV of the Clean Air Act -- the acid rain compliance provision of the law -- significantly impacted the operating companies of Southern Company, including Georgia Power. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants are required in two phases. Phase I compliance began in 1995 and initially affected 28 generating units in the Southern electric system. As a result of Southern Company's compliance strategy, an additional 22 generating units were brought into compliance with Phase I requirements. Phase II compliance is required in 2000, and all fossil-fired generating plants in the Southern electric system are affected. Southern Company achieved Phase I sulfur dioxide compliance at the affected units by switching to low-sulfur coal, which required some equipment upgrades. Construction expenditures for Georgia Power's Phase I compliance totaled approximately $167 million. For Phase II sulfur dioxide compliance, Southern Company currently uses emission allowances and increased fuel switching. Also, equipment to control nitrogen oxide emissions was installed on additional system fossil-fired units as necessary to meet Phase II limits and ozone non-attainment requirements for metropolitan Atlanta through 2000. Compliance for Phase II and initial ozone non-attainment requirements increased total construction expenditures by $38 million. The State of Georgia submitted a plan for nitrogen oxide emission reductions in Atlanta's ozone non-attainment area on October 29, 1999. The Environmental Protection Agency (EPA) found this plan to be deficient and required the State to address the shortfalls of the plan. Based on the revised plan approved by the Georgia Department of Natural Resources on January 26, 2000, the Company estimates its capital expenditures to comply with the plan to be approximately $713 million through 2003, of which $705 million remains to be spent. It is still uncertain at this time what additional controls may be required at the Company's plants beyond the recently submitted plan. A significant portion of costs related to the acid rain provision of the Clean Air Act is expected to be recovered through existing ratemaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. Environmental Protection Agency Litigation On November 3, 1999, the EPA brought a civil action in the U.S. District Court for the Northern District of Georgia. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to coal-fired generating facilities at the Company's Bowen and Scherer plants. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The EPA concurrently issued a notice of violation to the Company relating to these two plants. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation. The complaint and the notice of violation are similar to those brought against and issued to several other electric utilities. The complaint and the notice of violation allege that the Company failed to secure necessary permits or install additional pollution equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. The Company believes that it complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows and possibly financial condition unless such costs can be recovered through regulated rates. II-89 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1999 Annual Report Other Environmental Issues In July 1997, the EPA revised the national ambient air quality standards for ozone and particulate matter. This revision makes the standards significantly more stringent. In September 1998, the EPA issued the final regional nitrogen oxide rule to the states for implementation. The final rule affects 22 states including Georgia. The EPA's July 1997 standards and the September 1998 rule are being challenged in the courts by several states and industry groups. Implementation of the final state rules for these three initiatives could require substantial further reductions in nitrogen oxide and sulfur dioxide emissions from fossil-fired generating facilities and other industries in these states. Additional compliance costs and capital expenditures resulting from the implementation of these rules and standards cannot be determined until the results of legal challenges are known, and the states have adopted their final rules. The Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the Company could incur costs to clean up properties currently or previously owned. The Company conducts studies to determine the extent of any required clean-up costs and has recognized in the financial statements costs to clean up known sites. These costs for the Company amounted to $4 million, $6 million and $4 million in 1999, 1998 and 1997, respectively. Additional sites may require environmental remediation for which the Company may be liable for a portion of or all required clean-up costs. See Note 3 to the financial statements under "Other Environmental Contingencies" for information regarding the Company's potentially responsible party status at a site in Brunswick, Georgia, and the status of sites listed on the State of Georgia's hazardous site inventory. The EPA and state environmental regulatory agencies are reviewing and evaluating various matters including: nitrogen oxide emission control strategies for ozone non-attainment areas; additional controls for hazardous air pollutant emissions; control strategies to reduce regional haze; and hazardous waste disposal requirements. The impact of any new standards will depend on the development and implementation of applicable regulations. Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of the Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electromagnetic fields and other environmental and health concerns could significantly affect the Company. The impact of new legislation -- if any -- will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electromagnetic fields. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION The Company's 1999 Annual Report contains forward-looking and historical information. The Company cautions that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking information. Accordingly, there can be no assurance that such indicated results will be realized. These factors include legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry; the extent and timing of the entry of additional competition in the Company's markets; potential business strategies -- including acquisitions or dispositions of assets or internal restructuring -- that may be pursued by Southern Company; state and federal rate regulation; changes in or application of environmental and other laws and regulations to which the Company is subject; political, legal and economic conditions and developments; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather and other natural phenomena; and other factors discussed in the reports--including Form 10-K--filed from time to time by the Company with the Securities and Exchange Commission. II-90
STATEMENTS OF INCOME For the Years Ended December 31, 1999, 1998, 1997 Georgia Power Company 1999 Annual Report - --------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues: Retail sales $4,050,088 $4,298,217 $3,978,299 Sales for resale -- Non-affiliates 210,104 259,234 282,365 Affiliates 76,426 81,606 38,708 Other revenues 120,057 99,196 86,345 - ---------------------------------------------------------------------------------------------------------------------------- Total operating revenues 4,456,675 4,738,253 4,385,717 - ---------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 919,876 917,119 857,269 Purchased power -- Non-affiliates 214,573 229,960 143,409 Affiliates 174,989 161,003 177,240 Other 784,359 819,589 702,159 Maintenance 411,983 358,218 317,199 Depreciation and amortization 467,966 813,802 693,217 Taxes other than income taxes 202,853 204,623 207,192 Write down of Rocky Mountain plant - 33,536 - - ---------------------------------------------------------------------------------------------------------------------------- Total operating expenses 3,176,599 3,537,850 3,097,685 - ---------------------------------------------------------------------------------------------------------------------------- Operating Income 1,280,076 1,200,403 1,288,032 Other Income (Expense): Interest income 5,583 79,578 10,581 Equity in earnings of unconsolidated subsidiaries 2,721 3,735 4,266 Other, net (47,986) (38,277) (29,822) - ---------------------------------------------------------------------------------------------------------------------------- Earnings Before Interest and Income Taxes 1,240,394 1,245,439 1,273,057 - ---------------------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 162,303 180,746 194,344 Interest on notes payable 19,787 12,213 7,795 Amortization of debt discount, premium and expense, net (Note 3) 100,115 13,366 14,179 Other interest charges, net (2,336) 9,988 1,292 Distributions on preferred securities of subsidiary 65,774 54,327 47,369 - ---------------------------------------------------------------------------------------------------------------------------- Total interest charges and other, net 345,643 270,640 264,979 - ---------------------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes 894,751 974,799 1,008,078 Income taxes 351,639 398,632 395,155 - ---------------------------------------------------------------------------------------------------------------------------- Net Income 543,112 576,167 612,923 Dividends on Preferred Stock 1,729 5,939 18,927 - ---------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 541,383 $ 570,228 $ 593,996 ============================================================================================================================ The accompanying notes are an integral part of these statements.
II-91
STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1999, 1998, and 1997 Georgia Power Company 1999 Annual Report - -------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 (in thousands) Operating Activities: Net income $ 543,112 $ 576,167 $ 612,923 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 578,878 867,637 674,286 Deferred income taxes and investment tax credits, net (34,930) (93,005) (21,425) Allowance for equity funds used during construction (734) (3,235) (6,012) Amortization of deferred Plant Vogtle costs - 50,412 120,577 Other, net 43,555 (6,781) 1,991 Changes in certain current assets and liabilities -- Receivables, net 21,665 (25,453) 13,387 Inventories (32,582) (11,156) 39,748 Payables 13,095 47,862 (10,007) Taxes accrued (2,832) 22,139 (3,596) Energy cost recovery, retail (26,862) (7,649) (20,103) Other 93,620 (15,142) (30,026) - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 1,195,985 1,401,796 1,371,743 - ---------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (790,464) (499,053) (475,921) Other (27,454) 67,031 16,223 - ---------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (817,918) (432,022) (459,698) - ---------------------------------------------------------------------------------------------------------------------------- Financing Activities: Increase (decrease) in notes payable, net 295,389 (25,378) (64,266) Proceeds -- Senior notes 100,000 495,000 - Pollution control bonds 238,000 89,990 284,700 Preferred securities 200,000 - 364,250 Capital contributions from parent company 155,777 235 85 Retirements -- First mortgage bonds (404,000) (558,250) (60,258) Pollution control bonds (235,000) (89,990) (284,700) Preferred securities (100,000) - - Preferred stock (36,231) (106,064) (356,392) Capital distributions to parent company - (270,000) (205,000) Special deposits -- redemption funds - - 44,454 Payment of preferred stock dividends (984) (9,137) (26,917) Payment of common stock dividends (543,000) (536,600) (520,000) Other (29,630) (26,641) (20,024) - ---------------------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (359,679) (1,036,835) (844,068) - ---------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents 18,388 (67,061) 67,977 - ---------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at Beginning of Year 16,272 83,333 15,356 - ---------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $34,660 $16,272 $83,333 - ---------------------------------------------------------------------------------------------------------------------------- Supplemental Cash Flow Information: Cash paid during the year for -- Interest (net of amount capitalized) $ 247,050 $ 269,524 $ 258,298 Income taxes (net of refunds) 394,457 480,318 427,596 - -------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
II-92
BALANCE SHEETS At December 31, 1999 and 1998 Georgia Power Company 1999 Annual Report - -------------------------------------------------------------------------------------------------------------------------- Assets 1999 1999 - -------------------------------------------------------------------------------------------------------------------------- (in thousands) Current Assets: Cash and cash equivalents $ 34,660 $ 16,272 Receivables -- Customer accounts receivable 438,161 439,420 Other accounts and notes receivable 102,544 99,574 Affiliated companies 16,006 16,817 ccumulated provision for uncollectible accounts (7,000) (5,500) Fossil fuel stock, at average cost 126,298 104,133 Materials and supplies, at average cost 253,894 243,477 Other 63,990 73,280 - ------------------------------------------------------------------------------------------------------------------------- Total current assets 1,028,553 987,473 - ------------------------------------------------------------------------------------------------------------------------- Property, Plant, and Equipment: In service 15,798,624 15,441,146 Less accumulated provision for depreciation 6,538,574 6,109,331 - ------------------------------------------------------------------------------------------------------------------------- 9,260,050 9,331,815 Nuclear fuel, at amortized cost 119,288 121,169 Construction work in progress (Note 4) 425,975 189,849 - ------------------------------------------------------------------------------------------------------------------------- Total property, plant, and equipment 9,805,313 9,642,833 - ------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Equity investments in unconsolidated subsidiaries (Note 4) 25,024 24,360 Nuclear decommissioning trusts 371,914 284,536 Other 33,766 34,781 - ------------------------------------------------------------------------------------------------------------------------- Total other property and investments 430,704 343,677 - ------------------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes (Note 8) 590,893 604,488 Prepaid pension costs 145,801 103,606 Debt expense, being amortized 55,824 51,261 Premium on reacquired debt, being amortized 99,331 173,858 Other 120,441 126,422 - ------------------------------------------------------------------------------------------------------------------------- Total deferred charges and other assets 1,012,290 1,059,635 - ------------------------------------------------------------------------------------------------------------------------- Total Assets $12,276,860 $12,033,618 ========================================================================================================================= The accompanying notes are an integral part of these balance sheets.
II-93
BALANCE SHEETS At December 31, 1999 and 1998 Georgia Power Company 1999 Annual Report - --------------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholder's Equity 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- (in thousands) Current Liabilities: Securities due within one year (Note 9) $ 155,772 $ 435,085 Notes payable 636,241 340,852 Accounts payable -- Affiliated 76,591 75,774 Other 346,785 326,317 Customer deposits 74,695 69,584 Taxes accrued -- Income taxes 7,914 15,801 Other 127,414 122,359 Interest accrued 58,665 60,187 Vacation pay accrued 38,143 34,443 Other 153,767 66,350 - --------------------------------------------------------------------------------------------------------------------------------- Total current liabilities 1,675,987 1,546,752 - --------------------------------------------------------------------------------------------------------------------------------- Long-Term Debt (See accompanying statements) 2,688,358 2,744,362 - --------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 8) 2,202,565 2,249,613 Deferred credits related to income taxes (Note 8) 267,083 284,017 Accumulated deferred investment tax credits (Note 8) 367,114 381,914 Employee benefits provisions 181,529 177,148 Other 151,812 160,863 - --------------------------------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 3,170,103 3,253,555 - --------------------------------------------------------------------------------------------------------------------------------- Company Obligated Mandatorily Redeemable Preferred Securities Of Subsidiary Trusts Holding Company Junior Subordinated Notes (See accompanying statements) 789,250 689,250 - --------------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock (See accompanying statements) 14,952 15,527 - --------------------------------------------------------------------------------------------------------------------------------- Common Stockholder's Equity (See accompanying statements) 3,938,210 3,784,172 - --------------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholder's Equity $12,276,860 $12,033,618 ================================================================================================================================= The accompanying notes are an integral part of these balance sheets.
II-94
STATEMENTS OF CAPITALIZATION At December 31, 1999 and 1998 Georgia Power Company 1999 Annual Report - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) (percent of total) Long-Term Debt: First mortgage bonds -- Maturity Interest Rates --------- --------------- September 1, 1999 6.125% $ - $ 195,000 March 1, 2000 6.00% 100,000 100,000 April 1, 2003 6.625% 200,000 200,000 August 1, 2003 6.35% 75,000 75,000 2005 6.07% 10,000 10,000 2008 6.875% 50,000 50,000 2023 through 2025 7.55% to 7.95% 57,000 266,000 - ---------------------------------------------------------------------------------------------------------- Total first mortgage bonds 492,000 896,000 - ---------------------------------------------------------------------------------------------------------- Pollution control bonds -- (Note 9) Maturity Interest Rates -------- -------------- 2000 4.375% 50,000 50,000 2005 5.00% 57,000 57,000 2011 Variable (3.95% at 1/1/00) 10,450 10,450 2018-2019 6.00% to 6.35% 13,100 63,100 2020-2024 5.75% to 6.25% 192,270 377,270 2022-2024 Variable (3.70% to 5.05% at 1/1/00) 352,490 352,490 2025 6.00% to 6.10% 145,115 145,115 2025-2029 Variable (3.70% to 5.05% at 1/1/00) 475,765 475,765 2030-2034 Variable (3.70% to 5.05% at 1/1/00) 140,000 140,000 2034 5.25% to 5.45% 238,000 - - ---------------------------------------------------------------------------------------------------------- Total pollution control bonds 1,674,190 1,671,190 - ---------------------------------------------------------------------------------------------------------- Senior notes -- (Note 9) Maturity Interest Rates -------- -------------- December 1, 2005 5.50% 150,000 150,000 December 31, 2038 6.60% 200,000 200,000 March 31, 2039 6.625% 100,000 - December 31, 2047 6.875% 145,000 145,000 - ---------------------------------------------------------------------------------------------------------- Total senior notes 595,000 495,000 - ---------------------------------------------------------------------------------------------------------- Other long-term debt (Note 9) 85,851 86,280 - ---------------------------------------------------------------------------------------------------------- Unamortized debt discount, net (2,911) (4,679) - ---------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $156,062,000) 2,844,130 3,143,791 Less amount due within one year (Note 9) 155,772 399,429 - ------------------------------------------------------------------------------------------------------------------------------------ Total long-term debt excluding amount due within one year $2,688,358 $2,744,362 36.2 % 38.0 % - ------------------------------------------------------------------------------------------------------------------------------------
II-95
STATEMENTS OF CAPITALIZATION (continued) At December 31, 1999 and 1998 Georgia Power Company 1999 Annual Report - ----------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Company Obligated Mandatorily Redeemable Preferred Securities (Note 9): $25 liquidation value -- 9.00% $ - $ 100,000 $25 liquidation value -- 7.75% 225,000 225,000 $25 liquidation value -- 7.60% 175,000 175,000 $25 liquidation value -- 7.75% 189,250 189,250 $25 liquidation value -- 6.85% 200,000 - - ----------------------------------------------------------------------------------------------------------------------------------- Total (annual distribution requirement -- $59,104,000) 789,250 689,250 10.6 9.5 - ----------------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock, without par value: Authorized -- 55,000,000 shares Outstanding -- 149,520 shares at December 31, 1999 Outstanding -- 511,834 shares at December 31, 1998 $100 stated value -- 4.60% to 6.60% 14,952 51,183 - ---------------------------------------------------------------------------------------------------------------------------------- Total cumulative preferred stock (annual dividend requirement -- $688,000) 14,952 51,183 Less amount due within one year (Note 9) - 35,656 - ----------------------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock excluding amount due within one year 14,952 15,527 0.2 0.2 - ----------------------------------------------------------------------------------------------------------------------------------- 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 1,815,983 1,660,206 Premium on preferred stock 40 158 Retained earnings (Note 9) 1,777,937 1,779,558 - ----------------------------------------------------------------------------------------------------------------------------------- Total common stockholder's equity (See accompanying statement) 3,938,210 3,784,172 53.0 52.3 - ----------------------------------------------------------------------------------------------------------------------------------- Total Capitalization $ 7,430,770 $ 7,233,311 100.0 % 100.0 % - ----------------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
II-96
STATEMENTS OF COMMON STOCKHOLDER'S EQUITY For the Years Ended December 31, 1999, 1998, 1997 Georgia Power Company 1999 Annual Report - ------------------------------------------------------------------------------------------------------------------------------ Premium on Common Paid-In Preferred Retained Stock Capital Stock Earnings Total - ------------------------------------------------------------------------------------------------------------------------------ (in thousands) Balance at January 1, 1997 $344,250 $2,134,886 $ 371 $1,674,774 $4,154,281 Net income after dividends on preferred stock - - - 593,996 593,996 Capital distributions to parent company - (205,000) - - (205,000) Capital contributions from parent company - 85 - - 85 Cash dividends on common stock - - - (520,000) (520,000) Preferred stock transactions, net - - (211) (3,423) (3,634) - ------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1997 344,250 1,929,971 160 1,745,347 4,019,728 Net income after dividends on preferred stock - - - 570,228 570,228 Capital distributions to parent company - (270,000) - - (270,000) Capital contributions from parent company - 235 - - 235 Cash dividends on common stock - - - (536,600) (536,600) Preferred stock transactions, net - - (2) 583 581 - ------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1998 344,250 1,660,206 158 1,779,558 3,784,172 Net income after dividends on preferred stock - - - 541,383 541,383 Capital contributions from parent company - 155,777 - - 155,777 Cash dividends on common stock - - - (543,000) (543,000) Preferred stock transactions, net - - (118) (4) (122) - ------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1999 $344,250 $1,815,983 $ 40 $1,777,937 $3,938,210 ============================================================================================================================== The accompanying notes are an integral part of these statements.
II-97 NOTES TO FINANCIAL STATEMENTS Georgia Power Company 1999 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General The Company is a wholly owned subsidiary of Southern Company, which is the parent company of five integrated Southeast utilities, Southern Company Services (SCS), a system service company, Southern Communications Services (Southern LINC), Southern Energy, Inc. (Southern Energy), Southern Nuclear Operating Company (Southern Nuclear), Southern Company Energy Solutions, and other direct and indirect subsidiaries. The integrated Southeast utilities (Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Savannah Electric and Power Company) provide electric service in four states. Contracts among the integrated Southeast utilities - related to jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power -- are regulated by the Federal Energy Regulatory Commission (FERC) or the Securities and Exchange Commission (SEC). SCS provides, at cost, specialized services to Southern Company and subsidiary companies. Southern LINC provides digital wireless communications services to the operating companies and also markets these services to the public within the Southeast. Southern Company Energy Solutions develops new business opportunities related to energy products and services. Southern Nuclear provides services to Southern Company's nuclear power plants. Southern Energy acquires, develops, builds, owns, and operates power production and delivery facilities and provides a broad range of energy-related services to utilities and industrial companies in selected countries around the world. Southern Energy's businesses include independent power projects, integrated utilities, a distribution company, and energy trading and marketing businesses outside the Southeastern United States. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries are subject to the regulatory provisions of this act. The Company is also subject to regulation by the FERC and the Georgia Public Service Commission (GPSC). The Company follows generally accepted accounting principles (GAAP) and complies with the accounting policies and practices prescribed by the respective regulatory commissions. The preparation of financial statements in conformity with GAAP requires the use of estimates, and the actual results may differ from these estimates. Certain prior years' data presented in the financial statements have been reclassified to conform with current year presentation. Related-Party Transactions The Company has an agreement with SCS under which the following services are rendered to the Company at cost: general and design engineering, purchasing, accounting and statistical, finance and treasury, tax, information resources, marketing, auditing, insurance and pension, human resources, systems and procedures, and other services with respect to business and operations and power pool operations. Costs for these services amounted to $253 million, $251 million, and $218 million during 1999, 1998, and 1997, respectively. The Company has an agreement with Southern Nuclear under which the following nuclear-related services are rendered to the Company at cost: general executive and advisory services; general operations, management and technical services; administrative services including procurement, accounting and statistical, employee relations, and systems and procedures services; strategic planning and budgeting services; and other services with respect to business and operations. Costs for these services amounted to $270 million, $269 million, and $220 million during 1999, 1998, and 1997, respectively. Regulatory Assets and Liabilities The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are expected to be credited to customers through the ratemaking process. Pursuant to the terms of the GPSC's 1998 rate order, the Company recorded $85 million in 1999 of additional amortization of premium on reacquired debt. See Note 3 under "Retail Rate Orders" for additional information. Regulatory assets and (liabilities) reflected in the Company's Balance Sheets at December 31 relate to the following: II-98 NOTES (continued) Georgia Power Company 1999 Annual Report 1999 1998 ----------------------- (in millions) Deferred income taxes $ 591 $ 604 Deferred income tax credits (267) (284) Premium on reacquired debt 99 174 Corporate building lease 54 53 Vacation pay 47 44 Postretirement benefits 33 36 Department of Energy assessments 24 26 Deferred nuclear outage costs 26 24 Other, net 3 12 - --------------------------------------------------------------- Total $ 610 $ 689 =============================================================== In the event that a portion of the Company's operations is no longer subject to the provisions of Statement No. 71, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the Company would be required to determine if any impairment to other assets exists, including plant, and write down the assets, if impaired, to their fair value. Revenues and Fuel Costs The Company currently operates as a vertically integrated utility providing electricity to retail customers within its traditional service area located within the state of Georgia, and to wholesale customers in the Southeast. The Company accrues revenues for service rendered but unbilled at the end of each fiscal period. Fuel costs are expensed as the fuel is used. The Company's electric rates include provisions to adjust billings for fluctuations in fuel costs, the energy component of purchased power costs, and certain other costs. Revenues are adjusted for differences between recoverable fuel costs and amounts actually recovered in current rates. The Company has a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. For all periods presented, uncollectible accounts averaged less than 1 percent of revenues. Fuel expense includes the amortization of the cost of nuclear fuel and a charge, based on nuclear generation, for the permanent disposal of spent nuclear fuel. Total charges for nuclear fuel included in fuel expense amounted to $74 million in 1999, $74 million in 1998, and $76 million in 1997. The Company has a contract with the U.S. Department of Energy (DOE) that provides for the permanent disposal of spent nuclear fuel. The DOE failed to begin disposing of spent fuel in January 1998 as required by the contracts, and the Company is pursuing legal remedies against the government for breach of contract. Sufficient storage capacity currently is available to permit operation into 2003 at Plant Hatch and into 2017 at Plant Vogtle. Plant Vogtle's spent fuel storage capacity includes the installation in 1998 of additional rack capacity. Activities for adding dry cask storage capacity and potentially additional spent fuel pool rack capacity at Plant Hatch during 2000 are in progress. In addition, through Southern Nuclear, Georgia Power is a member of Private Fuel Storage, LLC, a joint utility effort to develop a private spent fuel storage facility for temporary storage of spent nuclear fuel. This facility is planned to begin operation as early as the year 2003. Also, the Energy Policy Act of 1992 required the establishment of a Uranium Enrichment Decontamination and Decommissioning Fund, which is to be funded in part by a special assessment on utilities with nuclear plants. This fund will be used by the DOE for the decontamination and decommissioning of its nuclear fuel enrichment facilities. The assessment will be paid over a 15-year period, which began in 1993. The law provides that utilities will recover these payments in the same manner as any other fuel expense. The Company -- based on its ownership interests -- estimates its remaining liability under this law at December 31, 1999, to be approximately $21.4 million. This obligation is recorded in the accompanying Balance Sheets. Depreciation and Nuclear Decommissioning Depreciation of the original cost of depreciable utility plant in service is provided primarily by using composite straight-line rates, which approximated 3.3 percent in 1999, 3.2 percent in 1998, and 3.1 percent in 1997. In addition, the Company recorded accelerated depreciation of electric plant of $314 million in 1998 and $159 million in 1997. The Company did not record any accelerated depreciation in 1999. These charges are recorded in the accumulated provision for depreciation. See Note 3 under "Retail Rate Orders" for additional information. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its cost -- together with the cost of removal, less salvage -- is charged to the accumulated provision for depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Depreciation expense includes an amount for the expected costs of decommissioning nuclear facilities and removal of other facilities. II-99 NOTES (continued) Georgia Power Company 1999 Annual Report Nuclear Regulatory Commission (NRC) regulations require all licensees operating commercial nuclear power reactors to establish a plan for providing, with reasonable assurance, funds for decommissioning. The Company has established external trust funds to comply with the NRC's regulations. Amounts previously recorded in internal reserves are being transferred into the external trust funds over a set period of time as ordered by the GPSC. Earnings on the trust funds are considered in determining decommissioning expense. The NRC's minimum external funding requirements are based on a generic estimate of the cost to decommission the radioactive portions of a nuclear unit based on the size and type of reactor. The Company has filed plans with the NRC to ensure that -- over time -- the deposits and earnings of the external trust funds will provide the minimum funding amounts prescribed by the NRC. Site study cost is the estimate to decommission the facility as of the site study year, and ultimate cost is the estimate to decommission the facility as of its retirement date. The estimated site study costs based on the most current study and ultimate costs assuming an inflation rate of 3.6 percent for the Company's ownership interests are as follows: Plant Plant Hatch Vogtle ---------------------- Site study basis (year) 1997 1997 Decommissioning periods: Beginning year 2014 2027 Completion year 2027 2038 - --------------------------------------------------------------- (in millions) Site study costs: Radiated structures $372 $317 Non-radiated structures 33 44 - --------------------------------------------------------------- Total $405 $361 =============================================================== (in millions) Ultimate costs: Radiated structures $722 $ 922 Non-radiated structures 65 129 - ------------------------------------------------------------- Total $787 $1,051 ============================================================= The decommissioning cost estimates are based on prompt dismantlement and removal of the plant from service. The actual decommissioning costs may vary from the above estimates because of changes in the assumed date of decommissioning, changes in NRC requirements, changes in the assumptions used in making estimates, changes in regulatory requirements, changes in technology, and changes in costs of labor, materials, and equipment. Annual provisions for nuclear decommissioning expense are based on an annuity method as approved by the GPSC. The amounts expensed in 1999 and fund balance as of December 31, 1999 were: Plant Plant Hatch Vogtle - --------------------------------------------------------------- (in millions) Amount expensed in 1999 $ 17 $ 9 =============================================================== (in millions) Accumulated provisions: External trust funds, at fair value $222 $149 Internal reserves 22 12 - --------------------------------------------------------------- Total $244 $161 =============================================================== Effective January 1, 1999, the GPSC increased the annual provision for decommissioning expenses to $26 million from $20 million in 1998 and 1997. This amount is based on the NRC generic estimate to decommission the radioactive portion of the facilities as of 1997 of $526 million and $438 million for plants Hatch and Vogtle, respectively. The ultimate costs associated with the 1997 NRC minimum funding requirements are $1.1 billion and $1.3 billion for plants Hatch and Vogtle, respectively. Significant assumptions include an estimated inflation rate of 3.6 percent and an estimated trust earnings rate of 6.5 percent. The Company expects the GPSC to periodically review and adjust, if necessary, the amounts collected in rates for the anticipated cost of decommissioning. Income Taxes The Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. II-100 NOTES (continued) Georgia Power Company 1999 Annual Report Allowance for Funds Used During Construction (AFUDC) AFUDC represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new facilities. While cash is not realized currently from such allowance, it increases the revenue requirement over the service life of the plant through a higher rate base and higher depreciation expense. For the years 1999, 1998 and 1997, the average AFUDC rates were 5.61 percent, 6.71 percent and 7.60 percent, respectively. AFUDC, net of taxes, as a percentage of net income after dividends on preferred stock, was less than 2.0 percent for 1999, 1998, and 1997. Property, Plant, and Equipment Property, plant, and equipment is stated at original cost, less regulatory disallowances and impairments. Original cost includes: materials; labor; payroll-related costs such as taxes, pensions, and other benefits; and the cost of funds used during construction. The cost of maintenance, repairs, and replacement of minor items of property is charged to maintenance expense. The cost of replacements of property (exclusive of minor items of property) is capitalized. Cash and Cash Equivalents For purposes of the financial statements, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. Financial Instruments The Company's financial instruments for which the carrying amounts did not approximate fair value at December 31 were as follows: Carrying Fair Amount Value ------------------------ Long-term debt: (in millions) At December 31, 1999 $2,758 $2,604 At December 31, 1998 3,058 3,105 Preferred securities: At December 31, 1999 789 680 At December 31, 1998 689 716 - -------------------------------------------------------------- The fair values for securities were based on either closing market prices or closing prices of comparable instruments. Materials and Supplies Generally, materials and supplies include the cost of transmission, distribution and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when installed. 2. RETIREMENT BENEFITS The Company has defined benefit, trusteed pension plans that cover substantially all employees. The Company provides certain medical care and life insurance benefits for retired employees. Substantially all these employees may become eligible for such benefits when they retire. The Company funds postretirement trusts to the extent required by the GPSC and FERC. The measurement date for plan assets and obligations is September 30 of each year. The weighted average rates assumed in the actuarial calculations for both the pension and postretirement benefit plans were: 1999 1998 - ----------------------------------------------------------------- Discount 7.50% 6.75% Annual salary increase 5.00 4.25 Expected long-term return on plan assets 8.50 8.50 - ----------------------------------------------------------------- Pension Plan Changes during the year in the projected benefit obligations and in the fair value of plan assets were as follows: Projected Benefit Obligations --------------------------- 1999 1998 - ---------------------------------------------------------------- (in millions) Balance at beginning of year $1,217 $1,119 Service cost 33 30 Interest cost 80 82 Benefits paid (57) (55) Actuarial (gain) loss and employee transfers (68) 41 - ---------------------------------------------------------------- Balance at end of year $1,205 $1,217 ================================================================ II-101 NOTES (continued) Georgia Power Company 1999 Annual Report Plan Assets --------------------------- 1999 1998 - ---------------------------------------------------------------- (in millions) Balance at beginning of year $1,859 $1,931 Actual return on plan assets 313 11 Benefits paid (57) (55) Employee transfers (8) (28) - ---------------------------------------------------------------- Balance at end of year $2,107 $1,859 ================================================================ The accrued pension costs recognized in the Balance Sheets were as follows: 1999 1998 - --------------------------------------------------------------- (in millions) Funded status $ 902 $ 642 Unrecognized transition obligation (30) (35) Unrecognized prior service cost 41 45 Unrecognized net actuarial gain (767) (548) - --------------------------------------------------------------- Prepaid asset recognized in the Balance Sheets $ 146 $ 104 =============================================================== Components of the plans' net periodic cost were as follows: 1999 1998 1997 - --------------------------------------------------------------- (in millions) Service cost $ 33 $ 30 $ 30 Interest cost 80 82 82 Expected return on plan assets (137) (127) (121) Recognized net actuarial gain (17) (20) (18) Net amortization (1) (1) (1) - --------------------------------------------------------------- Net pension income $ (42) $ (36) $ (28) =============================================================== Postretirement Benefits Changes during the year in the accumulated benefit obligations and in the fair value of plan assets were as follows: Accumulated Benefit Obligations --------------------------- 1999 1998 - ---------------------------------------------------------------- (in millions) Balance at beginning of year $464 $435 Service cost 8 7 Interest cost 30 32 Benefits paid (19) (16) Actuarial loss and employee transfers (45) 6 - ---------------------------------------------------------------- Balance at end of year $438 $464 ================================================================= Plan Assets --------------------------- 1999 1998 - ---------------------------------------------------------------- (in millions) Balance at beginning of year $150 $122 Actual return on plan assets 11 4 Employer contributions 35 40 Benefits paid (19) (16) - ---------------------------------------------------------------- Balance at end of year $177 $150 ================================================================ The accrued postretirement costs recognized in the Balance Sheets were as follows: 1999 1998 - --------------------------------------------------------------- (in millions) Funded status $(261) $(314) Unrecognized transition obligation 122 131 Unrecognized net actuarial loss 10 57 Fourth quarter contributions 14 19 - --------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $(115) $(107) =============================================================== Components of the plans' net periodic cost were as follows: 1999 1998 1997 - --------------------------------------------------------------- (in millions) Service cost $ 8 $ 7 $ 7 Interest cost 30 32 32 Expected return on plan assets (10) (9) (7) Recognized net actuarial loss 1 1 1 Net amortization 9 9 9 - --------------------------------------------------------------- Net postretirement cost $ 38 $40 $42 =============================================================== An additional assumption used in measuring the accumulated postretirement benefit obligations was a weighted average medical care cost trend rate of 7.74 percent for 1999, decreasing gradually to 5.50 percent through the year 2005, and remaining at that level thereafter. An annual increase or decrease in the assumed medical care cost trend rate of 1 percent would affect the accumulated benefit obligation and the service and interest cost components at December 31, 1999 as follows: 1 Percent 1 Percent Increase Decrease - --------------------------------------------------------------- (in millions) Benefit obligation $ 36 $ (30) Service and interest costs 3 (3) =============================================================== II-102 NOTES (continued) Georgia Power Company 1999 Annual Report 3. CONTINGENCIES & REGULATORY MATTERS Retail Rate Orders On December 18, 1998, the GPSC approved a new three-year rate order for the Company. Under terms of the order, earnings will continue to be evaluated against a retail return on common equity range of 10 percent to 12.5 percent. Retail rates were decreased by $262 million on an annual basis effective January 1, 1999, and by an additional $24 million effective January 1, 2000. The order further provides for $85 million in each year, plus up to $50 million of any earnings above the 12.5 percent return during the second and third years, to be applied to accelerated amortization or depreciation of assets. Two-thirds of any additional earnings above the 12.5 percent return will be applied to rate reductions, with the remaining one-third retained by the Company. Pursuant to the order, in 1999 the Company recorded $85 million in accelerated amortization of premium on reacquired debt. The Company also recorded $79 million of revenue subject to refund for estimated earnings above 12.5 percent retail return on common equity. Refunds will be made to customers in 2000. This refund is presented in the financial statements under other current liabilities on the Balance Sheet. The Company will not file for a general base rate increase unless its projected retail return on common equity falls below 10 percent, and is required to file a general rate case on July 1, 2001, in response to which the GPSC would be expected to determine whether the rate order should be continued, modified, or discontinued. Under a previous three-year accounting order ending December 1998, the Company's earnings were evaluated against a retail return on common equity range of 10 percent to 12.5 percent. Earnings above 12.5 percent were used to accelerate the amortization of regulatory assets or depreciation of electric plant. Additionally, the Company was required to record $14 million annually of accelerated depreciation of electric plant. During 1998 and 1997, for earnings above the 12.5 percent retail return, the Company recorded charges of $292 million and $135 million, respectively. These charges are presented in the financial statements as depreciation expense of electric plant and as an addition to the accumulated provision for depreciation. Environmental Protection Agency (EPA) Litigation On November 3, 1999, the EPA brought a civil action in the U.S. District Court for the Northern District of Georgia. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to coal-fired generating facilities at the Company's Bowen and Scherer plants. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units beginning at the point of the alleged violations. The Clean Air Act authorizes civil penalties of up to $27,500 per day, per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. The EPA concurrently issued a notice of violation to the Company relating to these two plants. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation. The complaint and the notice of violation are similar to those brought against and issued to several other electric utilities. The complaint and the notice of violation allege that the Company failed to secure necessary permits or install additional pollution equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. The Company believes that it complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows and possibly financial condition unless such costs can be recovered through regulated rates. Other Environmental Contingencies The State of Georgia submitted a plan for nitrogen oxide emission reductions in Atlanta's ozone non-attainment area on October 29, 1999. The EPA found this plan to be deficient and required the State to address the shortfalls of the plan. Based on the revised plan approved by the Georgia Department of Natural Resources on January 26, 2000, the Company estimates its capital costs to comply with the plan to be approximately $713 million through 2003, of which $705 million remains to be spent. It is still uncertain at this time what additional controls may be required at the Company's plants beyond the recently submitted plan. In January 1995, the Company and four other unrelated entities were notified by the EPA that they have been designated as potentially responsible parties under the Comprehensive Environmental Response, Compensation and Liability Act II-103 NOTES (continued) Georgia Power Company 1999 Annual Report with respect to a site in Brunswick, Georgia. As of December 31, 1999, the Company has recognized approximately $5 million in cumulative expenses associated with this site. This represents the Company's agreed upon share of removal and remedial investigation and feasibility study costs. The final outcome of this matter cannot now be determined. However, based on the nature and extent of the Company's activities relating to the site, management believes that the Company's portion of any remaining remediation costs should not be material. In compliance with the Georgia Hazardous Site Response Act of 1993, the State of Georgia was required to compile an inventory of all known or suspected sites where hazardous wastes, constituents or substances have been disposed of or released in quantities deemed reportable by the State. In developing this list, the State identified several hundred properties throughout the State, including 31 sites which may require environmental remediation that were either previously or are currently owned by the Company. The majority of these sites are electrical power substations and power generation facilities. The Company has remediated ten electrical substations on the list at a cumulative cost of approximately $3 million through December 31, 1999. The State has removed from the list two power generation facilities following the assessment which indicated no remediation was necessary. In addition, the Company has recognized approximately $26 million in cumulative expenses through December 31, 1999 for the assessment of the remaining sites on the list and the anticipated clean-up cost for 12 sites that the Company plans to remediate. Any cost of remediating the remaining sites cannot presently be determined until such studies are completed for each site and the State determines whether remediation is required. If all listed sites were required to be remediated, the Company could incur expenses of up to approximately $6 million in additional clean-up costs and construction expenditures of up to approximately $37 million to develop new waste management facilities or install additional pollution control devices. The accrued costs for environmental remediation obligations are not discounted to their present value. Rocky Mountain Status In June 1996, the GPSC initiated a review of the Rocky Mountain plant. On January 14, 1998, the GPSC ordered that the Company be allowed approximately $108 million of its $142 million investment in the plant in rate base as of December 31, 1998. Under the rate order approved by the GPSC on December 18, 1998, the Company accepted the rate base allowance and, in December 1998, recorded a charge to earnings of $21 million, after taxes, associated with the write-down of the plant. Tax Litigation In August 1997, Southern Company and the Internal Revenue Service (IRS) entered into a settlement agreement related to tax issues for the years 1984 through 1987. The agreement received final approval by the Joint Congressional Committee on Taxation in June 1998 and as a result, the Company recognized interest income in 1998 of $69 million. The refund by the IRS has been made and this matter is now concluded. Additionally, the Company received a refund from the State of Georgia pertaining to the same issues and recognized an additional $4 million in interest income in 1998. Nuclear Performance Standards The GPSC has adopted a nuclear performance standard for the Company's nuclear generating units under which the performance of plants Hatch and Vogtle is evaluated every three years. The performance standard is based on each unit's capacity factor as compared to the average of all comparable U.S. nuclear units operating at a capacity factor of 50 percent or higher during the three-year period of evaluation. Depending on the performance of the units, the Company could receive a monetary award or penalty under the performance standards criteria. In January 1997, the GPSC approved a performance award of approximately $11.7 million for performance during the 1993-1995 period. This award was collected through the retail fuel cost recovery provision and recognized in income over the 36-month period ending in December 1999. In February 2000, the GPSC approved a performance award of approximately $7.8 million for performance during the 1996-1998 period. This award is being collected through the retail fuel cost recovery provision and recognized in income over a 36-month period that began in January 2000. II-104 NOTES (continued) Georgia Power Company 1999 Annual Report 4. COMMITMENTS Construction Program The Company is constructing a ten unit, 800 megawatt combustion turbine peaking power plant. Units one through eight will begin operation in 2000; units nine and ten will begin operation in 2001. The Company also plans to construct a 570 megawatt combined cycle unit that will begin operation in 2002, and an addition of two 568 megawatt combined cycle units at Plant Wansley, to begin operation in 2002. In addition, significant construction of transmission and distribution facilities, and projects to upgrade and extend the useful life of generating plants and to remain in compliance with environmental requirements will continue. The Company currently estimates property additions to be approximately $1.2 billion in 2000, $1.5 billion in 2001, and $1.5 billion in 2002. The construction program is subject to periodic review and revision, and actual construction costs may vary from estimates because of numerous factors, including, but not limited to, changes in business conditions, load growth estimates, environmental regulations, and regulatory requirements. Fuel Commitments To supply a portion of the fuel requirements of its generating plants, the Company has entered into various long-term commitments for the procurement of fossil and nuclear fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels and other financial commitments. Total estimated long-term fossil and nuclear fuel commitments at December 31, 1999 were as follows: Minimum Year Obligations - ---- ------------ (in millions) 2000 $ 659 2001 475 2002 381 2003 328 2004 300 2005 and beyond 787 - ---------------------------------------------------------------- Total minimum obligations $2,930 ================================================================ Additional commitments for coal and for nuclear fuel will be required in the future to supply the Company's fuel needs. Purchased Power Commitments The Company and an affiliate, Alabama Power Company, own equally all of the outstanding capital stock of Southern Electric Generating Company (SEGCO), which owns electric generating units with a total rated capacity of 1,020 megawatts, as well as associated transmission facilities. The capacity of the units has been sold equally to the Company and Alabama Power Company under a contract which, in substance, requires payments sufficient to provide for the operating expenses, taxes, debt service and return on investment, whether or not SEGCO has any capacity and energy available. The term of the contract extends automatically for two-year periods, subject to either party's right to cancel upon two year's notice. The Company's share of expenses included in purchased power from affiliates in the Statements of Income, is as follows: 1999 1998 1997 --------------------------------- (in millions) Energy $51 $45 $45 Capacity 29 30 30 - -------------------------------------------------------------- Total $80 $75 $75 ============================================================== Kilowatt-hours 3,338 3,146 3,038 - -------------------------------------------------------------- The Company has commitments regarding a portion of a 5 percent interest in Plant Vogtle owned by MEAG that are in effect until the latter of the retirement of the plant or the latest stated maturity date of MEAG's bonds issued to finance such ownership interest. The payments for capacity are required whether or not any capacity is available. The energy cost is a function of each unit's variable operating costs. Except as noted below, the cost of such capacity and energy is included in purchased power from non-affiliates in the Company's Statements of Income. Capacity payments totaled $57 million, $56 million, and $54 million in 1999, 1998, and 1997, respectively. The current projected Plant Vogtle capacity payments are: Year Capacity Payments - ---- ---------------------- (in millions) 2000 $ 60 2001 59 2002 58 2003 58 2004 55 2005 and beyond 594 - ---------------------------------------------------------------- Total capacity payments $ 884 ================================================================ II-105 NOTES (continued) Georgia Power Company 1999 Annual Report Portions of the payments noted above relate to costs in excess of Plant Vogtle's allowed investment for ratemaking purposes. The present value of these portions was written off in 1987 and 1990. The Company has entered into other various long-term commitments for the purchase of electricity. Estimated total long-term obligations at December 31, 1999 were as follows: Year Other Obligations - --- ---------------------- (in millions) 2000 $ 21 2001 22 2002 39 2003 41 2004 40 2005 and beyond 412 - ---------------------------------------------------------------- Total other obligations $ 575 ================================================================ Operating Leases The Company has entered into coal rail car rental agreements with various terms and expiration dates. These expenses totaled $11 million for 1999, $13 million for 1998, and $11 million for 1997. At December 31, 1999, estimated minimum rental commitments for these noncancelable operating leases were as follows: Year Minimum Obligations - ---- -------------------------- (in millions) 2000 $ 12 2001 13 2002 13 2003 13 2004 13 2005 and beyond 115 - ----------------------------------------------------------------- Total minimum obligations $ 179 ================================================================= 5. NUCLEAR INSURANCE Under the Price-Anderson Amendments Act of 1988, the Company maintains agreements of indemnity with the NRC that, together with private insurance, cover third-party liability arising from any nuclear incident occurring at the Company's nuclear power plants. The act provides funds up to $9.5 billion for public liability claims that could arise from a single nuclear incident. Each nuclear plant is insured against this liability to a maximum of $200 million by private insurance, with the remaining coverage provided by a mandatory program of deferred premiums that could be assessed, after a nuclear incident, against all owners of nuclear reactors. The Company could be assessed up to $88 million per incident for each licensed reactor it operates but not more than an aggregate of $10 million per incident to be paid in a calendar year for each reactor. Such maximum assessment for the Company, excluding any applicable state premium taxes, -- based on its ownership and buyback interests -- is $178 million per incident but not more than an aggregate of $20 million to be paid for each incident in any one year. The Company is a member of Nuclear Electric Insurance Limited (NEIL), a mutual insurer established to provide property damage insurance in an amount up to $500 million for members' nuclear generating facilities. Additionally, the Company has policies that currently provide decontamination, excess property insurance, and premature decommissioning coverage up to $2.25 billion for losses in excess of the $500 million primary coverage. This excess insurance is also provided by NEIL. NEIL also covers the additional costs that would be incurred in obtaining replacement power during a prolonged accidental outage at a member's nuclear plant. Members can be insured against increased costs of replacement power in an amount up to $3.5 million per week -- starting 12 weeks after the outage -- for one year and up to $2.8 million per week for the second and third years. Under each of the NEIL policies, members are subject to assessments if losses each year exceed the accumulated funds available to the insurer under that policy. The current maximum annual assessments for the Company under the three NEIL policies would be $21 million. For all on-site property damage insurance policies for commercial nuclear power plants, the NRC requires that the proceeds of such policies should be dedicated first for the sole purpose of placing the reactor in a safe and stable condition after an accident. Any remaining proceeds are to be applied next toward the costs of decontamination and debris removal operations ordered by the NRC, and any further remaining proceeds are to be paid either to the Company or to its bond trustees as may be appropriate under the policies and applicable trust indentures. All retrospective assessments, whether generated for liability, property or replacement power, may be subject to applicable state premium taxes. II-106 NOTES (continued) Georgia Power Company 1999 Annual Report 6. JOINT OWNERSHIP AGREEMENTS Except as otherwise noted, the Company has contracted to operate and maintain all jointly owned generating facilities. The Company includes its proportionate share of plant operating expenses in the corresponding operating expenses in the Statements of Income. The Company jointly owns the Rocky Mountain pumped storage hydroelectric plant with OPC who is the operator of the plant. The Company also jointly owns Plant McIntosh with Savannah Electric and Power Company who operates the plant. The Company and Florida Power Corporation (FPC) jointly own a combustion turbine unit operated by FPC. At December 31, 1999, the Company's percentage ownership and investment (exclusive of nuclear fuel) in jointly owned facilities in commercial operation, were as follows: Company Accumulated Facility (Type) Ownership Investment Depreciation - -------------------------------------------------------------------- (in millions) Plant Vogtle (nuclear) 45.7% $3,297* $1,630 Plant Hatch (nuclear) 50.1 857 604 Plant Wansley (coal) 53.5 299 145 Plant Scherer (coal) Units 1 and 2 8.4 112 51 Unit 3 75.0 544 193 Plant McIntosh Common Facilities 75.0 19 1 (combustion-turbine) Rocky Mountain 25.4 169* 66 (pumped storage) Intercession City 33.3 11 ** (combustion-turbine) - -------------------------------------------------------------------- * Investment net of write-offs. ** Less than $1 million. 7. LONG-TERM POWER SALES AGREEMENTS The Company and the other integrated Southeast utilities of Southern Company have long-term contractual agreements for the sale of capacity and energy to non-affiliated utilities located outside the system's service area. These agreements consist of firm unit power sales pertaining to capacity from specific generating units. Because energy is generally sold at cost under these agreements, it is primarily the capacity revenues that affect the Company's profitability. The Company's capacity revenues were as follows: Year Revenues Capacity ------------------------------------- (in millions) (megawatts) 1999 $ 32 162 1998 32 162 1997 42 159 ------------------------------------- Unit power from specific generating plants is being sold to Florida Power & Light Company (FP&L), FPC, Jacksonville Electric Authority (JEA), and the City of Tallahassee, Florida. Under these agreements, the Company sold approximately 162 megawatts of capacity in 1999 and is scheduled to sell approximately 124 megawatts of capacity in 2000. After 2000, capacity sales will decline to approximately 101 megawatts -- unless reduced by FP&L, FPC, and JEA -- until the expiration of the contracts in 2010. 8. INCOME TAXES At December 31, 1999, tax-related regulatory assets were $591 million and tax-related regulatory liabilities were $267 million. The assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized AFUDC. The liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. Details of the federal and state income tax provisions are as follows: 1999 1998 1997 ------------------------------- Total provision for income taxes: (in millions) Federal: Currently payable $ 333 $415 $352 Deferred - Current year 114 131 49 Reversal of prior years (148) (218) (68) Deferred investment tax credits - 7 - - ----------------------------------------------------------------- 299 335 333 - ----------------------------------------------------------------- State: Currently payable 54 77 65 Deferred - Current year 5 18 8 Reversal of prior years (11) (31) (11) Deferred investment tax credits 5 - - - ----------------------------------------------------------------- 53 64 62 - ----------------------------------------------------------------- Total 352 399 395 ================================================================= II-107 NOTES (continued) Georgia Power Company 1999 Annual Report The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows: 1999 1998 ------------------- (in millions) Deferred tax liabilities: Accelerated depreciation $1,766 $1,670 Property basis differences 729 854 Other 155 158 - ----------------------------------------------------------------- Total 2,650 2,682 - ----------------------------------------------------------------- Deferred tax assets: Other property basis differences 200 211 Federal effect of state deferred taxes 93 95 Other deferred costs 109 96 Disallowed Plant Vogtle buybacks 22 23 Other 26 21 - ----------------------------------------------------------------- Total 450 446 - ----------------------------------------------------------------- Net deferred tax liabilities 2,200 2,236 Portion included in current assets 3 13 - ----------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $2,203 $2,249 ================================================================= Deferred investment tax credits are amortized over the life of the related property with such amortization normally applied as a credit to reduce depreciation in the Statements of Income. Credits amortized in this manner amounted to $20 million in 1999, $22 million in 1998, and $15 million in 1997. At December 31, 1999, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory tax rate to the effective income tax rate is as follows: 1999 1998 1997 -------------------------- Federal statutory rate 35% 35% 35% State income tax, net of federal deduction 4 4 4 Non-deductible book depreciation 2 6 4 Other (2) (4) (4) - --------------------------------------------------------------- Effective income tax rate 39% 41% 39% =============================================================== Southern Company and its subsidiaries file a consolidated federal income tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. 9. CAPITALIZATION First Mortgage Bond Indenture & Charter Restrictions The Company historically has relied on issuances of first mortgage bonds and preferred stock, in addition to pollution control revenue bonds issued for its benefit by public authorities, to meet its long-term external financing requirements. Recently, the Company's financings have consisted of unsecured debt and trust preferred securities. In this regard, the Company sought and obtained stockholder approval in 1997 to amend its corporate charter eliminating restrictions on the amounts of unsecured indebtedness it may incur. The Company's first mortgage bond indenture contains various restrictions that remain in effect as long as the bonds are outstanding. At December 31, 1999, $881 million of retained earnings and paid-in capital was unrestricted for the payment of cash dividends or any other distributions under terms of the mortgage indenture. If additional first mortgage bonds are issued, supplemental indentures in connection with those issues may contain more stringent restrictions than those currently in effect. Preferred Securities Statutory business trusts formed by the Company, of which the Company owns all the common securities, have issued mandatorily redeemable preferred securities as follows: Date of Maturity Issue Amount Rate Notes Date --------------------------------------------------- (millions) (millions) Trust I 8/1996 $225.00 7.75% $232 6/2036 Trust II 1/1997 175.00 7.60 180 12/2036 Trust III 6/1997 189.25 7.75 195 3/2037 Trust IV 2/1999 200.00 6.85 206 3/2029 Substantially all of the assets of each trust are junior subordinated notes issued by the Company in the respective approximate principal amounts set forth above. The Company considers that the mechanisms and obligations relating to the preferred securities, taken together, constitute a full and unconditional guarantee by the Company of the Trusts' payment obligations with respect to the preferred securities. The Trusts are subsidiaries of the Company, and accordingly are consolidated in the Company's financial statements. II-108 NOTES (continued) Georgia Power Company 1999 Annual Report Pollution Control Bonds The Company has incurred obligations in connection with the sale by public authorities of tax-exempt pollution control revenue bonds. The Company has authenticated and delivered to trustees an aggregate of $457.5 million of its first mortgage bonds outstanding at December 31, 1999, which are pledged as security for its obligations under pollution control revenue contracts. No interest on these first mortgage bonds is payable unless and until a default occurs on the installment purchase or loan agreements. Senior Notes The Company incurred debt in connection with the issuance of unsecured senior notes. The senior notes are, in effect, subordinated to all secured debt of the Company, including its first mortgage bonds. Bank Credit Arrangements At the beginning of 2000, the Company had unused credit arrangements with banks totaling $1.3 billion, of which $752 million expires at various times during 2000, and $500 million expires at April 24, 2003. Of the total $1.3 billion in unused credit, $1 billion is a syndicated credit arrangement with $500 million expiring April 20, 2000, and $500 million expiring April 24, 2003. Both agreements provide the option of converting borrowings into two-year term loans upon expiration date. The agreements contain stated borrowing rates but also allow for competitive bid loans. In addition, the agreements require payment of commitment fees based on the unused portions of the commitments. Annual fees are also paid to the agent bank. Approximately $162 million of the $752 million arrangements expiring during 2000 allow for two-year term loans executable upon expiration date of the facilities. The $30 million credit arrangement expiring at May 1, 2000, allows for term loans of up to three years. All of the arrangements include stated borrowing rates but also allow for negotiated rates. These agreements also require payment of commitment fees based on the unused portion of the commitments or the maintenance of compensating balances with the banks. These balances are not legally restricted from withdrawal. These unused credit arrangements provide liquidity support to the Company's variable rate pollution control bonds. The amount of variable rate pollution control bonds outstanding requiring that liquidity support as of December 31, 1999, was $250 million. In addition, the Company borrows under uncommitted lines of credit with banks and through a $500 million commercial paper program that has the liquidity support of committed bank credit arrangements. Average compensating balances held under these committed facilities were not material in 1999. Other Long-Term Debt Assets acquired under capital leases are recorded in the Balance Sheets as utility plant in service, and the related obligations are classified as long-term debt. At December 31, 1999 and 1998, the Company had a capitalized lease obligation for its corporate headquarters building of $87 million with an interest rate of 8.1 percent. The lease agreement provides for payments that are minimal in early years and escalate through the first 21 years of the lease. For ratemaking purposes, the GPSC has treated the lease as an operating lease and has allowed only the lease payments in cost of service. The difference between the accrued expense and the lease payments allowed for ratemaking purposes is being deferred as a cost to be recovered in the future as ordered by the GPSC. At December 31, 1999 and 1998, the interest and lease amortization deferred on the Balance Sheets are $54 million and $53 million, respectively. Assets Subject to Lien The Company's mortgage dated as of March 1, 1941, as amended and supplemented, securing the first mortgage bonds issued by the Company, constitutes a direct lien on substantially all of the Company's fixed property and franchises. II-109 NOTES (continued) Georgia Power Company 1999 Annual Report Securities Due Within One Year A summary of the improvement fund requirements and scheduled maturities and redemptions of securities due within one year at December 31 is as follows: 1999 1998 ------------------ (in millions) Bond improvement fund requirements $ 5 $ 9 Capital lease - current portion 1 - First mortgage bond maturities and redemptions 100 390 Pollution control bond maturities and redemptions 50 - - --------------------------------------------------------------- Total long-term debt 156 399 Preferred stock - 36 - --------------------------------------------------------------- Total $156 $435 =============================================================== The Company's first mortgage bond indenture includes an improvement fund requirement that amounts to 1 percent of each outstanding series of bonds authenticated under the indenture prior to January 1 of each year, other than those issued to collateralize pollution control obligations. The requirement may be satisfied by June 1 of each year by depositing cash, reacquiring bonds, or by pledging additional property equal to 1 2/3 times the requirement. Redemption of Securities The Company plans to continue, to the extent possible, a program of redeeming or replacing debt and preferred stock in cases where opportunities exist to reduce financing costs. Issues may be repurchased in the open market or called at premiums as specified under terms of the issue. They may also be redeemed at face value to meet improvement fund requirements, to meet replacement provisions of the mortgage, or through use of proceeds from the sale of property pledged under the mortgage. In general, for the first five years a series of first mortgage bonds is outstanding, the Company is prohibited from redeeming for improvement fund purposes more than 1 percent annually of the original issue amount. 10. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial information for 1999 and 1998 is as follows: Net Income After Dividends on Operating Operating Preferred Quarter Ended Revenues Income Stock - --------------------------------------------------------------------- (in millions) -------------------------------------------- March 1999 $ 931 $224 $ 92 June 1999 1,092 299 138 September 1999 1,466 557 296 December 1999 968 200 15 March 1998 $ 984 $257 $ 106 June 1998 1,226 286 137 September 1998 1,530 514 255 December 1998 998 143 72 - --------------------------------------------------------------------- Under the 1998 rate order, the Company recorded $85 million of accelerated amortization which was recorded monthly throughout 1999 as an operating expense. See Note 3 to the financial statements under "Retail Rate Orders" for additional information. In December 1999, in accordance with the order, the Company reclassified this $85 million to amortization of premium on reacquired debt. The 1999 fourth quarter operating income reflects this reclassification. The quarterly operating income data above has been reclassified to reflect the Company's current presentation of income tax expense. The Company's business is influenced by seasonal weather conditions. II-110
SELECTED FINANCIAL AND OPERATING DATA 1995-1999 Georgia Power Company 1999 Annual Report - -------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $4,456,675 $4,738,253 $4,385,717 $4,416,779 $4,405,338 Net Income after Dividends on Preferred Stock (in thousands) $541,383 $570,228 $593,996 $580,327 $608,862 Cash Dividends on Common Stock (in thousands) $543,000 $536,600 $520,000 $475,500 $451,500 Return on Average Common Equity (percent) 14.02 14.61 14.53 13.73 14.43 Total Assets (in thousands) $12,276,860 $12,033,618 $12,573,728 $13,006,635 $13,470,275 Gross Property Additions (in thousands) $790,464 $499,053 $475,921 $428,220 $480,449 - -------------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $3,938,210 $3,784,172 $4,019,728 $4,154,281 $4,299,012 Preferred stock 14,952 15,527 157,247 464,611 692,787 Company obligated mandatorily redeemable preferred securities 789,250 689,250 689,250 325,000 100,000 Long-term debt 2,688,358 2,744,362 2,982,835 3,200,419 3,315,460 - -------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $7,430,770 $7,233,311 $7,849,060 $8,144,311 $8,407,259 ================================================================================================================================ Capitalization Ratios (percent): Common stock equity 53.0 52.3 51.2 51.0 51.1 Preferred stock 0.2 0.2 2.0 5.7 8.2 Company obligated mandatorily redeemable preferred securities 10.6 9.5 8.8 4.0 1.2 Long-term debt 36.2 38.0 38.0 39.3 39.5 - -------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 100.0 ================================================================================================================================ Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 A1 A1 Standard and Poor's A+ A+ A+ A+ A+ Duff & Phelps AA- AA- AA- AA- AA- Preferred Stock - Moody's a2 a2 a2 a2 a2 Standard and Poor's A- A A A A Duff & Phelps A+ A+ A+ A+ A Unsecured Long-Term Debt - Moody's A2 A2 A2 A2 A2 Standard and Poor's A A A A A Duff & Phelps A+ A+ A+ A+ A+ ================================================================================================================================ Customers (year-end): Residential 1,632,450 1,596,488 1,561,675 1,531,453 1,500,024 Commercial 229,524 221,180 211,672 205,087 198,624 Industrial 8,958 9,485 9,988 10,424 10,796 Other 3,060 3,034 2,748 2,645 2,568 - -------------------------------------------------------------------------------------------------------------------------------- Total 1,873,992 1,830,187 1,786,083 1,749,609 1,712,012 ================================================================================================================================ Employees (year-end): 8,961 8,371 8,354 10,346 11,061 - --------------------------------------------------------------------------------------------------------------------------------
II-111
SELECTED FINANCIAL AND OPERATING DATA 1995-1999 (continued) Georgia Power Company 1999 Annual Report - ------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $ 1,410,099 $1,486,699 $ 1,326,787 $ 1,371,033 $ 1,337,060 Commercial 1,527,880 1,591,363 1,493,353 1,486,586 1,449,108 Industrial 1,143,001 1,170,881 1,110,311 1,118,633 1,141,766 Other (30,892) 49,274 47,848 47,060 44,255 - ------------------------------------------------------------------------------------------------------------------------------- Total retail 4,050,088 4,298,217 3,978,299 4,023,312 3,972,189 Sales for resale - non-affiliates 210,104 259,234 282,365 281,580 290,302 Sales for resale - affiliates 76,426 81,606 38,708 35,886 76,906 - ------------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 4,336,618 4,639,057 4,299,372 4,340,778 4,339,397 Other revenues 120,057 99,196 86,345 76,001 65,941 - ------------------------------------------------------------------------------------------------------------------------------- Total $4,456,675 $4,738,253 $4,385,717 $4,416,779 $4,405,338 =============================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 19,404,709 19,481,486 17,295,022 17,826,451 17,307,399 Commercial 23,715,485 22,861,391 21,134,346 20,823,073 19,844,999 Industrial 27,300,355 27,283,147 26,701,685 26,191,831 25,286,340 Other 551,451 543,462 538,163 536,057 493,720 - ------------------------------------------------------------------------------------------------------------------------------- Total retail 70,972,000 70,169,486 65,669,216 65,377,412 62,932,458 Sales for resale - non-affiliates 5,060,931 6,438,891 6,795,300 7,868,342 6,591,841 Sales for resale - affiliates 1,795,243 2,038,400 1,706,699 1,180,207 2,738,947 - ------------------------------------------------------------------------------------------------------------------------------- Total 77,828,174 78,646,777 74,171,215 74,425,961 72,263,246 =============================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 7.27 7.63 7.67 7.69 7.73 Commercial 6.44 6.96 7.07 7.14 7.30 Industrial 4.19 4.29 4.16 4.27 4.52 Total retail 5.71 6.13 6.06 6.15 6.31 Sales for resale 4.18 4.02 3.78 3.51 3.94 Total sales 5.57 5.90 5.80 5.83 6.00 Residential Average Annual Kilowatt-Hour Use Per Customer 12,006 12,314 11,171 11,763 11,654 Residential Average Annual Revenue Per Customer $872.47 $939.73 $857.01 $904.70 $900.28 Plant Nameplate Capacity Ratings (year-end) (megawatts) 14,474 14,437 14,437 14,367 14,344 Maximum Peak-Hour Demand (megawatts): Winter 11,568 11,959 10,407 10,410 9,819 Summer 14,575 13,923 13,153 12,914 12,828 Annual Load Factor (percent) 58.9 58.7 57.4 62.2 59.6 Plant Availability (percent): Fossil-steam 84.3 86.0 85.8 85.2 85.8 Nuclear 89.3 91.6 88.8 89.3 91.8 - ------------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 63.0 62.3 64.3 60.4 63.0 Nuclear 18.0 18.3 18.8 18.2 19.3 Hydro 0.9 2.2 2.2 2.2 2.5 Oil and gas 1.6 2.2 0.6 0.5 0.6 Purchased power - From non-affiliates 6.6 6.5 2.7 5.6 7.7 From affiliates 9.9 8.5 11.4 13.1 6.9 - ------------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 100.0 ===============================================================================================================================
II-112 GULF POWER COMPANY FIANANCIAL SECTION II-113 MANAGEMENT'S REPORT Gulf Power Company 1999 Annual Report The management of Gulf Power Company has prepared -- and is responsible for -- the financial statements and related information included in this report. These statements were prepared in accordance with generally accepted accounting principles appropriate in the circumstances and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that books and records reflect only authorized transactions of the Company. Limitations exist in any system of internal controls, however, based on a recognition that the cost of the system should not exceed its benefits. The Company believes its system of internal accounting controls maintains an appropriate cost/benefit relationship. The Company's system of internal accounting controls is evaluated on an ongoing basis by the Company's internal audit staff. The Company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, composed of directors who are not employees, provides a broad overview of management's financial reporting and control functions. Periodically, this committee meets with management, the internal auditors, and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal controls, and financial reporting matters. The internal auditors and independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the Company's operations are conducted according to a high standard of business ethics. In management's opinion, the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of Gulf Power Company in conformity with generally accepted accounting principles. /s/Travis J. Bowden Travis J. Bowden President and Chief Executive Officer /s/Arlan E. Scarbrough Arlan E. Scarbrough Chief Financial Officer February 16, 2000 II-114 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Gulf Power Company: We have audited the accompanying balance sheets and statements of capitalization of Gulf Power Company (a Maine corporation and a wholly owned subsidiary of Southern Company) as of December 31, 1999 and 1998, and the related statements of income, common stockholder's equity, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements (pages 11-124 through II-139) referred to above present fairly, in all material respects, the financial position of Gulf Power Company as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/Arthur Andersen LLP Atlanta, Georgia February 16, 2000 II-115 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Gulf Power Company 1999 Annual Report RESULTS OF OPERATIONS Earnings Gulf Power Company's 1999 net income after dividends on preferred stock was $53.7 million, a decrease of $2.8 million from the previous year. In 1998, earnings were $56.5 million, down $1.1 million when compared to 1997. The decrease in earnings in 1999, as well as 1998, was primarily a result of higher expenses than in the prior year. Revenues Operating revenues increased in 1999 and 1998 when compared to 1998 and 1997, respectively. The following table summarizes the factors impacting operating revenues for the past three years: Increase (Decrease) From Prior Year --------------------------------------- 1999 1998 1997 --------------------------------------- (in thousands) Retail -- Growth and price change $10,348 $15,021 $ 4,005 Weather (7,879) 6,656 (5,277) Regulatory cost recovery and other 1,173 (34,179) (7,837) - -------------------------------------------------------------------- Total retail 3,642 (12,502) (9,109) - -------------------------------------------------------------------- Sales for resale-- Non-affiliates 461 (1,804) 496 Affiliates 23,468 25,882 (1,002) - -------------------------------------------------------------------- Total sales for resale 23,929 24,078 (506) Other operating revenues (3,990) 13,086 1,106 - -------------------------------------------------------------------- Total operating revenues $23,581 $24,662 $(8,509) ==================================================================== Percent change 3.6% 3.9% (1.3)% - -------------------------------------------------------------------- Retail revenues of $512.8 million in 1999 increased $3.6 million, or 0.7 percent, from the prior year due primarily to an increase in the number of retail customers served by the Company. Retail revenues for 1998 decreased $12.5 million, or 2.4 percent, when compared to 1997 due primarily to the recovery of lower fuel costs. The price per ton of coal, which is the Company's primary fuel source, was lower in 1998 as the costs related to prior year coal contract renegotiations were fully amortized and a major coal contract price was reduced. See Note 5 to the financial statements under "Fuel Committments" for further information. The 1999 increase in regulatory cost recovery and other retail revenues over 1998 is primarily attributable to the recovery of increased purchased power capacity costs. The 1998 decrease in regulatory cost recovery and other retail revenues over 1997 is primarily attributable to decreased fuel costs as mentioned previously. Regulatory cost recovery and other includes recovery provisions for fuel expense and the energy component of purchased power costs; energy conservation costs; purchased power capacity costs; and environmental compliance costs. The recovery provisions generally equal the related expenses and have no material effect on net income. See Notes 1 and 3 to the financial statements under "Revenues and Regulatory Cost Recovery Clauses" and "Environmental Cost Recovery," respectively, for further information. Sales for resale were $128.5 million in 1999, an increase of $24 million, or 23 percent, over 1998 primarily due to additional energy sales to affiliated companies, which is discussed below. Revenues from sales to utilities outside the service area under long-term contracts consist of capacity and energy components. Capacity revenues reflect the recovery of fixed costs and a return on investment under the contracts. Energy is generally sold at variable cost. The capacity and energy components under these long-term contracts were as follows: 1999 1998 1997 ---------------------------------------- (in thousands) Capacity $19,792 $22,503 $24,899 Energy 20,251 14,556 18,160 - ------------------------------------------------------------- Total $40,043 $37,059 $43,059 ============================================================= Declining capacity revenues are due primarily to the decline in net plant investment related to these sales. In addition, the decline in 1999 reflects a reduction in the authorized rate of return on the equity component of the investment. Sales to affiliated companies vary from year to year depending on demand and the availability and cost of generating resources at each company. These sales have little impact on earnings. II-116 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Gulf Power Company 1999 Annual Report Other operating revenues decreased in 1999 and increased in 1998 due primarily to adjustments to reflect differences between recoverable costs and the amounts actually reflected in current rates. See Notes 1 and 3 to the financial statements under "Revenues and Regulatory Cost Recovery Clauses" and "Environmental Cost Recovery," respectively, for further discussion. Energy Sales Kilowatt-hour sales for 1999 and the percent changes by year were as follows: KWH Percent Change ------------- ------------------------------- 1999 1999 1998 1997 ------------- ------------------------------- (millions) Residential 4,471 0.8% 7.7% (1.0)% Commercial 3,223 3.6 7.4 3.2 Industrial 1,846 0.7 (3.7) 5.3 Other 19 0.0 4.7 1.6 ------------- Total retail 9,559 1.7 5.2 1.6 Sales for resale Non-affiliates 1,562 16.4 (12.4) (0.2) Affiliates 2,512 42.9 107.3 19.5 ------------- Total 13,633 9.0 10.5 2.5 ================================================================== In 1999, total retail energy sales increased due to increases from 1998 in the number of residential, commercial and industrial customers. Total energy sales increased in 1998 when compared to 1997 due to higher temperatures when compared to the milder-than-normal temperatures in 1997 and due to increases in the number of residential and commercial customers. The decrease in industrial energy sales in 1998 when compared to 1997 primarily reflects the shut down of a major industrial customer's plant site and temporary production delays of other industrial customers. See "Future Earnings Potential" for information on the Company's initiatives to remain competitive and to meet conservation goals set by the Florida Public Service Commission (FPSC). An increase in energy sales for resale to non-affiliates of 16.4 percent in 1999 when compared 1998 and a decrease of 12.4 percent in 1998 when compared to 1997 are primarily related to unit power sales under long-term contracts to other Florida utilities and bulk power sales under short-term contracts to other non-affiliated utilities. Energy sales to affiliated companies vary from year to year as mentioned previously. Expenses Total operating expenses in 1999 increased $26.8 million, or 5.1 percent, over the amount recorded in 1998 due primarily to higher fuel and purchased power expenses, offset by lower other operation expenses. In 1998, total operating expenses increased $26.5 million, or 5.3 percent, from 1997. The increase was due primarily to higher fuel, purchased power, and maintenance expenses offset by lower other operation expenses. Fuel expenses in 1999, when compared to 1998, increased $11.5 million, or 5.9 percent. In 1998, fuel expenses increased $16.6 million, or 9.2 percent, when compared to 1997. The increases were the result of increased generation resulting from a higher demand for energy, while average fuel costs decreased as noted below. Purchased power expenses increased in 1999 by $13.2 million, or 30.2 percent, over 1998 and purchased power expenses for 1998 increased over 1997 by $6.9 million, or 18.8 percent, due to a higher demand for energy in both years. The amount and sources of generation and the average cost of fuel per net kilowatt-hour generated were as follows: 1999 1998 1997 ------------------------------- Total generation (millions of kilowatt-hours) 13,095 11,986 10,435 Sources of generation (percent) Coal 97.4 98.0 99.6 Oil and gas 2.6 2.0 0.4 Average cost of fuel per net kilowatt-hour generated (cents)-- 1.60 1.69 1.99 - --------------------------------------------------------------------- Other operation expenses decreased $4.3 million, or 3.6 percent, in 1999 from the 1998 level and $7.3 million, or 5.7 percent, in 1998 from the 1997 level due to a decrease in the amortization costs of prior year payments related to renegotiations of coal supply contracts. The 1998 decrease was partially offset by higher implementation costs of a new customer accounting system, increased costs related to the Year 2000 program and an increase in the accrual to the accumulated provision for property damage. II-117 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1999 Annual Report Depreciation and amortization expense increased $5.5 million, or 9.2 percent, in 1999 when compared to 1998 due primarily to a reduction in the amortization of gains from the 1998 sale of emission allowances. Maintenance expenses in 1998 increased by $9.3 million, or 19.4 percent, over 1997 due primarily to scheduled maintenance at Plant Crist and Plant Smith and increased transmission and distribution maintenance. Interest on long-term debt in 1999 increased $1.7 million, or 8.4 percent, when compared to 1998 due primarily to two first mortgage bonds maturing in 1998 and being replaced by senior notes at a slightly higher interest rate, and the issuance of $50 million of senior notes in August 1999. In 1998, interest on long-term debt decreased $2.0 million, or 9.1 percent, from 1997 mostly due to a decrease in interest expense on pollution control bonds refinanced in 1997 and two long-term bank notes that matured in 1998. This decrease was partially offset by an increase in interest due to the replacement in 1998 of the two maturing first mortgage bonds with senior notes at a slightly higher interest rate. Effects of Inflation The Company is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the Company is recovering its cost of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on the Company because of the large investment in utility plant 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 and preferred securities. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. Future Earnings Potential The results of operations for the past three years are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors ranging from energy sales growth to a potentially less regulated and more competitive environment. Gulf Power currently operates as a vertically integrated utility providing electricity to customers within its traditional service area located in northwest Florida. Prices for electricity provided by the Company to retail customers are set by the FPSC. Future earnings in the near term will depend upon growth in energy sales, which is subject to a number of factors. Traditionally, these factors have included weather, competition, changes in contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, and the rate of economic growth in the Company's service area. In early 1999, the FPSC Staff and the Company became involved in serious discussions primarily related to reducing the Company's authorized rate of return. On October 1, 1999 the Office of Public Counsel, the Coalition for Equitable Rates, the Florida Industrial Power Users Group, and the Company jointly filed a petition to resolve the issues. The stipulation included a reduction to retail base rates of $10 million annually and provides for revenues to be shared within set ranges for 1999 through 2002. Customers would receive two-thirds of any revenue within the ranges and the Company would retain one-third. For calendar year 2000, the Company's retail base rate revenues in excess of $352 million up to $368 million will be shared between the Company and its retail customers on the one-third/two-thirds basis. Retail base rate revenues above $368 million for calendar year 2000 will be refunded to the Company's customers. These set ranges increase gradually until the expiration of the plan. The Sharing Plan will be in place until the earlier of the in-service date of Smith Unit 3 or December 31, 2002. The parties could not agree on the appropriate Return on Equity (ROE). Consequently, the Company filed a request to prospectively reduce its authorized ROE range from 11 to 13 percent to 10.5 to 12.5 percent in order to help ensure that the FPSC would approve the stipulation. Both the stipulation and the ROE request were approved by the Commission on October 5, 1999, with an effective date of November 4, 1999. The electric utility industry in the United States is currently undergoing a period of dramatic change as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). The Company is positioning the business to meet the challenge of this major change in the traditional practice of selling electricity. The Energy Act allows independent power producers (IPPs) to access the Company's II-118 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1999 Annual Report transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for industrial and commercial customers and sell energy generation to other utilities. The Company has and will continue to evaluate opportunities to partner and participate in profitable cogeneration projects. In 1998, partnering with one of the Company's largest industrial customers, construction was completed on 15 megawatts of Company-owned cogeneration on the customer's plant site. Also, electricity sales for resale rates are being driven down by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. The Company is aggressively working to maintain and expand its share of wholesale sales in the southeastern power markets. Although the Energy Act does not permit retail customer access, it was a major catalyst for the current restructuring and consolidation taking place within the utility industry. Numerous federal and state initiatives are in varying stages to promote wholesale and retail competition. Among other things, these initiatives allow customers to choose their electricity provider. As these initiatives materialize, the structure of the utility industry continues to change. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While various restructuring and competition initiatives have been or are being discussed in Florida, none have been enacted to date. Enactment would require numerous issues to be resolved, including significant ones relating to transmission pricing and recovery of any stranded investments. The inability of the Company to recover its investments, including the regulatory assets described in Note 1 to the financial statements, could have a material adverse effect on financial condition and results of operation. The Company is attempting to minimize or reduce its cost exposure. Continuing to be a low-cost producer could provide opportunities to increase market share and profitability in markets that evolve with changing regulation. Conversely, if the Company does not remain a low-cost producer and provide quality service, the Company's energy sales growth could be limited, and this could significantly erode earnings. In 1996, the FPSC approved a new optional Commercial/Industrial Service Rider (CISR), which is applicable to the rate schedules for the Company's largest existing and potential customers who are able to show they have viable alternatives to purchasing the Company's energy services. The CISR, approved as a pilot program, provides the flexibility needed to enable the Company to offer its services in a more competitive manner to these customers. The publicity of the CISR ruling, increased competitive pressures, and general awareness of customer choice pilots and proposals across the country have stimulated interest on the part of customers in custom tailored offerings. The Company has participated in one-on-one discussions with many of these customers, and has negotiated and executed two Contract Service Agreements within the CISR pilot program. The pilot program ends in September of 2000 and the company is currently reviewing its options. Every five years the FPSC establishes numeric demand side management goals. The Company proposed numeric goals for the ten-year period from 2000 to 2009. The proposed goals consisted of the total, cost-effective winter and summer peak demand (kilowatts) and annual energy (kilowatt-hour) savings reasonably achievable from demand side management for the residential and commercial/industrial classes. The Company submitted its 2000 Demand Side Management Plan to the FPSC on December 29, 1999. The plan describes the Company's proposed programs it will employ to reach the numeric goals. The plan relies heavily on innovative pricing and energy efficient construction. The FPSC is expected to issue its final order on the Company's 2000 Demand Side Management Plan in mid-April 2000. On December 20, 1999, the Federal Energy Regulatory Commission (FERC) issued its final rule on Regional Transmission Organizations (RTOs). The order encourages utilities owning transmission systems to form RTOs on a voluntary basis. To facilitate the development of RTOs, the FERC will convene regional conferences for utilities, customers, and other members of the public to discuss the formation of RTOs. In addition to participating in the regional conferences, utilities owning transmission systems, including Southern Company, are required to make a filing by October 15, 2000. The filing must contain either a proposal for RTO participation or a description of the efforts made to participate in an RTO, the reasons for non-participation, any obstacles to participation, and any II-119 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1999 Annual Report plans for further work toward participation. The RTOs that are proposed in the filings should be operational by December 15, 2001. Southern Company is evaluating this issue and formulating its response. The outcome of this matter cannot now be determined. Compliance costs related to current and future environmental laws and regulations could affect earnings if such costs are not fully recovered. The Clean Air Act and other important environmental items are discussed later under "Environmental Matters." Also, Florida legislation adopted in 1993 that provides for recovery of prudent environmental compliance costs is discussed in Note 3 to the financial statements under "Environmental Cost Recovery." The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of the 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. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. Exposure to Market Risks Due to cost-based rate regulation, the Company has limited exposure to market volatility in interest rates and prices of electricity. To mitigate residual risks relative to movements in electricity prices, the Company enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market. Realized gains and losses are recognized in the income statements as incurred. At December 31, 1999, exposure from these activities was not material to the Company's financial position, results of operations, or cash flows. Also, based on the Company's overall interest rate exposure at December 31, 1999, a near-term 100 basis point change in interest rates would not materially affect the Company's financial statements. New Accounting Standards The FASB has issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which must be adopted by January 1, 2001. This statement establishes accounting and reporting standards for derivative instruments - including certain derivative instruments embedded in other contracts - and for hedging activities. Adoption of this statement is not expected to have a material impact on the Company's financial statements. Year 2000 Challenge The work undertaken by the Company to ensure that all critical computer systems and other date sensitive devices would function correctly in the Year 2000 was successful. There were no material incidents reported and no disruption of electric service within the service area of the Company. There were no reports of significant events regarding third parties that impacted revenues or expenses. The Company's original projected total costs for Year 2000 readiness were approximately $5 million. Final projected costs were also $5 million with no material costs remaining to be spent in 2000. From its inception through December 31, 1999, the Year 2000 program costs, recognized primarily as expense, amounted to $5 million, of which $2 million was recorded in 1999. FINANCIAL CONDITION Overview The Company's financial condition continues to be very solid. During 1999, gross property additions were $69.8 million. Funds for the property additions were provided by operating activities. See the Statements of Cash Flows for further details. Financing Activities In 1999, the Company sold $50 million of senior notes and long-term bank notes totaling $27 million were retired. The remaining proceeds from this issuance were used to reduce short-term borrowing requirements. See the Statements of Cash Flows for further details. Composite financing rates for the years 1997 through 1999 as of year end were as follows: II-120 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1999 Annual Report 1999 1998 1997 ----------------------------- Composite interest rate on long-term debt 6.0% 6.1% 5.9% Composite rate on trust preferred securities 7.3% 7.3% 7.6% Composite preferred stock dividend rate 5.1% 5.1% 6.1% - ----------------------------------------------------------------- The composite interest rate on long-term debt decreased in 1999 primarily due to lower interest rates on variable rate pollution control bonds. Capital Requirements for Construction The Company's gross property additions, including those amounts related to environmental compliance, are budgeted at $428 million for the three years beginning in 2000 ($106 million in 2000, $232 million in 2001, and $90 million in 2002). These amounts include $198.8 million for the years 2000 through 2002 for the estimated cost of a 574 megawatt combined cycle gas unit to be located in the eastern portion of its service area. The unit is expected to have an in-service date of June 2002. The remaining property additions budget is primarily for maintaining and upgrading transmission and distribution facilities and generating plants. Actual construction costs may vary from this estimate because of changes in such factors as: business conditions; environmental regulations; load projections; the cost and efficiency of construction labor, equipment, and materials; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. Other Capital Requirements The Company will continue to retire higher-cost debt and preferred securities and replace these securities with lower-cost capital as market conditions and terms of the instruments permit. Environmental Matters In November 1990, the Clean Air Act was signed into law. Title IV of the Clean Air Act -- the acid rain compliance provision of the law -- significantly affected the Company. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants are required in two phases. Phase I compliance began in 1995 and initially affected 28 generating units of Southern Company. As a result of Southern Company's compliance strategy, an additional 22 generating units were brought into compliance with Phase I requirements. Phase II compliance is required in 2000, and all fossil-fired generating plants will be affected. Southern Company achieved Phase I sulfur dioxide compliance at the affected plants by switching to low-sulfur coal, which required some equipment upgrades. Construction expenditures for Phase I compliance totaled approximately $300 million for Southern Company, including approximately $42 million for Gulf Power. For Phase II sulfur dioxide compliance, Southern Company currently uses emission allowances and increased fuel switching. Also, equipment to control nitrogen oxide emissions was installed on additional system fossil-fired units as required to meet Phase II limits and ozone non-attainment requirements. Compliance for Phase II and initial ozone non-attainment requirements increased total estimated construction expenditures by approximately $105 million. Phase II compliance is not expected to have a material impact on Gulf Power. Following adoption of legislation in April of 1992 allowing electric utilities in Florida to seek FPSC approval of their Clean Air Act Compliance Plans, Gulf Power filed its petition for approval. The FPSC approved the Company's plan for Phase I compliance, deferring until a later date approval of its Phase II Plan. In 1993, the Florida Legislature adopted legislation that allows a utility to petition the FPSC for recovery of prudent environmental compliance costs that are not being recovered through base rates or any other recovery mechanism. The legislation is discussed in Note 3 to the financial statements under "Environmental Cost Recovery." Substantially all of the costs for the Clean Air Act and other new environmental legislation discussed below are expected to be recovered through the Environmental Cost Recovery Clause. In July 1997, the Environmental Protection Agency (EPA) revised the national ambient air quality standards for ozone and particulate matter. This revision makes the standards significantly more stringent. In September 1998, the EPA issued the final regional nitrogen oxide reduction rule to the states for implementation. The final rule affects 22 states, including Alabama and Georgia. II-121 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1999 Annual Report See Note 6 to the financial statements under "Joint Ownership Agreements" related to the Company's ownership interest in Georgia Power's Plant Scherer Unit No. 3. The EPA's July 1997 standards and the September 1998 rule are being challenged in the courts by several states and industry groups. Implementation of the final state rules for these three initiatives could require substantial further reductions in nitrogen oxide and sulfur dioxide emissions from fossil-fired generating facilities and other industries in these states. Additional compliance costs and capital expenditures resulting from the implementation of these rules and standards cannot be determined until the results of legal challenges are known, and the states have adopted their final rules. The EPA and state environmental regulatory agencies are reviewing and evaluating various other matters including: nitrogen oxide emission control strategies for ozone non-attainment areas; additional controls for hazardous air pollutant emissions; and hazardous waste disposal requirements. The impact of any new standards will depend on the development and implementation of applicable regulations. On November 3, 1999, the EPA brought a civil action in the U.S. District Court against Alabama Power, Georgia Power, and the system service company. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The EPA concurrently issued to the integrated Southeast utilities a notice of violation related to 10 generating facilities, including the five facilities mentioned previously and the Company's Plants Crist and Scherer. See Note 6 to the financial statements under "Joint Ownership Agreements" related to the Company's ownership interest in Georgia Power's Plant Scherer Unit No. 3. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation, and to add Gulf Power, Mississippi Power, and Savannah Electric as defendants. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. Southern Company believes that its integrated utilities complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. Gulf Power must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the Company could incur substantial costs to clean up properties. The Company conducts studies to determine the extent of any required cleanup costs and has recognized in the financial statements costs to clean up known sites. For additional information, see Note 3 to the financial statements under "Environmental Cost Recovery." Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of the Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electric and magnetic fields, and other environmental health concerns could significantly affect the Company. The impact of new legislation -- if any - -- will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electric and magnetic fields. 11-122 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1999 Annual Report Sources of Capital At December 31, 1999, the Company had approximately $15.8 million of cash and cash equivalents and $41.5 million of unused committed lines of credit with banks to meet its short-term cash needs. Refer to the Statements of Cash Flows for details related to the Company's financing activities. See Note 5 to the financial statements under "Bank Credit Arrangements" for additional information. The Company historically has relied on issuances of first mortgage bonds and preferred stock, in addition to pollution control revenue bonds issued for its benefit by public authorities, to meet its long-term external financing requirements. Recently, the Company's financings have consisted of unsecured debt and trust preferred securities. In this regard, the Company sought and obtained stockholder approval in 1997 to amend its corporate charter eliminating restrictions on the amounts of unsecured indebtedness it may incur. If the Company chooses to issue first mortgage bonds or preferred stock, it is required to meet certain coverage requirements specified in its mortgage indenture and corporate charter. The Company's ability to satisfy all coverage requirements is such that it could issue new first mortgage bonds and preferred stock to provide sufficient funds for all anticipated requirements. Cautionary Statement Regarding Forward-Looking Information The Company's 1999 Annual Report contains forward-looking and historical information. The Company cautions that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking information. Accordingly, there can be no assurance that such indicated results will be realized. These factors include legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry; the extent and timing of the entry of additional competition in the Company's markets; potential business strategies -- including acquisitions or dispositions of assets or internal restructuring -- that may be pursued by the company; state and federal rate regulation; changes in or application of environmental and other laws and regulations to which the company is subject; political, legal and economic conditions and developments; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather and other natural phenomena; and other factors discussed in the reports -- including Form 10-K -- filed from time to time by the Company with the Securities and Exchange Commission. 11-123
STATEMENTS OF INCOME For the Years Ended December 31, 1999, 1998, and 1997 Gulf Power Company 1999 Annual Report - ----------------------------------------------------------------------------------------------------------- 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues: Retail sales $512,760 $509,118 $521,619 Sales for resale -- Non-affiliates 62,354 61,893 63,697 Affiliates 66,110 42,642 16,760 Other revenues 32,875 36,865 23,780 - ----------------------------------------------------------------------------------------------------------- Total operating revenues 674,099 650,518 625,856 - ----------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 209,031 197,462 180,843 Purchased power -- Non-affiliates 46,332 29,369 11,938 Affiliates 10,703 14,445 24,955 Other 114,670 119,011 126,266 Maintenance 57,830 57,286 47,988 Depreciation and amortization 64,589 59,129 57,874 Taxes other than income taxes 51,782 51,462 51,775 - ----------------------------------------------------------------------------------------------------------- Total operating expenses 554,937 528,164 501,639 - ----------------------------------------------------------------------------------------------------------- Operating Income 119,162 122,354 124,217 Other Income (Expense): Interest income 1,771 931 1,203 Other, net (1,357) (2,339) (992) - ----------------------------------------------------------------------------------------------------------- Earnings Before Interest and Income Taxes 119,576 120,946 124,428 - ----------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 21,375 19,718 21,699 Interest on notes payable 2,371 1,190 891 Amortization of debt discount, premium and expense, net 1,989 2,100 2,281 Other interest charges 1,126 2,548 2,076 Distributions on preferred securities of subsidiary 6,200 6,034 2,804 - ----------------------------------------------------------------------------------------------------------- Total interest charges and other, net 33,061 31,590 29,751 - ----------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes 86,515 89,356 94,677 Income taxes (Note 8) 32,631 32,199 33,450 - ----------------------------------------------------------------------------------------------------------- Net Income 53,884 57,157 61,227 Dividends on Preferred Stock 217 636 3,617 - ----------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 53,667 $ 56,521 $ 57,610 =========================================================================================================== The accompanying notes are an integral part of these statements.
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STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1999, 1998, and 1997 Gulf Power Company 1999 Annual Report - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $ 53,884 $ 57,157 $ 61,227 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 68,721 69,633 72,860 Deferred income taxes and investment tax credits, net (6,609) (4,684) (7,047) Other, net 3,735 3,463 4,831 Changes in certain current assets and liabilities -- Receivables, net (10,484) 11,308 (692) Fossil fuel stock (5,656) (4,917) 9,056 Materials and supplies (2,063) 609 1,618 Accounts payable (2,023) 823 1,398 Other 7,030 (18,471) 22,296 - -------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 106,535 114,921 165,547 - -------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (69,798) (69,731) (54,289) Other (8,856) 5,990 509 - -------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (78,654) (63,741) (53,780) - -------------------------------------------------------------------------------------------------------------------------- Financing Activities: Increase (decrease) in notes payable, net 23,500 (15,500) 22,000 Proceeds -- Other long-term debt 50,000 50,000 60,930 Preferred securities - 45,000 40,000 Capital contributions from parent company 2,294 522 - Retirements -- First mortgage bonds - (45,000) (25,000) Other long-term debt (27,074) (8,326) (56,902) Preferred stock - (9,455) (75,911) Payment of preferred stock dividends (271) (792) (5,370) Payment of common stock dividends (61,300) (67,200) (64,600) Other (246) (4,167) (3,014) - -------------------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (13,097) (54,918) (107,867) - -------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents 14,784 (3,738) 3,900 Cash and Cash Equivalents at Beginning of Period 969 4,707 807 - -------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 15,753 $ 969 $ 4,707 ========================================================================================================================== Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of amount capitalized) $27,670 $28,044 $26,558 Income taxes (net of refunds) 29,462 38,782 36,010 - -------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
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BALANCE SHEETS At December 31, 1999 and 1998 Gulf Power Company 1999 Annual Report - --------------------------------------------------------------------------------------------------------------------- Assets 1999 1998 - --------------------------------------------------------------------------------------------------------------------- (in thousands) Current Assets: Cash and cash equivalents $ 15,753 $ 969 Receivables -- Customer accounts receivable 55,108 49,067 Other accounts and notes receivable 4,325 3,514 Affiliated companies 7,104 3,442 Accumulated provision for uncollectible accounts (1,026) (996) Fossil fuel stock, at average cost 29,869 24,213 Materials and supplies, at average cost (Note 1) 30,088 28,025 Regulatory clauses under recovery (Note 1) 11,611 9,737 Other 5,354 9,725 - --------------------------------------------------------------------------------------------------------------------- Total current assets 158,186 127,696 - --------------------------------------------------------------------------------------------------------------------- Property, Plant, and Equipment: In service (Notes 1 and 6) 1,853,664 1,809,901 Less accumulated provision for depreciation 821,970 784,111 - --------------------------------------------------------------------------------------------------------------------- 1,031,694 1,025,790 Construction work in progress 34,164 34,863 - --------------------------------------------------------------------------------------------------------------------- Total property, plant, and equipment 1,065,858 1,060,653 - --------------------------------------------------------------------------------------------------------------------- Other Property and Investments 1,481 588 - --------------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes (Note 8) 25,264 25,308 Prepaid pension costs (Note 2) 17,734 13,770 Debt expense, being amortized 2,526 2,565 Premium on reacquired debt, being amortized 17,360 18,883 Other 20,086 18,438 - --------------------------------------------------------------------------------------------------------------------- Total deferred charges and other assets 82,970 78,964 - --------------------------------------------------------------------------------------------------------------------- Total Assets $1,308,495 $1,267,901 ===================================================================================================================== The accompanying notes are an integral part of these balance sheets.
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BALANCE SHEETS At December 31, 1999 and 1998 Gulf Power Company 1999 Annual Report - ---------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholder's Equity 1999 1998 - ---------------------------------------------------------------------------------------------------------------------- (in thousands) Current Liabilities: Securities due within one year (Note 10) $ - $ 27,000 Notes payable 55,000 31,500 Accounts payable -- Affiliated 14,878 19,756 Other 22,581 23,697 Customer deposits 12,778 12,560 Taxes accrued -- Income taxes 4,889 - Other 7,707 7,432 Interest accrued 9,255 5,184 Vacation pay accrued 4,199 4,035 Other 4,961 10,051 - ---------------------------------------------------------------------------------------------------------------------- Total current liabilities 136,248 141,215 - ---------------------------------------------------------------------------------------------------------------------- Long-term debt (See accompanying statements) 367,449 317,341 - ---------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 8) 162,776 166,118 Deferred credits related to income taxes (Note 8) 49,693 52,465 Accumulated deferred investment tax credits 27,712 29,632 Employee benefits provisions 31,735 28,594 Other 21,333 15,648 - ---------------------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 293,249 292,457 - ---------------------------------------------------------------------------------------------------------------------- Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding company junior subordinated notes (See accompanying statements) 85,000 85,000 - ---------------------------------------------------------------------------------------------------------------------- Preferred stock (See accompanying statements) 4,236 4,236 - ---------------------------------------------------------------------------------------------------------------------- Common stockholder's equity (See accompanying statements) 422,313 427,652 - ---------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholder's Equity $1,308,495 $1,267,901 ====================================================================================================================== The accompanying notes are an integral part of these balance sheets.
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STATEMENTS OF CAPITALIZATION At December 31, 1999 and 1998 Gulf Power Company 1999 Annual Report - ------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------ (in thousands) (percent of total) Long-Term Debt: First mortgage bonds -- Maturity Interest Rates --------- ------------- July 1, 2003 6.125% $ 30,000 $ 30,000 November 1, 2006 6.50% 25,000 25,000 January 1, 2026 6.875% 30,000 30,000 - ------------------------------------------------------------------------------------------------------------------------------ Total first mortgage bonds 85,000 85,000 - ------------------------------------------------------------------------------------------------------------------------------ Long-term notes payable -- 7.05% due August 15, 2004 50,000 - 7.50% due June 30, 2037 20,000 20,000 6.70% due June 30, 2038 49,926 50,000 Adjustable rate (5.72% at 1/1/99) due November 20, 1999 - 27,000 - ------------------------------------------------------------------------------------------------------------------------------ Total long-term notes payable 119,926 97,000 - ------------------------------------------------------------------------------------------------------------------------------ Other long-term debt -- Pollution control revenue bonds -- Collateralized with first mortgage bonds: 5.25% to 6.30% due 2006-2026 108,700 108,700 Variable rate (3.70% at 1/1/00) due 2024 20,000 20,000 Collateralized with other property: Variable rate (3.75% at 1/1/00) due 2022 40,930 40,930 - ------------------------------------------------------------------------------------------------------------------------------ Total other long-term debt 169,630 169,630 - ------------------------------------------------------------------------------------------------------------------------------ Unamortized debt premium (discount), net (7,107) (7,289) - ------------------------------------------------------------------------------------------------------------------------------ Total long-term debt (annual interest requirement -- $22.5 million) 367,449 344,341 Less amount due within one year (Note 10) - 27,000 - ------------------------------------------------------------------------------------------------------------------------------ Long-term debt excluding amount due within one year 367,449 317,341 41.8% 38.0% - ------------------------------------------------------------------------------------------------------------------------------ Company Obligated Mandatorily Redeemable Preferred Securities: (Note 9) $25 liquidation value -- 7.00% 45,000 45,000 7.625% 40,000 40,000 - ------------------------------------------------------------------------------------------------------------------------------ Total (annual distribution requirement -- $6.2 million) 85,000 85,000 9.7 10.2 - ------------------------------------------------------------------------------------------------------------------------------ Cumulative Preferred Stock: $100 par value 4.64% to 5.44% 4,236 4,236 - ------------------------------------------------------------------------------------------------------------------------------ Total (annual dividend requirement -- $0.2 million) 4,236 4,236 Less amount due within one year - - - ------------------------------------------------------------------------------------------------------------------------------ Total excluding amount due within one year 4,236 4,236 0.5 0.5 - ------------------------------------------------------------------------------------------------------------------------------ Common Stockholder's Equity: Common stock, without par value -- Authorized and Outstanding - 992,717 shares in 1999 and 1998 38,060 38,060 Paid-in capital 221,254 218,960 Premium on preferred stock 12 12 Retained earnings (Note 11) 162,987 170,620 - ------------------------------------------------------------------------------------------------------------------------------ Total common stockholder's equity 422,313 427,652 48.0 51.3 - ------------------------------------------------------------------------------------------------------------------------------ Total Capitalization $878,998 $834,229 100.0% 100.0% ============================================================================================================================== The accompanying notes are an integral part of these statements.
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STATEMENTS OF COMMON STOCKHOLDER'S EQUITY For the Years Ended December 31, 1999, 1998, and 1997 Gulf Power Company 1999 Annual Report - ----------------------------------------------------------------------------------------------------------------------------- Premium on Common Paid-In Preferred Retained Stock Capital Stock Earnings Total - ----------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at January 1, 1997 $38,060 $218,437 $81 $179,180 $435,758 Net income after dividends on preferred stock - - - 57,610 57,610 Cash dividends on common stock - - - (64,600) (64,600) Other - 1 (69) 18 (50) - ----------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 38,060 218,438 12 172,208 428,718 Net income after dividends on preferred stock - - - 56,521 56,521 Capital contributions from parent company - 522 - - 522 Cash dividends on common stock - - - (57,200) (57,200) Other - - - (909) (909) - ----------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 38,060 218,960 12 170,620 427,652 Net income after dividends on preferred stock - - - 53,667 53,667 Capital contributions from parent company - 2,294 - - 2,294 Cash dividends on common stock - - - (61,300) (61,300) - ----------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 $38,060 $221,254 $12 $162,987 $422,313 ============================================================================================================================= The accompanying notes are an integral part of these statements.
II-129 NOTES TO FINANCIAL STATEMENTS Gulf Power Company 1999 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Gulf Power Company is a wholly owned subsidiary of Southern Company, which is the parent company of five integrated Southeast utilities, a system service company, Southern Communications Services (Southern LINC), Southern Company Energy Solutions, Southern Energy, Inc. (Southern Energy), Southern Nuclear Operating Company (Southern Nuclear), and other direct and indirect subsidiaries. The integrated Southeast utilities -- Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Savannah Electric -- provide electric service in four states. Gulf Power Company provides electric service to the northwest panhandle of Florida. Contracts among the integrated Southeast utilities -- related to jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power --are regulated by the Federal Energy Regulatory Commission (FERC) and/or the Securities and Exchange Commission (SEC). The system service company provides, at cost, specialized services to Southern Company and subsidiary companies. Southern LINC provides digital wireless communications services to the operating companies and also markets these services to the public within the Southeast. Southern Company Energy Solutions develops new business opportunities related to energy products and services. Southern Nuclear provides services to Southern Company's nuclear power plants. Southern Energy acquires, develops, builds, owns, and operates power production and delivery facilities and provides a broad range of energy-related services to utilities and industrial companies in selected countries around the world. Southern Energy businesses include independent power projects, integrated utilities, a distribution company, and energy trading and marketing businesses outside the southeastern United States. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries are subject to the regulatory provisions of the PUHCA. The Company is also subject to regulation by the FERC and the Florida Public Service Commission (FPSC). The Company follows generally accepted accounting principles and complies with the accounting policies and practices prescribed by the FPSC and the FERC. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates, and the actual results may differ from those estimates. Certain prior years' data presented in the financial statements have been reclassified to conform with current year presentation. Related-Party Transactions The Company has an agreement with Southern Company Services, Inc. (a wholly owned subsidiary of Southern Company) under which the following services are rendered to the company at cost: general and design engineering, purchasing, accounting and statistical, finance and treasury, tax, information resources, marketing, auditing, insurance and pension, human resources, systems and procedures, and other services with respect to business and operations and power pool operations. Costs for these services amounted to $43 million, $40 million, and $36 million during 1999, 1998, and 1997, respectively. Regulatory Assets and Liabilities The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues to the Company associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are expected to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Balance Sheets at December 31 relate to the following: II-130 NOTES TO FINANCIAL STATEMENTS Gulf Power Company 1999 Annual Report 1999 1998 -------------------------- (in thousands) Deferred income tax debits $25,264 $ 25,308 Deferred loss on reacquired debt 17,360 18,883 Environmental remediation 5,745 7,076 Vacation pay 4,199 4,035 Regulatory clauses under (over) recovery, net 8,486 3,700 Accumulated provision for property damage (5,528) (1,605) Deferred income tax credits (49,693) (52,465) Other, net (1,255) (480) - ------------------------------------------------------------------ Total $ 4,578 $ 4,452 ================================================================== In the event that a portion of the Company's operations is no longer subject to the provisions of FASB Statement No. 71, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the Company would be required to determine any impairment to other assets, including plant, and write down the assets, if impaired, to their fair value. Revenues and Regulatory Cost Recovery Clauses The Company currently operates as a vertically integrated utility providing electricity to retail customers within its service area located in northwest Florida and to wholesale customers in the Southeast. The Company accrues revenues for service rendered but unbilled at the end of each fiscal period. The Company has a diversified base of customers and no single customer or industry comprises 10 percent or more of revenues. For all periods presented, uncollectible accounts averaged significantly less than 1 percent of revenues. Fuel costs are expensed as the fuel is used. The Company's retail electric rates include provisions to periodically adjust billings for fluctuations in fuel costs, the energy component of purchased power costs, and certain other costs. The Company also has similar retail cost recovery clauses for energy conservation costs, purchased power capacity costs, and environmental compliance costs. Revenues are adjusted monthly for differences between recoverable costs and amounts actually reflected in current rates. Depreciation and Amortization Depreciation of the original cost of plant in service is provided primarily by using composite straight-line rates, which approximated 3.8 percent in 1999 and 1998 and 3.6 percent in 1997. The increase in 1998 is attributable to new depreciation rates, which were approved by the FPSC in 1998. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its cost -- together with the cost of removal, less salvage -- is charged to the accumulated provision for depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Also, the provision for depreciation expense includes an amount for the expected cost of removal of facilities. Income Taxes The Company uses the liability method of accounting for income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. The Company is included in the consolidated federal income tax return of Southern Company. Property, Plant, and Equipment Property, plant, and equipment is stated at original cost. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and the estimated cost of funds used during construction. The cost of maintenance, repairs, and replacement of minor items of property is charged to maintenance expense. The cost of replacements of property (exclusive of minor items of property) is charged to utility plant. Cash and Cash Equivalents Temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. II-131 NOTES (continued) Gulf Power Company 1999 Annual Report Financial Instruments The Company's financial instruments for which the carrying amount did not equal fair value at December 31 were as follows: Carrying Fair Amount Value --------------------------- (in thousands) Long-term debt: At December 31, 1999 $367,449 $349,791 At December 31, 1998 $344,341 $357,100 Capital trust preferred securities: At December 31, 1999 $85,000 $69,092 At December 31, 1998 $85,000 $89,400 - -------------------------------------------------------------- The fair values for long-term debt and preferred securities were based on either closing market prices or closing prices of comparable instruments. Materials and Supplies Generally, materials and supplies include the cost of transmission, distribution, and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when installed. Provision for Injuries and Damages The Company is subject to claims and suits arising in the ordinary course of business. As permitted by regulatory authorities, the Company provides for the uninsured costs of injuries and damages by charges to income amounting to $1.2 million annually. The expense of settling claims is charged to the provision to the extent available. The accumulated provision of $1.8 million and $1.3 million at December 31, 1999 and 1998, respectively, is included in other current liabilities in the accompanying Balance Sheets. Provision for Property Damage The Company provides for the cost of repairing damages from major storms and other uninsured property damages. This includes the full cost of storm and other damages to its transmission and distribution lines and the cost of uninsured damages to its generation and other property. The expense of such damages is charged to the provision account. At December 31, 1999 and 1998, the accumulated provision for property damage was $5.5 million and $1.6 million, respectively. In 1995, the FPSC approved the Company's request to increase the amount of its annual accrual to the accumulated provision for property damage account from $1.2 million to $3.5 million and approved a target level for the accumulated provision account between $25.1 and $36.0 million. The FPSC has also given the Company the flexibility to increase its annual accrual amount above $3.5 million, when the Company believes it is in a position to do so. The Company accrued $5.5 million in 1999 and $6.5 million in 1998 to the accumulated provision for property damage. The Company charged $1.6 million to the provision account in 1999. Charges to the provision account during 1998 totaled $4.2 million, which included $3.4 million related to Hurricane Georges. 2. RETIREMENT BENEFITS The Company has a defined benefit, trusteed, non-contributory pension plan that covers substantially all regular employees. The Company provides certain medical care and life insurance benefits for retired employees. Substantially all employees may become eligible for these benefits when they retire. Trusts are funded to the extent required by the Company's regulatory commissions. The measurement date for plan assets and obligations is September 30 for each year. Pension Plan Changes during the year in the projected benefit obligations and in the fair value of plan assets were as follows: Projected Benefit Obligations --------------------------- 1999 1998 - --------------------------------------------------------------- (in thousands) Balance at beginning of year $143,012 $130,794 Service cost 4,490 4,107 Interest cost 9,440 9,572 Benefits paid (6,862) (6,663) Actuarial loss (gain) and employee transfers (8,113) 5,202 - --------------------------------------------------------------- Balance at end of year $141,967 $143,012 =============================================================== II-132 NOTES (continued) Gulf Power Company 1999 Annual Report Plan Assets --------------------------- 1999 1998 - --------------------------------------------------------------- (in thousands) Balance at beginning of year $212,934 $222,196 Actual return on plan assets 35,971 1,310 Benefits paid (6,862) (6,663) Employee transfers (558) (3,909) - --------------------------------------------------------------- Balance at end of year $241,485 $212,934 =============================================================== The accrued pension costs recognized in the Balance Sheets were as follows: 1999 1998 - --------------------------------------------------------------- (in thousands) Funded status $99,518 $ 69,922 Unrecognized transition obligation (4,323) (5,043) Unrecognized prior service cost 4,495 4,869 Unrecognized net gain (81,956) (55,978) - --------------------------------------------------------------- Prepaid asset recognized in the Balance Sheets $17,734 $13,770 =============================================================== Components of the pension plan's net periodic cost were as follows: 1999 1998 1997 - ----------------------------------------------------------------- Service cost $4,490 $ 4,107 $ 3,897 Interest cost 9,440 9,572 9,301 Expected return on plan assets (15,968) (14,827) (13,675) Recognized net gain (1,579) (1,891) (1,656) Net amortization (347) (347) (347) - ----------------------------------------------------------------- Net pension income $(3,964) $(3,386) $ (2,480) ================================================================= Postretirement Benefits Changes during the year in the accumulated benefit obligations and in the fair value of plan assets were as follows: Accumulated Benefit Obligations --------------------------- 1999 1998 - --------------------------------------------------------------- (in thousands) Balance at beginning of year $49,303 $39,669 Service cost 1,087 946 Interest cost 3,261 3,123 Benefits paid (1,177) (1,068) Actuarial (loss) gain and employee transfers (4,464) 3,614 Amendments - 3,019 - --------------------------------------------------------------- Balance at end of year $48,010 $49,303 =============================================================== Plan Assets --------------------------- 1999 1998 - --------------------------------------------------------------- (in thousands) Balance at beginning of year $9,603 $9,455 Actual return on plan assets 1,525 54 Employer contributions 1,245 1,162 Benefits paid (1,177) (1,068) - --------------------------------------------------------------- Balance at end of year $11,196 $9,603 =============================================================== The accrued postretirement costs recognized in the Balance Sheets were as follows: 1999 1998 - --------------------------------------------------------------- (in thousands) Funded status $(36,814) $(39,700) Unrecognized transition obligation 4,723 5,079 Unrecognized prior service cost 2,741 2,900 Unrecognized net loss 2,620 8,187 Fourth quarter contributions 300 - - --------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $(26,430) $(23,534) =============================================================== II-133 NOTES (continued) Gulf Power Company 1999 Annual Report Components of the postretirement plan's net periodic cost were as follows: 1999 1998 1997 - --------------------------------------------------------------- Service cost $1,087 $ 946 $ 896 Interest cost 3,261 3,123 2,845 Expected return on plan assets (794) (717) (641) Transition obligation 356 356 356 Prior service cost 159 119 - Recognized net loss 264 128 184 - --------------------------------------------------------------- Net postretirement cost $4,333 $3,955 $3,640 =============================================================== The weighted average rates assumed in the actuarial calculations for both the pension plan and postretirement benefits were: 1999 1998 - -------------------------------------------------------- Discount 7.50% 6.75% Annual salary increase 5.00% 4.25% Long-term return on plan assets 8.50% 8.50% - -------------------------------------------------------- An additional assumption used in measuring the accumulated postretirement benefit obligations was a weighted average medical care cost trend rate of 7.74 percent for 1999, decreasing gradually to 5.5 percent through the year 2005, and remaining at that level thereafter. An annual increase or decrease in the assumed medical care cost trend rate of 1 percent would affect the accumulated benefit obligation and the service and interest cost components at December 31, 1999 as follows (in thousands): 1 Percent 1 Percent Increase Decrease - --------------------------------------------------------------- Benefit obligation $3,627 $(3,086) Service and interest costs $320 $(269) =============================================================== Work Force Reduction Programs The Company recorded costs related to work force reduction programs of $0.2 million in 1999, $2.8 million in 1998, and $1.4 million in 1997. The Company has also incurred its pro rata share for the costs of affiliated companies' programs. The costs related to these programs were $0.6 million for 1999, $0.2 million for 1998, and $1.3 million for 1997. The Company has expensed all costs related to these work force reduction programs. 3. CONTINGENCIES AND REGULATORY MATTERS Environmental Cost Recovery In April 1993, the Florida Legislature adopted legislation for an Environmental Cost Recovery Clause (ECRC), which allows a utility to petition the FPSC for recovery of all prudent environmental compliance costs that are not being recovered through base rates or any other recovery mechanism. Such environmental costs include operation and maintenance expense, emission allowance expense, depreciation, and a return on invested capital. In January 1994, the FPSC approved the Company's initial petition under the ECRC for recovery of environmental costs. Initially, recovery under the ECRC was determined semi-annually. The FPSC approved annual recovery periods beginning with the October 1996 through September 1997 period. As of January 1999, the annual recovery period is on a calendar-year basis as approved by the FPSC in May 1998. Recovery includes a true-up of the prior period and a projection of the ensuing period. During 1999 and 1998, the Company recorded ECRC revenues of $11.6 million and $8.0 million, respectively. At December 31, 1999, the Company's liability for the estimated costs of environmental remediation projects for known sites was $5.7 million. These estimated costs are expected to be expended from 2000 through 2006. These projects have been approved by the FPSC for recovery through the ECRC discussed above. Therefore, the Company recorded $1.2 million in current assets and current liabilities and $4.5 million in deferred assets and deferred liabilities representing the future recoverability of these costs. Environmental Litigation On November 3, 1999, the Environmental Protection Agency (EPA) brought a civil action in the U.S. District Court against Alabama Power, Georgia Power, and the system service company. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act II-134 NOTES (continued) Gulf Power Company 1999 Annual Report with respect to five coal-fired generating facilities in Alabama and Georgia. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The Clean Air Act authorizes civil penalties of up to $27,500 per day, per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. The EPA concurrently issued to the integrated Southeast utilities a notice of violation related to 10 generating facilities, including the five facilities mentioned previously and the Company's Plants Crist and Scherer. See Note 6 under "Joint Ownership Agreements" related to the Company's ownership interest in Georgia Power's Plant Scherer Unit No. 3. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation, and to add Gulf Power, Mississippi Power, and Savannah Electric as defendants. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. Southern Company believes that its integrated utilities complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. 4. CONSTRUCTION PROGRAM The Company is engaged in a continuous construction program, the cost of which is currently estimated to total $106 million in 2000, $232 million in 2001, and $90 million in 2002. The construction program is subject to periodic review and revision, and actual construction costs may vary from the above estimates because of numerous factors. These factors include changes in business conditions; revised load growth estimates; changes in environmental regulations; increasing costs of labor, equipment, and materials; and cost of capital. At December 31, 1999, significant purchase commitments were outstanding in connection with the construction program. The Company has budgeted $198.8 million for the years 2000 through 2002 for the estimated cost of a 574 megawatt combined cycle gas unit to be located in the eastern portion of its service area. The unit is expected to have an in-service date of June 2002. The Company will continue its construction program related to transmission and distribution facilities and the upgrading and extension of the useful lives of generating plants. See Management's Discussion and Analysis under "Environmental Matters" for information on the impact of the Clean Air Act Amendments of 1990 and other environmental matters. 5. FINANCING AND COMMITMENTS General Current projections indicate that funds required for construction and other purposes, including compliance with environmental regulations, will be derived from operations; the sale of additional long-term unsecured debt, pollution control bonds, and preferred securities; bank notes; and capital contributions from Southern Company. In addition, the Company may issue additional long-term debt and preferred securities primarily for debt maturities and redemptions of higher-cost securities. Bank Credit Arrangements At December 31, 1999, the Company had $41.5 million of lines of credit with banks subject to renewal June 1 of each year, all of which remained unused. In addition, the Company has two unused committed lines of credit totaling $61.9 million that were established for liquidity support of its variable rate pollution control bonds. In connection with these credit lines, the Company has agreed to pay commitment fees and/or to maintain compensating balances with the banks. The compensating balances, which represent substantially all of the cash of the Company except for daily working funds and like items, are not legally restricted from withdrawal. In addition, the Company has bid-loan facilities with seven major money center banks that total $130 million, of which $50 million was committed at December 31, 1999. 11-135 NOTES (continued) Gulf Power Company 1999 Annual Report Assets Subject to Lien The Company's mortgage, which secures the first mortgage bonds issued by the Company, constitutes a direct first lien on substantially all of the Company's fixed property and franchises. Fuel Commitments To supply a portion of the fuel requirements of its generating plants, the Company has entered into long-term commitments for the procurement of fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels, and other financial commitments. Total estimated long-term obligations at December 31, 1999 were as follows: Year Fuel --------- ---------------- (in millions) 2000 $89 2001 70 2002 86 2003 90 2004 91 2005 - 2026 508 ---------------------------------------------------------- Total commitments $934 ========================================================== In 1988, the Company made an advance payment of $60 million to a coal supplier under an arrangement to lower the cost of future coal purchased under an existing contract. This payment was fully amortized to expense on a per ton basis as of March 1998. In December 1995, the Company made another payment of $22 million to the same coal supplier under an arrangement to lower the cost of future coal and/or to suspend the purchase of coal under an existing contract for 25 months. This payment was fully amortized to expense on a per ton basis as of March 1998. The amortization expense of these contract renegotiations was recovered through the fuel cost recovery clause discussed under "Revenues and Regulatory Cost Recovery Clauses" in Note 1. Lease Agreements In 1989, the Company and Mississippi Power jointly entered into a twenty-two year operating lease agreement for the use of 495 aluminum railcars. In 1994, a second lease agreement for the use of 250 additional aluminum railcars was entered into for twenty-two years. Both of these leases are for the transportation of coal to Plant Daniel. At the end of each lease term, the Company has the option to renew the lease. In 1997, three additional lease agreements for 120 cars each were entered into for three years, with a monthly renewal option for up to an additional nine months. The Company, as a joint owner of Plant Daniel, is responsible for one half of the lease costs. The lease costs are charged to fuel inventory and are allocated to fuel expense as the fuel is used. The Company's share of the lease costs charged to fuel inventories was $2.8 million in 1999 and $2.8 million in 1998. The annual amounts for 2000 through 2004 are expected to be $2.1 million, $1.7 million, $1.7 million, $1.7 million, and $1.8 million, respectively, and after 2004 are expected to total $14.4 million. 6. JOINT OWNERSHIP AGREEMENTS The Company and Mississippi Power jointly own Plant Daniel, a steam-electric generating plant located in Jackson County, Mississippi. In accordance with an operating agreement, Mississippi Power acts as the Company's agent with respect to the construction, operation, and maintenance of the plant. The Company and Georgia Power jointly own Plant Scherer Unit No. 3. Plant Scherer is a steam-electric generating plant located near Forsyth, Georgia. In accordance with an operating agreement, Georgia Power acts as the Company's agent with respect to the construction, operation, and maintenance of the unit. The Company's pro rata share of expenses related to both plants is included in the corresponding operating expense accounts in the Statements of Income. II-136 NOTES (continued) Gulf Power Company 1999 Annual Report At December 31, 1999, the Company's percentage ownership and its investment in these jointly owned facilities were as follows: Plant Scherer Plant Unit No. 3 Daniel (coal-fired) (coal-fired) ----------------------------- (in thousands) Plant In Service $185,714(1) $231,041 Accumulated Depreciation $66,193 $113,687 Construction Work in Progress $276 $2,621 Nameplate Capacity (2) (megawatts) 205 500 Ownership 25% 50% - ------------------------------------------------------------------ (1) Includes net plant acquisition adjustment. (2) Total megawatt nameplate capacity: Plant Scherer Unit No. 3: 818 Plant Daniel: 1,000 7. LONG-TERM POWER SALES AGREEMENTS The Company and the other operating affiliates have long-term contractual agreements for the sale of capacity and energy to certain non-affiliated utilities located outside the system's service area. The unit power sales agreements are firm and pertain to capacity related to specific generating units. Because the energy is generally sold at cost under these agreements, profitability is primarily affected by revenues from capacity sales. The capacity revenues from these sales were $19.8 million in 1999, $22.5 million in 1998, and $24.9 million in 1997. Declining capacity revenues are due primarily to the decline in net plant investment related to these sales. In addition, the decline in 1999 reflects a reduction in the authorized rate of return on the equity component of the investment. Unit power from specific generating plants of Southern Company is currently being sold to Florida Power Corporation (FPC), Florida Power & Light Company (FP&L), Jacksonville Electric Authority (JEA), and the City of Tallahassee, Florida. Under these agreements, 214 megawatts of net dependable capacity were sold by the Company during 1999. Sales will decrease to 209 megawatts per year in 2000 and remain at that level -- unless reduced by FP&L, FPC, and JEA for the periods after 2000 with a minimum of three years notice -- until the expiration of the contracts in 2010. Capacity and energy sales to FP&L, the Company's largest single customer, provided revenues of $24.3 million in 1999, $22.3 million in 1998, and $25.4 million in 1997, or 3.6 percent, 3.4 percent, and 4.1 percent of operating revenues, respectively. 8. INCOME TAXES At December 31, 1999, the tax-related regulatory assets to be recovered from customers were $25.3 million. These assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized allowance for funds used during construction. At December 31, 1999, the tax-related regulatory liabilities to be credited to customers were $49.7 million. These liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. Details of the federal and state income tax provisions are as follows: 1999 1998 1997 ------------------------------------ (in thousands) Total provision for income taxes: Federal-- Current $33,973 $31,746 $34,522 Deferred --current year 16,776 18,485 19,297 --reversal of prior years (22,883) (22,952) (25,778) - -------------------------------------------------------------------- 27,866 27,279 28,041 - -------------------------------------------------------------------- State-- Current 5,267 5,137 5,975 Deferred --current year 2,474 2,745 2,868 --reversal of prior years (2,976) (2,962) (3,434) - -------------------------------------------------------------------- 4,765 4,920 5,409 - -------------------------------------------------------------------- Total $32,631 $32,199 $33,450 ==================================================================== The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows: 11-137 NOTES (continued) Gulf Power Company 1999 Annual Report 1999 1998 -------------------------- (in thousands) Deferred tax liabilities: Accelerated depreciation $168,662 $155,833 Property basis differences 6,000 20,330 Other 18,272 17,645 - --------------------------------------------------------------------- Total 192,934 193,808 - --------------------------------------------------------------------- Deferred tax assets: Federal effect of state deferred taxes 9,293 9,509 Postretirement benefits 8,456 7,644 Other 12,526 10,702 - --------------------------------------------------------------------- Total 30,275 27,855 - --------------------------------------------------------------------- Net deferred tax liabilities 162,659 165,953 Less current portion, net (117) (165) - --------------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $162,776 $166,118 ===================================================================== Deferred investment tax credits are amortized over the lives of the related property with such amortization normally applied as a credit to reduce depreciation and amortization in the Statements of Income. Credits amortized in this manner amounted to $1.9 million in 1999, $1.9 million in 1998, and $2.2 million in 1997. At December 31, 1999, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: 1999 1998 1997 ---------------------------- Federal statutory rate 35% 35% 35% State income tax, net of federal deduction 4 4 4 Non-deductible book depreciation 1 1 1 Difference in prior years' deferred and current tax rate (2) (2) (1) Other, net - (2) (4) - ---------------------------------------------------------------- Effective income tax rate 38% 36% 35% ================================================================ The Company and the other subsidiaries of Southern Company file a consolidated federal tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. 9. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES In January 1997, Gulf Power Capital Trust I (Trust I), of which the Company owns all of the common securities, issued $40 million of 7.625 percent mandatorily redeemable preferred securities. Substantially all of the assets of Trust I are $41 million aggregate principal amount of the Company's 7.625 percent junior subordinated notes due December 31, 2036. In January 1998, Gulf Power Capital Trust II (Trust II), of which the Company owns all of the common securities, issued $45 million of 7.0 percent mandatorily redeemable preferred securities. Substantially all of the assets of Trust II are $46 million aggregate principal amount of the Company's 7.0 percent junior subordinated notes due December 31, 2037. The Company considers that the mechanisms and obligations relating to the preferred securities, taken together, constitute a full and unconditional guarantee by the Company of payment obligations with respect to the preferred securities of Trust I and Trust II. Trust I and Trust II are subsidiaries of the Company, and accordingly are consolidated in the Company's financial statements. 10. SECURITIES DUE WITHIN ONE YEAR A summary of the improvement fund requirement and scheduled maturities and redemptions of long-term debt due within one year at December 31 is as follows: 1999 1998 ---------------------- (in thousands) Bond improvement fund requirement $850 $ 850 Less portion to be satisfied by certifying property additions 850 850 - ----------------------------------------------------------------- Cash requirement - - Maturities of first mortgage bonds - - Current portion of other long-term debt - 27,000 - ----------------------------------------------------------------- Total $ - $27,000 ================================================================= The first mortgage bond improvement fund requirement amounts to 1 percent of each outstanding series of bonds authenticated under the indenture prior to January 1 of each year, other than those issued to collateralize pollution control revenue bond obligations. The requirement may be satisfied by depositing 11-138 NOTES (continued) Gulf Power Company 1999 Annual Report cash, reacquiring bonds, or by pledging additional property equal to 1 and 2/3 times the requirement. 11. COMMON STOCK DIVIDEND RESTRICTIONS The Company's first mortgage bond indenture contains various common stock dividend restrictions which remain in effect as long as the bonds are outstanding. At December 31, 1999, retained earnings of $127 million were restricted against the payment of cash dividends on common stock under the terms of the mortgage indenture. 12. QUARTERLY FINANCIAL DATA (Unaudited) Summarized quarterly financial data for 1999 and 1998 are as follows: Net Income After Dividends Operating Operating on Preferred Quarter Ended Revenues Income Stock - -------------------------------------------------------------------- (in thousands) March 1999 $134,506 $15,665 $ 4,799 June 1999 166,815 29,253 13,226 September 1999 218,264 54,429 28,582 December 1999 154,514 19,815 7,060 March 1998 $140,950 $19,387 $ 6,853 June 1998 177,130 33,232 13,364 September 1998 199,377 49,837 26,989 December 1998 133,061 19,898 9,315 - -------------------------------------------------------------------- The Company's business is influenced by seasonal weather conditions and the timing of rate changes, among other factors. II-139
ELECTED FINANCIAL AND OPERATING DATA 1995-1999 Gulf Power Company 1999 Annual Report - ------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) 674,099 $650,518 $625,856 $634,365 $619,077 Net Income after Dividends on Preferred Stock (in thousands) $53,667 $56,521 $57,610 $57,845 $57,154 Cash Dividends on Common Stock (in thousands) $61,300 $57,200 $64,600 $58,300 $46,400 Return on Average Common Equity (percent) 12.63 13.20 13.33 13.27 13.27 Total Assets (in thousands) 308,495 $1,267,901 $1,265,612 $1,308,366 $1,341,859 Gross Property Additions (in thousands) $69,798 $69,731 $54,289 $61,386 $63,113 - ------------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity 422,313 $427,652 $428,718 $435,758 $436,242 Preferred stock 4,236 4,236 13,691 65,102 89,602 Company obligated mandatorily redeemable preferred securities 85,000 85,000 40,000 - - Long-term debt 367,449 317,341 296,993 331,880 323,376 - ------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 878,998 $834,229 $779,402 $832,740 $849,220 =============================================================================================================================== Capitalization Ratios (percent): Common stock equity 48.0 51.3 55.0 52.3 51.4 Preferred stock 0.5 0.5 1.8 7.8 10.5 Company obligated mandatorily redeemable preferred securities 9.7 10.2 5.1 - - Long-term debt 41.8 38.0 38.1 39.9 38.1 - ------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 100.0 =============================================================================================================================== Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 A1 A1 Standard and Poor's AA- AA- AA- A+ A+ Duff & Phelps AA- AA- AA- AA- A+ Preferred Stock - Moody's a2 a2 a2 a2 a2 Standard and Poor's A- A A A A Duff & Phelps A A+ A+ A+ A Unsecured Long-Term Debt - Moody's A2 A2 A2 - - Standard and Poor's A A A - - Duff & Phelps A+ A+ A+ - - =============================================================================================================================== Customers (year-end): Residential 315,240 307,077 300,257 291,196 283,421 Commercial 47,728 46,370 44,589 43,196 41,281 Industrial 267 257 267 278 278 Other 319 268 264 162 134 - ------------------------------------------------------------------------------------------------------------------------------- Total 363,554 353,972 345,377 334,832 325,114 =============================================================================================================================== Employees (year-end): 1,339 1,328 1,328 1,384 1,501 - -------------------------------------------------------------------------------------------------------------------------------
II-140
SELECTED FINANCIAL AND OPERATING DATA 1995-1999 (continued) Gulf Power Company 1999 Annual Report - ------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (in thousands): Residential $ 277,311 $276,208 $ 277,609 $ 285,498 $ 276,155 Commercial 165,871 160,960 164,435 164,181 159,260 Industrial 67,404 69,850 77,492 78,994 81,606 Other 2,174 2,100 2,083 2,056 1,993 - ------------------------------------------------------------------------------------------------------------------------------ Total retail 512,760 509,118 521,619 530,729 519,014 Sales for resale - non-affiliates 62,354 61,893 63,697 63,201 60,413 Sales for resale - affiliates 66,110 42,642 16,760 17,762 18,619 - ------------------------------------------------------------------------------------------------------------------------------ Total revenues from sales of electricity 641,224 613,653 602,076 611,692 598,046 Other revenues 32,875 36,865 23,780 22,673 21,031 - ------------------------------------------------------------------------------------------------------------------------------ Total $674,099 $650,518 $625,856 $634,365 $619,077 ============================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 4,471,118 4,437,558 4,119,492 4,159,924 4,014,142 Commercial 3,222,532 3,111,933 2,897,887 2,808,634 2,708,243 Industrial 1,846,237 1,833,575 1,903,050 1,808,086 1,794,754 Other 19,296 18,952 18,101 17,815 17,345 - ------------------------------------------------------------------------------------------------------------------------------ Total retail 9,559,183 9,402,018 8,938,530 8,794,459 8,534,484 Sales for resale - non-affiliates 1,561,972 1,341,990 1,531,179 1,534,097 1,396,474 Sales for resale - affiliates 2,511,983 1,758,150 848,135 709,647 759,341 - ------------------------------------------------------------------------------------------------------------------------------ Total 13,633,138 12,502,158 11,317,844 11,038,203 10,690,299 ============================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 6.20 6.22 6.74 6.86 6.88 Commercial 5.15 5.17 5.67 5.85 5.88 Industrial 3.65 3.81 4.07 4.37 4.55 Total retail 5.36 5.41 5.84 6.03 6.08 Sales for resale 3.15 3.37 3.38 3.61 3.67 Total sales 4.70 4.91 5.32 5.54 5.59 Residential Average Annual Kilowatt-Hour Use Per Customer 14,318 14,577 13,894 14,457 14,148 Residential Average Annual Revenue Per Customer $888.01 $907.35 $936.30 $992.17 $973.35 Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,188 2,188 2,174 2,174 2,174 Maximum Peak-Hour Demand (megawatts): Winter 2,085 2,040 1,844 2,136 1,732 Summer 2,161 2,146 2,032 1,961 2,040 Annual Load Factor (percent) 55.2 55.3 55.5 51.4 53.0 Plant Availability Fossil-Steam (percent): 87.2 87.6 91.0 91.8 84.0 - ------------------------------------------------------------------------------------------------------------------------------ Source of Energy Supply (percent): Coal 89.8 89.2 87.1 87.8 86.8 Oil and gas 2.5 2.0 0.4 0.5 0.4 Purchased power - From non-affiliates 5.9 5.5 3.5 2.7 4.0 From affiliates 1.8 3.3 9.0 9.0 8.8 - ------------------------------------------------------------------------------------------------------------------------------ Total 100.0 100.0 100.0 100.0 100.0 ==============================================================================================================================
II-141 MISSISSIPPI POWER COMPANY FINANCIAL SECTION II-142 MANAGEMENT'S REPORT Mississippi Power Company 1999 Annual Report The management of Mississippi Power Company has prepared--and is responsible for--the financial statements and related information included in this report. These statements were prepared in accordance with generally accepted accounting principles appropriate in the circumstances and necessarily include amounts that are based on best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that books and records reflect only authorized transactions of the Company. Limitations exist in any system of internal controls, however, based upon recognition that the cost of the system should not exceed its benefits. The Company believes its system of internal accounting control maintains an appropriate cost/benefit relationship. The Company's system of internal accounting controls is evaluated on an ongoing basis by the internal audit staff. The Company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, composed of four directors who are not employees, provides a broad overview of management's financial reporting and control functions. Periodically, this committee meets with management, the internal auditors, and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal controls, and financial reporting matters. The internal auditors and independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the Company's operations are conducted according to a high standard of business ethics. In management's opinion, the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of Mississippi Power Company in conformity with generally accepted accounting principles. /s/Dwight H. Evans Dwight H. Evans President and Chief Executive Officer /s/Michael W. Southern Michael W. Southern Vice President, Secretary, Treasurer and Chief Financial Officer February 16, 2000 II-143 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Mississippi Power Company: We have audited the accompanying balance sheets and statements of capitalization of Mississippi Power Company (a Mississippi corporation and a wholly owned subsidiary of Southern Company) as of December 31, 1999 and 1998, and the related statements of income, common stockholder's equity, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements (pages II-152 through II-168) referred to above present fairly, in all material respects, the financial position of Mississippi Power Company as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP Atlanta, Georgia February 16, 2000 II-144 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Mississippi Power Company 1999 Annual Report RESULTS OF OPERATIONS Earnings Mississippi Power Company's 1999 net income after dividends on preferred stock of $54.8 million remained relatively flat when compared to 1998. In 1998, earnings were $55.1 million, up $1.1 million from the prior year. This change is primarily attributable to higher retail and wholesale revenues. Revenues The following table summarizes the factors impacting operating revenues for the past three years: Increase (Decrease) From Prior Year ---------------------------------- 1999 1998 1997 ---------------------------------- (in thousands) Retail -- Change in base rates (PEP and ECO Plan) $ 792 $ 335 $ 3,177 Sales growth 7,876 4,787 109 Weather (1,404) 7,091 (1,118) Fuel cost recovery and other 19,603 13,112 948 -------------------------------------------------------------- Total retail 26,867 25,325 3,116 -------------------------------------------------------------- Sales for resale -- Non-affiliates 9,778 16,084 5,464 Affiliates 1,161 8,142 (11,606) -------------------------------------------------------------- Total sales for resale 10,939 24,226 (6,142) Other operating revenues 67 1,992 2,585 -------------------------------------------------------------- Total operating revenues $37,873 $51,543 $ (441) ============================================================== Percent change 6.4% 9.5% (0.1)% -------------------------------------------------------------- Retail revenues of $469 million in 1999 increased 6.1 percent from 1998. This increase resulted primarily from continued growth in the service area and a true-up of the unbilled revenue estimate. Retail revenues for 1998 reflected a 6.1 percent increase over the prior year due to the continued growth in the service area and the positive impact of weather on energy sales. Fuel revenues generally represent the direct recovery of fuel expense including purchased power. Therefore, changes in recoverable fuel expenses are offset with corresponding changes in fuel revenues and have no effect on net income. Energy sales to non-affiliates include economy sales and amounts sold under short-term contracts. Sales for resale to non-affiliates are influenced by those utilities' own customer demand, plant availability, and the cost of their predominant fuels. Included in sales for resale to non-affiliates are revenues from rural electric cooperative associations and municipalities located in southeastern Mississippi. Energy sales to these customers increased 10.2 percent in 1999 and 9.8 percent in 1998, with the related revenues rising 12.1 percent and 11.3 percent, respectively. The customer demand experienced by these utilities is determined by factors very similar to Mississippi Power's. Revenues from other sales outside the service area increased in 1999 and 1998 primarily due to power marketing activities. These increases were offset by increases in purchased power from non-affiliates and, as a result, had no significant effect on net income. Sales to affiliated companies within the Southern electric system will vary from year to year depending on demand and the availability and cost of generating resources at each company. These sales have no material impact on earnings. Below is a breakdown of kilowatt-hour sales for 1999 and the percent change for the last three years: 1999 Percent Change ----------- ------------------------------ KWH 1999 1998 1997 (in millions) Residential 2,248 - 10.3% (2.0)% Commercial 2,848 8.5 9.0 4.0 Industrial 4,407 18.2 (6.4) 0.6 Other 40 0.8 - 2.6 Total retail 9,543 10.4 2.0 0.9 Sales for Resale -- Non-affiliates 3,256 3.1 9.1 6.2 Affiliates 540 (2.2) 15.2 (31.0) ---------- Total 13,339 8.0 4.3 0.2 ================================================================== II-145 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 1999 Annual Report Total retail sales increased 10.4 percent from 1998 primarily because of continued growth in the service area, industrial customers' recovery from last year's hurricane and a true-up of the unbilled revenue estimate. The unbilled revenue true-up amounted to approximately 3.5 percent of the total increase. Residential sales decreased slightly in 1999 due to the mild weather in the spring and winter periods, while commercial and industrial sales increased by 8.5 percent and 18.2 percent, respectively. Increased tourism and strong growth impacted commercial sales, while industrial sales were impacted by increased production by several larger industrial customers. Residential and commercial sales increased in 1998 by 10.3 percent and 9.0 percent, respectively, due to sales growth and higher than normal temperatures in the summer months. Sales to industrial customers decreased by 6.4 percent primarily due to a large industrial customer being shut down because of damages incurred from Hurricane Georges. The Company anticipates continued growth in energy sales as the economy improves within its service area. The casino industry and ancillary services, such as lodging, food, transportation, etc., are some of the factors that may influence the economy of the Company's service area. Also, energy demand is expected to grow as a result of a larger and more fully employed population. Expenses Total operating expenses were $513 million in 1999 reflecting an increase of $33 million or 6.9 percent over the prior year. The increase was due primarily to higher fuel costs. In 1998, total operating expenses increased by 10.6 percent over the prior year due primarily to higher fuel expenses, higher maintenance and higher other operation costs. Fuel costs are the single largest expense for the Company. Fuel expenses in 1999 increased 10.3 percent due to an increase in generation resulting from a higher demand for energy. In 1999, expenses related to purchased power from non-affiliates increased 18.3 percent, while expenses related to purchased power from affiliates decreased 14.0 percent which, in total, resulted in a slight increase when compared to 1998. Energy purchased for power marketing activities was resold to non-affiliated third parties and had no significant effect on net income. Sales and purchases among Mississippi Power and its affiliates will vary from period to period depending on demand and the availability and variable production cost at each generating unit in the Southern electric system. In 1998, fuel costs increased because of a 3.1 percent increase in generation and a higher average cost of fuel. The increased generation was due to higher demand for energy across the Southern electric system. Expenses related to purchased power from non-affiliates increased, and expenses related to purchased power from affiliates decreased. Further, the higher demand for energy resulted in higher purchased power costs from non-affiliates. The amount and sources of generation and the average cost of fuel per net kilowatt-hour generated were as follows: 1999 1998 1997 ------------------------- Total generation (millions of kilowatt hours) 11,599 10,610 10,289 Sources of generation (percent) -- Coal 81 80 85 Gas 19 20 15 Average cost of fuel per net kilowatt-hour generated (cents) -- 1.65 1.62 1.54 - -------------------------------------------------------------- Other operation expenses increased 13.9 percent in 1999 primarily due to the amortization of costs associated with the workforce reduction plan and higher distribution expenses. In 1998, other operation expense increased 7.5 percent due to continuing expenses related to a new customer service system, modification of certain information systems for year 2000 readiness, and costs related to workforce reduction programs. Maintenance expenses decreased 6.6 percent in 1999 due to reduced scheduled maintenance. In 1999, depreciation and amortization expenses increased 3.7 percent primarily due to growth in plant investment. Comparisons of taxes other than income taxes for 1999 and 1998 show increases of 4.2 percent and 4.4 percent, respectively, due to higher municipal franchise taxes resulting from higher retail revenues. Interest expense increased due to additional interest related to notes payable and interest accrued on tax audit issues. II-146 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 1999 Annual Report Effects of Inflation Mississippi Power is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the Company is recovering its costs of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on the Company because of the large investment in utility plant with long economic lives. Conventional accounting for historical costs does not recognize this economic loss or the partially offsetting gain that arises through financing facilities with fixed-money obligations, such as long-term debt and preferred securities. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. Future Earnings Potential The results of operations for the past three years are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors ranging from weather to energy sales growth to a less regulated and more competitive environment. Expenses are subject to constant review and cost control programs. See Note 2 to the financial statements under "Workforce Reduction Programs" for information regarding the Company's workforce reduction plan of 1997. The Company is also maximizing the utility of invested capital and minimizing the need for additional capital by refinancing, managing the size of its fuel stockpile, raising generating plant availability and efficiency, and aggressively controlling the construction budget. The Company currently operates as a vertically integrated company providing electricity to customers within its traditional service area located in southeastern Mississippi. Prices for electricity provided by the Company to retail customers are set by the Mississippi Public Service Commission (MPSC) under cost-based regulatory principles. The Federal Energy Regulatory Commission (FERC) regulates the Company's wholesale rate schedules, power sales contracts and transmission facilities. Operating revenues will be affected by any changes in rates under the Performance Evaluation Plan (PEP), the Company's performance based ratemaking plan, and the ECO Plan. PEP has proven to be a stabilizing force on electric rates, with only moderate changes in rates taking place. The ECO Plan provides for recovery of costs (including costs of capital) associated with environmental projects approved by the MPSC, most of which are required to comply with Clean Air Act Amendments of 1990 (Clean Air Act) regulations. The ECO Plan is operated independently of PEP. Compliance costs related to the Clean Air Act could affect earnings if such costs cannot be recovered. The Company's 1999 ECO Plan was approved, as filed, in 1999 and resulted in a slight decrease in customer prices. The Company filed its 2000 ECO Plan in January, 2000 and, if approved as filed, will result in a slight decrease in customer prices. Refer to Note 3 to the financial statements under "Litigation and Regulatory Matters" for additional information. The Clean Air Act and other important environmental items are discussed later under "Environmental Matters". Future earnings in the near term will depend upon growth in energy sales, which is subject to a number of factors. These factors include weather, competition, changes in contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, and the rate of economic growth in Mississippi Power's service area. Currently, the Company is negotiating with certain of its wholesale customers a change in rates and has committed to them that any agreement reached would be effective January 1, 2000. At this time, no agreement has been reached and the ultimate amount of any rate change cannot now be determined. The electric utility industry in the United States is currently undergoing a period of dramatic change as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). The Energy Act allows Independent Power Producers (IPPs) to access a utility's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for a utility's large industrial and commercial customers and sell energy generation to other utilities. Also, wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers, are driving down electricity sales for resale rates. The Company is aggressively working to maintain and expand its share of wholesale sales in the southeastern power markets. Although the Energy Act does not permit retail transmission access, it was a major catalyst for the current restructuring and consolidation taking place II-147 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 1999 Annual Report within the utility industry. Numerous federal and state initiatives are in various stages to promote wholesale and retail competition. Among other things, these initiatives allow customers to choose their electricity provider. As these initiatives materialize, the structure of the utility industry could radically change. While restructuring initiatives are being discussed in Mississippi, none have been enacted to date. Enactment would require numerous issues to be resolved, including significant ones relating to transmission pricing and recovery of any stranded investments. The inability of Mississippi Power to recover its investment, including regulatory assets, could have a material adverse effect on the financial condition of the Company. The Company is attempting to minimize or reduce its cost exposure. Continuing to be a low-cost producer could provide significant opportunities to increase market share and profitability in markets that evolve with changing regulation. Conversely, unless Mississippi Power remains a low-cost producer and provides quality service, the Company's retail energy sales growth could be limited, and this could significantly erode earnings. The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of the Company's operation 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. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. On December 20, 1999, the FERC issued its final ruling on Regional Transmission Organizations (RTOs). The order encourages utilities owning transmission systems to form RTOs on a voluntary basis. To facilitate the development of RTOs, the FERC will convene regional conferences for utilities, customers, and other members of the public to discuss the formation of RTOs. In addition to participating in the regional conferences, utilities owning transmission systems, including the Company, are required to make a filing by October 15, 2000. The filing must contain either a proposal for RTO participation or a description of the efforts made to participate in an RTO, the reasons for non-participation, any obstacles to participation, and any plans for further work toward participation. The RTOs that are proposed in the filings should be operational by December 15, 2001. The Company is evaluating the issue and formulating its response. The outcome of this matter cannot now be determined. Exposure to Market Risks Due to cost-based rate regulation, the Company has limited exposure to market volatility in interest rates and prices of electricity. To mitigate residual risks relative to movements in electricity prices, the Company enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market. Realized gains and losses are recognized in the income statements as incurred. At December 31, 1999, exposure from these activities was not material to the Company's financial position, results of operation, or cash flow. Also, based on the Company's overall interest rate exposure at December 31, 1999, a near-term 100 basis point change in interest rates would not materially affect the financial statements. New Accounting Standard The FASB has issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which must be adopted by January 1, 2001. This statement establishes accounting and reporting standards for derivative instruments - including certain derivative instruments embedded in other contracts - and for hedging activities. The Company has not yet quantified the impact of adopting this statement on its financial statements; however, the adoption could increase volatility in earnings and other comprehensive income. Year 2000 Year 2000 Challenge The work undertaken by the Company to prepare critical computer systems and other date sensitive devices to function correctly in the Year 2000 was successful. There were no material incidents reported and no disruption of electric service within the service area of the Company. There were no reports of significant events regarding third parties that impacted revenues or expenses. For the Company, original projected total costs for Year 2000 readiness were approximately $5 million. These costs include labor necessary to identify, test, and renovate affected devices and systems, and costs for reporting requirements to state and federal agencies. From its inception through December 31, 1999, the II-148 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 1999 Annual Report Year 2000 program costs, recognized primarily as expense, amounted to approximately $5 million. FINANCIAL CONDITION Overview The principal change in Mississippi Power's financial condition during 1999 was the addition of approximately $76 million to utility plant. Funding for these additions and other capital requirements were derived primarily from operations. The Statements of Cash Flows provide additional details. Financing Activity In 1999, the Company sold $9.4 million of pollution control bonds. Additionally, the Company retired and reissued unsecured debt of $50 million. See the Statements of Cash Flows for further details. Composite financing rates have remained relatively flat for the years 1997 through 1999. As of year-end for each year respectively, the composite rates were as follows: 1999 1998 1997 ---------------------------- Composite interest rate on long-term debt 6.19% 6.14% 6.16% Composite preferred stock dividend rate 6.33% 6.33% 6.33% Composite interest rate on preferred securities 7.75% 7.75% 7.75% ------------------------------------------------------------ In 1999, the Company signed an Agreement for Lease and a Lease Agreement with Escatawpa Funding ("Escatawpa"), a limited partnership, that calls for the Company to design and construct, as agent for Escatawpa, a 1,064 megawatt natural gas combined cycle facility. It is anticipated that the total project will cost approximately $406 million, and upon project completion in mid 2001, the Company intends to lease the facility for an initial term of approximately 10 years. It is anticipated that the annual lease payments will approximate $32 million during the initial term. Capital Structure At year-end 1999, the Company's ratio of common equity to total capitalization, excluding long-term debt due within one year, decreased from 52.1 percent in 1998, to 50.2 percent. Capital Requirements for Construction The Company's projected construction expenditures for the next three years total $199 million ($84 million in 2000, $54 million in 2001, and $61 million in 2002). The major emphasis within the construction program will be on the upgrade of existing facilities. Revisions to projected construction expenditures may be necessary because of factors such as changes in business conditions, revised load projections, the availability and cost of capital, changes in environmental regulations, and alternatives such as leasing. Other Capital Requirements In addition to the funds required for the Company's construction program, approximately $80.1 million will be required by the end of 2002 for present sinking fund requirements and maturities of long-term debt. Mississippi Power plans to continue, when economically feasible, to retire higher cost debt and preferred stock and replace these obligations with lower-cost capital if market conditions permit. Environmental Matters On November 3, 1999, the Environmental Protection Agency (EPA), brought a civil action in the U.S. District Court against Alabama Power Company, Georgia Power Company and the system service company. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The EPA concurrently issued to the integrated Southeast utilities a notice of violation related to 10 generating facilities, which includes the five facilities mentioned previously, and the Company's plants Watson and Greene County. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation, and to add Gulf Power, Mississippi Power, and Savannah Electric as defendants. II-149 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 1999 Annual Report The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. Southern Company believes that its integrated utilities complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly the Company's financial condition unless such costs can be recovered through regulated rates. In November 1990, the Clean Air Act was signed into law. Title IV of the Clean Air Act -- the acid rain compliance provision of the law -- significantly affected Mississippi Power and other subsidiaries of Southern Company. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants were required in two phases. Phase I compliance began in 1995 and initially affected 28 generating plants in the Southern electric system. As a result of Southern Company's compliance strategy, an additional 22 generating units were brought into compliance with Phase I requirements. Phase II compliance started in 2000, and all fossil-fired generating plants are now affected. Southern Company achieved Phase I sulfur dioxide compliance at the affected plants by switching to low-sulfur coal, which required some equipment upgrades. Construction expenditures for Phase I compliance totaled approximately $65 million for Mississippi Power. For Phase II sulfur dioxide compliance, Southern Company currently uses emission allowances and increased fuel switching. Also, equipment to control nitrogen oxide emissions was installed on additional system fossil-fired units as necessary to meet Phase II limits and ozone non-attainment requirements. Compliance for Phase II and initial ozone non-attainment requirements increased total estimated construction expenditures by approximately $105 million. Phase II compliance is not expected to have a material impact on Mississippi Power. Mississippi Power's ECO Plan is designed to allow recovery of costs of compliance with the Clean Air Act, as well as other environmental statutes and regulations. The MPSC reviews environmental projects and the Company's environmental policy through the ECO Plan. Under the ECO Plan, any increase in the annual revenue requirement is limited to 2 percent of retail revenues. Mississippi Power's management believes that the ECO Plan provides for recovery of the Clean Air Act costs. See Note 3 to the financial statements under "Environmental Compliance Overview Plan" for additional information. A significant portion of costs related to the acid rain provision of the Clean Air Act is expected to be recovered through existing ratemaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. In July 1997, the EPA revised the national ambient air quality standards for ozone and particulate matter. This revision made the standards significantly more stringent. In September 1998, the EPA issued the final regional nitrogen oxide rules to the states for implementation. The final rules affect 22 states that at present does not include Mississippi. The EPA is presently evaluating whether or not to bring an additional 15 states under this regional haze rule. Mississippi is one of those new 15 states. The EPA's July 1997 standards and the September 1998 rule are being challenged in the courts by several states and industry groups. Implementation of the final state rules could require substantial further reductions in nitrogen oxide emissions from fossil-fired generating facilities and other industry in these states. Implementation of the standards could result in significant additional compliance costs and capital expenditures that cannot be determined until the results of legal challenges are known, and the states have adopted their final rules. The EPA and state environmental regulatory agencies are reviewing and evaluating various matters including: emission control strategies for ozone non-attainment areas; additional controls for hazardous air pollutant emissions; and hazardous waste disposal requirements. The impact of any new standards will depend on the development and implementation of applicable regulations. II-150 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 1999 Annual Report The Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the Company could incur costs to clean up properties currently or previously owned. Upon identifying potential sites, the Company conducts studies, when possible, to determine the extent of any required cleanup costs. Should remediation be determined to be probable, reasonable estimates of costs to clean up such sites are developed and recognized in the financial statements. A currently owned site where manufactured gas plant operations were located prior to the Company's ownership was substantially remediated in 1999. See Note 3 to the financial statements under "Environmental Compliance Overview Plan" for additional information. Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; and the Endangered Species Act. Changes to these laws could affect many areas of the Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electromagnetic fields, and other environmental and health concerns could significantly affect the Company. The impact of new legislation -- if any - -- will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for lawsuits alleging damages caused by electromagnetic fields or other environmental concerns. The likelihood or outcome of such potential lawsuits cannot be determined at this time. Sources of Capital To meet short-term cash needs and contingencies, the Company had at December 31, 1999 approximately $173 thousand of cash and cash equivalents and approximately $104.3 million of unused committed credit agreements. The Company had $57.5 million of short term notes payable outstanding at year end 1999. It is anticipated that the funds required for construction and other purposes, including compliance with environmental regulations, will be derived from sources similar to those used in the past. These sources were primarily the issuances of first mortgage bonds and preferred securities, in addition to pollution control revenue bonds issued for the Company's benefit by public authorities. The Company issued unsecured debt in 1998. In this regard, Mississippi Power sought and obtained stockholder approval in 1998 to amend its corporate charter eliminating restrictions on the amounts of unsecured indebtedness the Company may incur. Mississippi Power is required to meet certain coverage requirements specified in its mortgage indenture and corporate charter to issue new first mortgage bonds and preferred stock. The Company's coverage ratios are high enough to permit, at present interest rate levels, any foreseeable security sales. The amount of securities which the Company will be permitted to issue in the future will depend upon market conditions and other factors prevailing at that time. Cautionary Statement Regarding Forward-Looking Information This annual report, including the foregoing Management's Discussion and Analysis, contains forward-looking and historical information. The Company cautions that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking information; accordingly, there can be no assurance that such indicated results will be realized. These factors include legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry; the extent and timing of the entry of additional competition in the Company's markets; potential business strategies -- including acquisitions or dispositions of assets or internal restructuring -- that may be pursued by the Company; state and federal rate regulation; changes in or application of environmental and other laws and regulations to which the Company is subject; political, legal and economic conditions and developments; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather and other natural phenomena; and other factors discussed in the reports (including Form 10-K) filed from time to time by the Company with the SEC. II-151
STATEMENTS OF INCOME For the Years Ended December 31, 1999, 1998, and 1997 Mississippi Power Company 1999 Annual Report - ---------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues: Retail sales $469,434 $442,567 $417,242 Sales for resale -- Non-affiliates 131,004 121,225 105,141 Affiliates 19,446 18,285 10,143 Other revenues 13,120 13,054 11,062 - ---------------------------------------------------------------------------------------------------------------------- Total operating revenues 633,004 595,131 543,588 - ---------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 172,686 156,539 142,059 Purchased power -- Non-affiliates 40,080 33,872 14,536 Affiliates 31,007 36,037 37,794 Other 125,291 109,993 102,365 Maintenance 47,085 50,404 47,302 Depreciation and amortization 49,206 47,450 45,574 Taxes other than income taxes 47,893 45,965 44,034 - ---------------------------------------------------------------------------------------------------------------------- Total operating expenses 513,248 480,260 433,664 - ---------------------------------------------------------------------------------------------------------------------- Operating Income 119,756 114,871 109,924 Other Income: Interest income 273 947 857 Other, net 1,675 2,498 2,368 - ---------------------------------------------------------------------------------------------------------------------- Earnings Before Interest and Income Taxes 121,704 118,316 113,149 - ---------------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 20,455 20,567 19,856 Interest on notes payable 2,750 943 96 Amortization of debt discount, premium and expense, net 1,432 1,446 1,577 Other interest charges 3,332 790 574 Distributions on preferred securities of subsidiary 2,796 2,796 2,369 - ---------------------------------------------------------------------------------------------------------------------- Total interest charges and other, net 30,765 26,542 24,472 - ---------------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes 90,939 91,774 88,677 Income taxes 34,117 34,664 31,380 - ---------------------------------------------------------------------------------------------------------------------- Net Income 56,822 57,110 57,297 Dividends on Preferred Stock 2,013 2,005 3,287 - ---------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 54,809 $ 55,105 $ 54,010 ====================================================================================================================== The accompanying notes are an integral part of these statements.
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STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1999, 1998, and 1997 Mississippi Power Company 1999 Annual Report - ------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $ 56,822 $ 57,110 $ 57,297 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 53,427 51,517 49,661 Deferred income taxes and investment tax credits, net (4,143) 11,620 (1,809) Other, net 5,531 (12,175) 3,206 Changes in certain current assets and liabilities -- Receivables, net (39,304) (5,486) (8,583) Fossil fuel stock (9,379) (5,767) 1,517 Materials and supplies (1,903) 717 1,631 Accounts payable 1,391 (389) 8,357 Other 14,206 (4,061) 3,980 - ------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 76,648 93,086 115,257 - ------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (75,888) (68,231) (55,375) Other 1,009 (324) (489) - ------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (74,879) (68,555) (55,864) - ------------------------------------------------------------------------------------------------------------------------------- Financing Activities: Increase (decrease) in notes payable, net 44,500 13,000 - Proceeds -- Other long-term debt 59,400 103,520 - Preferred securities - - 35,000 Preferred stock - - - Capital contributions from parent company 2,028 85 - Retirements -- First mortgage bonds - (75,000) - Other long-term debt (50,456) (13,020) (10) Preferred stock - (87) (42,518) Payment of preferred stock dividends (2,013) (2,005) (3,287) Payment of common stock dividends (56,100) (51,700) (49,400) Other (282) (2,429) (1,804) - ------------------------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (2,923) (27,636) (62,019) - ------------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents (1,154) (3,105) (2,626) Cash and Cash Equivalents at Beginning of Period 1,327 4,432 7,058 - ------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 173 $ 1,327 $ 4,432 =============================================================================================================================== Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of amount capitalized) $25,486 $26,133 $22,297 Income taxes (net of refunds) 39,729 26,847 33,450 - ------------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
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BALANCE SHEETS At December 31, 1999 and 1998 Mississippi Power Company 1999 Annual Report - --------------------------------------------------------------------------------------------------------------------- Assets 1999 1998 - --------------------------------------------------------------------------------------------------------------------- (in thousands) Current Assets: Cash and cash equivalents $ 173 $ 1,327 Receivables -- Customer accounts receivable 61,274 37,871 Other accounts and notes receivable 23,490 12,495 Affiliated companies 16,097 10,946 Accumulated provision for uncollectible accounts (697) (621) Fossil fuel stock, at average cost 25,797 16,418 Materials and supplies, at average cost 20,638 18,735 Other 10,013 10,616 - --------------------------------------------------------------------------------------------------------------------- Total current assets 156,785 107,787 - --------------------------------------------------------------------------------------------------------------------- Property, Plant, and Equipment: In service 1,601,399 1,553,112 Less accumulated provision for depreciation 626,841 583,957 - --------------------------------------------------------------------------------------------------------------------- 974,558 969,155 Construction work in progress 68,721 51,517 - --------------------------------------------------------------------------------------------------------------------- Total property, plant, and equipment 1,043,279 1,020,672 - --------------------------------------------------------------------------------------------------------------------- Other Property and Investments 1,389 979 - --------------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes 21,557 22,697 Prepaid pension costs 2,488 - Debt expense, being amortized 4,355 4,409 Premium on reacquired debt, being amortized 8,154 9,304 Workforce reduction plan - 12,748 Other 13,129 11,009 - --------------------------------------------------------------------------------------------------------------------- Total deferred charges and other assets 49,683 60,167 - --------------------------------------------------------------------------------------------------------------------- Total Assets $1,251,136 $1,189,605 ===================================================================================================================== The accompanying notes are an integral part of these balance sheets.
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BALANCE SHEETS At December 31, 1999 and 1998 Mississippi Power Company 1999 Annual Report - -------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholder's Equity 1999 1998 - -------------------------------------------------------------------------------------------------------------------- (in thousands) Current Liabilities: Securities due within one year $ 30,020 $ 50,020 Notes payable 57,500 13,000 Accounts payable -- Affiliated 17,002 8,788 Other 43,105 47,113 Customer deposits 3,749 3,272 Taxes accrued -- Income taxes 6,865 1,124 Other 35,534 31,379 Interest accrued 6,733 2,955 Vacation pay accrued 5,218 4,717 Other 7,497 11,448 - -------------------------------------------------------------------------------------------------------------------- Total current liabilities 213,223 173,816 - -------------------------------------------------------------------------------------------------------------------- Long-term debt (See accompanying statements) 321,802 292,744 - -------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 139,564 143,852 Deferred credits related to income taxes 34,765 37,277 Accumulated deferred investment tax credits 24,695 25,913 Employee benefits provisions 34,268 34,148 Workforce reduction plan 11,272 13,051 Other 12,770 10,764 - -------------------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 257,334 265,005 - -------------------------------------------------------------------------------------------------------------------- Company obligated mandatorily redeemable preferred securities of subsidiary trust holding company junior subordinated notes (See accompanying statements) 35,000 35,000 - -------------------------------------------------------------------------------------------------------------------- Preferred stock (See accompanying statements) 31,809 31,809 - -------------------------------------------------------------------------------------------------------------------- Common stockholder's equity (See accompanying statements) 391,968 391,231 - -------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholder's Equity $1,251,136 $1,189,605 ==================================================================================================================== The accompanying notes are an integral part of these balance sheets.
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STATEMENTS OF CAPITALIZATION At December 31, 1999 and 1998 Mississippi Power Company 1999 Annual Report - ----------------------------------------------------------------------------------------------------------------------------- 1999 1998 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Long-Term Debt: First mortgage bonds -- Maturity Interest Rates -------- -------------- June 1, 2023 7.45% $ 35,000 $ 35,000 March 1, 2004 6.60% 35,000 35,000 December 1, 2025 6.875% 30,000 30,000 - ----------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 100,000 100,000 - ----------------------------------------------------------------------------------------------------------------------------- Long-term notes payable -- 6.05% due May 1, 2003 35,000 35,000 6.75% due June 30, 2038 54,564 55,000 Adjustable rates (6.61% to 6.78% at 1/1/00) due 1999-2002 80,000 80,000 - ----------------------------------------------------------------------------------------------------------------------------- Total long-term notes payable 169,564 170,000 - ----------------------------------------------------------------------------------------------------------------------------- Other long-term debt -- Pollution control revenue bonds -- Collateralized: 5.65% to 5.80% due 2007-2023 26,785 26,805 Variable rates (3.90% at 1/1/00) due 2020-2025 10,600 33,900 Non-collateralized: Variable rates (3.90% to 4.00% at 1/1/00) due 2020-2028 46,220 13,520 - ----------------------------------------------------------------------------------------------------------------------------- Total other long-term debt 83,605 74,225 - ----------------------------------------------------------------------------------------------------------------------------- Unamortized debt premium (discount), net (1,347) (1,461) - ----------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $21.9 million) 351,822 342,764 Less amount due within one year 30,020 50,020 - ----------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year $321,802 $292,744 41.2% 39.0% - -----------------------------------------------------------------------------------------------------------------------------
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STATEMENTS OF CAPITALIZATION (continued) At December 31, 1999 and 1998 Mississippi Power Company 1999 Annual Report - ----------------------------------------------------------------------------------------------------------------------------- 1999 1998 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Company Obligated Mandatorily Redeemable Preferred Securities: $25 liquidation value -- 7.75% $ 35,000 $ 35,000 - ----------------------------------------------------------------------------------------------------------------------------- Total (annual distribution requirement -- $2.7 million) 35,000 35,000 4.5 4.7 - ----------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock: $100 par value 4.40% to 7.00% 31,809 31,809 - ----------------------------------------------------------------------------------------------------------------------------- Total (annual dividend requirement -- $2.0 million) 31,809 31,809 Less amount due within one year - - - ----------------------------------------------------------------------------------------------------------------------------- Total excluding amount due within one year 31,809 31,809 4.1 4.2 - ----------------------------------------------------------------------------------------------------------------------------- Common Stockholder's Equity: Common stock, without par value -- Authorized - 1,130,000 shares Outstanding - 1,121,000 shares in 1999 and 1998 37,691 37,691 Paid-in capital 181,502 179,474 Premium on preferred stock 326 326 Retained earnings 172,449 173,740 - ----------------------------------------------------------------------------------------------------------------------------- Total common stockholder's equity 391,968 391,231 50.2 52.1 - ----------------------------------------------------------------------------------------------------------------------------- Total Capitalization $780,579 $750,784 100.0% 100.0% ============================================================================================================================= The accompanying notes are an integral part of these statements.
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STATEMENTS OF COMMON STOCKHOLDER'S EQUITY For the Years Ended December 31, 1999, 1998, and 1997 Mississippi Power Company 1999 Annual Report - ---------------------------------------------------------------------------------------------------------------------------- Premium on Common Paid-In Preferred Retained Stock Capital Stock Earnings Total - ---------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at January 1, 1997 $37,691 $179,389 $372 $166,282 $383,734 Net income after dividends on preferred stock - - - 54,010 54,010 Cash dividends on common stock - - - (49,400) (49,400) Other - - (45) (475) (520) - ---------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 37,691 179,389 327 170,417 387,824 Net income after dividends on preferred stock - - - 55,105 55,105 Capital contributions from parent company - 85 - - 85 Cash dividends on common stock - - - (51,700) (51,700) Other - - (1) (82) (83) - ---------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 37,691 179,474 326 173,740 391,231 Net income after dividends on preferred stock - - - 54,809 54,809 Capital contributions from parent company - 2,028 - - 2,028 Cash dividends on common stock - - - (56,100) (56,100) - ---------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 $37,691 $181,502 $326 $172,449 $391,968 ============================================================================================================================ The accompanying notes are an integral part of these statements.
II-158 NOTES TO FINANCIAL STATEMENTS Mississippi Power Company 1999 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Mississippi Power Company is a wholly owned subsidiary of Southern Company, which is the parent company of five integrated Southeast utilities, Southern Company Services (SCS), Southern Communications Services (Southern LINC), Southern Energy, Inc. (Southern Energy), Southern Nuclear Operating Company (Southern Nuclear), Southern Energy Solutions, and other direct and indirect subsidiaries. The integrated Southeast utilities -- Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Savannah Electric and Power Company -- provide electric service in four southeastern states. Contracts among the integrated Southeast utilitis related to jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power--are regulated by the Federal Energy Regulatory Commission (FERC) and/or the Securities and Exchange Commission (SEC). The system service company provides, at cost, specialized services to Southern Company and the subsidiary companies. Southern LINC provides digital wireless communications services to the integrated Southeast utilities and also markets these services to the public within the Southeast. Southern Company Energy Solutions develops new business opportunities related to energy products and services. Southern Nuclear provides services to Southern Company's nuclear power plants. Southern Energy acquires, develops, builds, owns, and operates power production and delivery facilities and provides a broad range of energy-related servies to utilities and industrial companies in selected countries around the world. Southern Energy businesses include independent power projects, integrated utilities, a distribution company, and energy trading and marketing businesses outside the southeastern United States. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries are subject to the regulatory provisions of the PUHCA. Mississippi Power is also subject to regulation by the FERC and the Mississippi Public Service Commission (MPSC). The Company follows generally accepted accounting principles and complies with the accounting policies and practices prescribed by the respective commissions. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and the actual results may differ from those estimates. Prior years' data presented in the financial statements have been reclassified to conform with the current year presentation. Related-Party Transactions The Company has an agreement with SCS under which the following services are rendered to the Company at cost: general and design engineering, purchasing, accounting and statistical, finance and treasury, tax, information resources, marketing, auditing, insurance and pension, human resources, systems and procedures, and other services with respect to business and operations and power pool operations. Costs for these services amounted to $45.5 million, $43.9 million, and $34.5 million during 1999, 1998, and 1997, respectively. Regulatory Assets and Liabilities Mississippi Power is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues to the Company associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are expected to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Balance Sheets at December 31 relate to: 1999 1998 ------------------------- (in thousands) Deferred income tax charges $ 21,557 $ 22,697 Vacation pay 5,218 4,717 Workforce reduction plan of 1997 - 12,748 Premium on reacquired debt 8,154 9,304 Deferred environmental costs 323 1,500 Property damage reserve (3,082) (910) Deferred income tax credits (34,765) (37,277) Other, net (672) (2,538) - ---------------------------------------------------------------- Total $ (3,267) $ 10,241 ================================================================ In the event that a portion of the Company's operations is no longer subject to the provisions of FASB Statement No. 71, the Company would be required to write off the net regulatory assets and liabilities related to that portion of II-159 NOTES (continued) Mississippi Power Company 1999 Annual Report operations that are not specifically recoverable through regulated rates. In addition, the Company would be required to determine any impairment to other assets, including plant, and write down the assets, if impaired, to their fair value. Revenues and Fuel Costs The Company currently operates as a vertically integrated utility providing electricity to retail customers within its traditional service area located within the state of Mississippi, and to wholesale customers in the Southeast. Mississippi Power accrues revenues for service rendered but unbilled at the end of each fiscal period. The Company's retail and wholesale rates include provisions to adjust billings for fluctuations in fuel costs, the energy component of purchased power costs and certain other costs. Retail rates also include provisions to adjust billings for fluctuations in costs for ad valorem taxes and certain qualifying environmental costs. Revenues are adjusted for differences between actual allowable amounts and the amounts included in rates. The Company has a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. For all periods presented, uncollectible accounts continued to average less than 1 percent of revenues. Depreciation Depreciation of the original cost of plant in service is provided primarily by using composite straight-line rates which approximated 3.3 percent in 1999. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its cost -- together with the cost of removal, less salvage -- is charged to the accumulated provision for depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Depreciation expense includes an amount for the expected cost of removal of facilities. Income Taxes Mississippi Power uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. Property, Plant and Equipment Property, plant, and equipment is stated at original cost. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and the estimated cost of funds used during construction, if applicable. The cost of maintenance, repairs, and replacement of minor items of property is charged to maintenance expense except for the maintenance of coal cars and a portion of the railway track maintenance, which are charged to fuel stock. The cost of replacements of property (exclusive of minor items of property) is capitalized. Cash and Cash Equivalents For purposes of the Statements of Cash Flows, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. Financial Instruments The Company's financial instruments for which the carrying amount did not equal fair value at December 31 were as follows: Carrying Fair Amount Value --------------------------- (in millions) Long-term debt At December 31, 1999 $353 $334 At December 31, 1998 $343 $348 Capital trust preferred securities: At December 31, 1999 $35 $30 At December 31, 1998 35 36 - -------------------------------------------------------------- The fair value for long-term debt and preferred securities was based on either closing market price or closing price of comparable instruments. II-160 NOTES (continued) Mississippi Power Company 1999 Annual Report Materials and Supplies Generally, materials and supplies include the cost of transmission, distribution and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when used or installed. Provision for Property Damage Mississippi Power is self-insured for the cost of storm, fire and other uninsured casualty damage to its property, including transmission and distribution facilities. As permitted by regulatory authorities, the Company accrues for the cost of such damage by charging expense and crediting an accumulated provision. The cost of repairing damage resulting from such events that individually exceed $50 thousand is charged to the accumulated provision. Effective November 1999, an order from the MPSC increased the maximum Property Damage Reserve from $18 million to $23 million and allows an annual accrual of up to $4.6 million. In 1999, the Company provided for such costs by charges to income of $4.4 million, which is an increase of $2.9 million when compared to the $1.5 million allowed in both 1998 and 1997. As of December 31, 1999, the accumulated provision amounted to $3.1 million. 2. RETIREMENT BENEFITS Mississippi Power has a defined benefit, trusteed, pension plan that covers substantially all employees. The Company provides certain medical care and life insurance benefits for retired employees. Substantially all these employees may become eligible for such benefits when they retire. The Company funds trusts to the extent required by the MPSC. The measurement date for plan assets and obligations is September 30 for each year. Pension Plan Changes during the year in the projected benefit obligations and in the fair value of plan assets were as follows: Projected Benefit Obligations ---------------------------- 1999 1998 - ----------------------------------------------------------------- (in thousands) Balance at beginning of year $142,807 $132,131 Service cost 4,415 3,848 Interest cost 9,377 9,613 Benefits paid (8,050) (7,845) Actuarial (gain) loss and employee transfers (8,619) 5,060 - ----------------------------------------------------------------- Balance at end of year $139,930 $142,807 ================================================================= Plan Assets ---------------------------- 1999 1998 - ----------------------------------------------------------------- (in thousands) Balance at beginning of year $198,100 $207,457 Actual return on plan assets 33,216 1,252 Benefits paid (8,050) (7,845) Employee transfers (1,779) (2,764) - ----------------------------------------------------------------- Balance at end of year $221,487 $198,100 ================================================================= The accrued pension costs recognized in the Balance Sheets were as follows: 1999 1998 - -------------------------------------------------------------------- (in thousands) Funded status $ 81,557 $ 55,293 Unrecognized transition obligation (3,814) (4,359) Unrecognized prior service cost 4,991 5,405 Unrecognized net gain (80,246) (56,590) - -------------------------------------------------------------------- Prepaid asset (liability) recognized in the Balance Sheets $2,488 $ (251) ==================================================================== II-161 NOTES (continued) Mississippi Power Company 1999 Annual Report Components of the plans' net periodic cost were as follows: 1999 1998 1997 - ------------------------------------------------------------------ (in thousands) Service cost $ 4,415 $ 3,848 $ 4,015 Interest cost 9,377 9,613 9,407 Expected return on plan assets (14,681) (13,817) (12,805) Recognized net gain (1,721) (1,956) (1,729) Net amortization (131) (131) (119) - ------------------------------------------------------------------ Net pension income $(2,741) $ (2,443) $ (1,231) ================================================================== Postretirement Benefits Changes during the year in the accumulated benefit obligations and in the fair value of plan assets were as follows: Accumulated Benefit Obligations ---------------------------- 1999 1998 - ----------------------------------------------------------------- (in thousands) Balance at beginning of year $47,260 $43,417 Service cost 982 806 Interest cost 3,105 3,162 Benefits paid (2,256) (2,302) Actuarial loss and employee transfers (3,701) 2,177 - ----------------------------------------------------------------- Balance at end of year $45,390 $47,260 ================================================================= Plan Assets ---------------------------- 1999 1998 - ----------------------------------------------------------------- (in thousands) Balance at beginning of year $12,779 $12,189 Actual return on plan assets 1,818 176 Employer contributions 2,657 2,716 Benefits paid (2,256) (2,302) - ----------------------------------------------------------------- Balance at end of year $14,998 $12,779 ================================================================= The accrued postretirement costs recognized in the Balance Sheets were as follows: 1999 1998 - -------------------------------------------------------------------- (in thousands) Funded status $(30,392) $(34,481) Unrecognized transition obligation 4,621 4,967 Unrecognized net loss (gain) (3,406) 1,010 Fourth quarter contributions 931 577 - -------------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $(28,246) $(27,927) ==================================================================== Components of the plans' net periodic cost were as follows: 1999 1998 1997 - ------------------------------------------------------------------ (in thousands) Service cost $ 981 $ 806 $ 867 Interest cost 3,105 3,162 2,922 Expected return on plan assets (1,100) (989) (815) Recognized net (gain) loss - - (7) Net amortization 346 346 362 - ------------------------------------------------------------------ Net postretirement cost $3,332 $3,325 $3,329 ================================================================== The weighted average rates assumed in the actuarial calculations for both the pension plans and postretirement benefits were: 1999 1998 --------------------------------------------------------------- Discount 7.50% 6.75% Annual salary increase 5.00 4.25 Long-term return on plan assets 8.50 8.50 --------------------------------------------------------------- II-162 NOTES (continued) Mississippi Power Company 1999 Annual Report An additional assumption used in measuring the accumulated postretirement benefit obligation was a weighted average medical care cost trend rate of 7.74 percent for 1999, decreasing gradually to 5.50 percent through the year 2005 and remaining at that level thereafter. An annual increase or decrease in the assumed medical care cost trend rate of 1 percent would increase the accumulated benefit obligation and the service and interest cost components at December 31, 1999 as follows: 1 Percent 1 Percent Increase Decrease - ----------------------------------------------------------------- (in thousands) Benefit obligation $2,983 $(2,551) Service and interest costs 258 (219) - ----------------------------------------------------------------- Workforce Reduction Programs In 1997, approximately one hundred employees of Mississippi Power accepted the terms of a workforce reduction plan. The total cost to be incurred in connection with this voluntary plan was expected to be $18.2 million, including a $2.5 million pension and postretirement benefits curtailment loss. The MPSC approved the deferral and amortization of these program costs over a period not to exceed 60 months beginning no later than July 1998. At December 31, 1999, the Company has completely amortized the $18.2 million. 3. LITIGATION AND REGULATORY MATTERS Environmental Litigation On November 3, 1999, the Environmental Protection Agency (EPA), brought a civil action in the U.S. District Court against Alabama Power Company, Georgia Power Company and the system service company. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The EPA concurrently issued to the integrated Southeast utilities a notice of violation related to 10 generating facilities, which includes the five facilities mentioned previously, and the Company's plants Watson and Greene County. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation, and to add Gulf Power, Mississippi Power, and Savannah Electric as defendants. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. Southern Company believes that its integrated utilities complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly the Company's financial condition unless such costs can be recovered through regulated rates. Retail Rate Adjustment Plans Mississippi Power's retail base rates are set under a Performance Evaluation Plan (PEP) approved by the MPSC in 1994. PEP was designed with the objective that the plan would reduce the impact of rate changes on the customer and provide incentives for Mississippi Power to keep customer prices low. PEP includes a mechanism for sharing rate adjustments based on the Company's ability to maintain low rates for customers and on the Company's performance as measured by three indicators that emphasize price and service to the customer. PEP provides for semiannual evaluations of Mississippi Power's performance-based return on investment. Any change in rates is limited to 2 percent of retail revenues per evaluation period. PEP will remain in effect until the MPSC modifies or terminates the plan. In September 1996, the MPSC, under PEP, approved a retail revenue increase of $4.5 million (1.06 percent of annual retail revenue) which became effective in October 1996. There were no PEP retail revenue changes for 1999, 1998 or 1997. Environmental Compliance Overview Plan The MPSC approved Mississippi Power's Environmental Compliance Overview Plan (ECO) in 1992. The plan establishes procedures to facilitate the MPSC's overview of the Company's environmental strategy and provides for recovery of costs (including costs of capital) associated with environmental projects approved by II-163 NOTES (continued) Mississippi Power Company 1999 Annual Report the MPSC. Under the ECO Plan any increase in the annual revenue requirement is limited to 2 percent of retail revenues. However, the plan also provides for carryover of any amount over the 2 percent limit into the next year's revenue requirement. In 1997, the Company's filing with the MPSC under the ECO Plan resulted in an annual retail rate increase of $0.9 million. In 1998 and 1999, the Company's ECO filing resulted in a small decrease in customer prices in each year. The Company filed its 2000 ECO Plan in January, and if approved as filed, will result in a small decrease in customer prices. Mississippi Power conducts studies, when possible, to determine the extent of any required environmental remediation. Should such remediation be determined to be probable, reasonable estimates of costs to clean up such sites are developed and recognized in the financial statements. A currently owned site where manufactured gas plant operations were located prior to the Company's ownership has been investigated and substantially remediated. The remedial plan was approved by the Mississippi Department of Environmental Quality. Remediation of this site began in 1999 and is scheduled to be completed in early 2000. The Company expects the total remediation costs to be approximately $2.0 million, with approximately $1.5 million recovered from other parties and the balance through the ECO Plan. The Company recovers such costs under the ECO Plan as they are incurred, as provided for in the Company's 1995 ECO Order. As of December 31, 1999, the balance in the liability and regulatory asset accounts was $0.3 million. Approval for New Capacity In January 1998, the Company was granted a Certificate of Public Convenience and Necessity by the MPSC to build approximately 1,000 megawatts of combined cycle generation at the Company's Plant Daniel site, to be placed in service by June 2001. In December 1998, the Company requested approval to transfer the ownership rights under the certificate to Escatawpa Funding, Limited Partnership, which will lease the facility to the Company (see Note 5, Financing and Commitments). The Company also requested approval from the MPSC to exclude the costs of the new facility from retail rate base and to assign the Company's existing generating capacity to its retail business, beginning in 2001. In January 1999, the Company and Mississippi Public Utility Staff entered a stipulation covering the details of cost allocation and ratemaking to effect this change. In February 1999, the Commission held hearings on this matter and subsequently granted the Company's request, as modified by the stipulation. 4. CONSTRUCTION PROGRAM Mississippi Power is engaged in continuous construction programs, the costs of which are currently estimated to total $84 million in 2000, $54 million in 2001, and $61 million in 2002. The construction program is subject to periodic review and revision, and actual construction costs may vary from the above estimates because of numerous factors. These factors include changes in business conditions; revised load growth estimates; changes in environmental regulations; increasing costs of labor, equipment and materials; and cost of capital. Significant construction will continue related to transmission and distribution facilities, and the upgrading of generating plants. 5. FINANCING AND COMMITMENTS Financing Mississippi Power's construction program is expected to be financed from internal and other sources, such as the issuance of additional long-term debt and preferred securities and the receipt of capital contributions from Southern Company. The amounts of long-term debt and preferred securities that can be issued in the future will be contingent on market conditions, the maintenance of adequate earnings levels, regulatory authorizations, and other factors. In 1999, the Company signed an Agreement for Lease and a Lease Agreement with Escatawpa Funding ("Escatawpa"), a limited partnership, that calls for the Company to design and construct, as agent for Escatawpa, a 1,064 megawatt natural gas combined cycle facility. It is anticipated that the total project will cost approximately $406 million, and upon project completion in mid 2001, the Company intends to lease the facility for an initial term of approximately 10 years. It is anticipated that the annual lease payments will approximate $32 million during the initial term. II-164 NOTES (continued) Mississippi Power Company 1999 Annual Report Bank Credit Arrangements At December 31, 1999, Mississippi Power had total committed credit agreements with banks for $104.3 million. At year-end 1999, the unused portion of these committed credit agreements was $104.3 million. These credit agreements expire at various dates in 2000. Some of these agreements allow short-term borrowings to be converted into term loans, payable in 12 equal quarterly installments, with the first installment due at the end of the first calendar quarter after the applicable termination date or at an earlier date at the Company's option. In connection with these credit arrangements, the Company agrees to pay commitment fees based on the unused portions of the commitments or to maintain compensating balances with the banks. At December 31, 1999, the Company had $57.5 million of short-term borrowings outstanding. Assets Subject to Lien Mississippi Power's mortgage indenture dated as of September 1, 1941, as amended and supplemented, which secures the first mortgage bonds issued by the Company, constitutes a direct first lien on substantially all of the Company's fixed property and franchises. Lease Agreements In 1984, Mississippi Power and Gulf States Utilities (now Entergy Corp.) entered into a forty-year transmission facilities agreement whereby Entergy began paying a use fee to the Company covering all expenses relative to ownership and operation and maintenance of a 500 kV line, including amortization of its original $57 million cost. For the three years ended 1999 use fees collected under this agreement, net of related expenses, amounted to approximately $3 million each year, and are included within Other Income in the Statements of Income. In 1989, Mississippi Power entered into a twenty-two year lease agreement for the use of 495 aluminum railcars. In 1994, a second lease agreement for the use of 250 additional aluminum railcars was also entered into for twenty-two years. The Company has the option to purchase the 745 railcars at the greater of lease termination value or fair market value, or to renew the leases at the end of the lease term. In 1997, a third lease agreement for the use of 360 railcars was also entered into for three years, with a monthly renewal option for up to an additional nine months. All of these leases, totaling 1,105 railcars, were for the transport of coal at Plant Daniel. Gulf Power, as joint owner of Plant Daniel, is responsible for one half of the lease cost. The Company's share (50%) of the leases, charged to fuel stock, was $2.8 million in 1999, $2.8 million in 1998, and $2.0 million in 1997. The Company's annual lease payments for 2000 through 2004 will average approximately $1.8 million and after 2004, lease payments total in aggregate approximately $14.4 million. Fuel and Purchased Power Commitments To supply a portion of the fuel requirements of its generating plants, Mississippi Power has entered into various long-term commitments for the procurement of fuel. In most cases, these contracts contain provisions for price escalations, minimum production levels, and other financial commitments. Total estimated obligations at December 31, 1999, were as follows: Year Fuel - ----------- ---------- (in millions) 2000 $147 2001 121 2002 124 2003 125 2004 9 2005 - 2026 115 - --------------------------------------------------- Total commitments $641 - --------------------------------------------------- Additional commitments for fuel will be required in the future to supply the Company's fuel needs. In 1996, Mississippi Power entered into agreements to purchase options for summer peaking power for the years 1997 through 2000. The Company has purchased options from power marketers for up to 250 megawatts of peaking power in 1997; 300 megawatts in 1998; 250 megawatts in 1999; and 400 megawatts in 2000. For the years ended 1999, 1998 and 1997 Mississippi Power exercised its options to purchase 250 megawatts, 300 megawatts and 250 megawatts of peaking capacity, respectively. In June 1997, the MPSC approved Mississippi Power's request that it be allowed to earn a return on the capacity portion of this agreement. In 1999, Mississippi Power exercised its option to purchase 400 megawatts of summer peaking capacity for the year 2000. II-165 NOTES (continued) Mississippi Power Company 1999 Annual Report 6. JOINT OWNERSHIP AGREEMENTS Mississippi Power and Alabama Power own as tenants in common Units 1 and 2 at Plant Greene County located in Alabama; and Mississippi Power and Gulf Power own as tenants in common Units 1 and 2 at Plant Daniel located in Mississippi. At December 31, 1999, Mississippi Power's percentage ownership and investment in these jointly owned facilities were as follows: Company's Generating Total Percent Gross Accumulated Plant Capacity Ownership Investment Depreciation --------- ------------------------------------------------ (Megawatts) (in thousands) Greene County Units 1 and 2 500 40% $61,050 $29,636 Daniel Units 1 and 2 1,000 50% $225,761 $103,213 ------------------------------------------------------------------ Mississippi Power's share of plant operating expenses is included in the corresponding operating expenses in the Statements of Income. 7. LONG-TERM POWER SALES AGREEMENTS Mississippi Power and the other utility affiliates of Southern Company have long-term contractual agreements for the sale of capacity and energy to certain non-affiliated utilities located outside the system's service area. Because the energy is generally sold at cost under these agreements, profitability is primarily affected by revenues from capacity sales. The Company's capacity revenues under these agreements were not material during the periods reported. 8. INCOME TAXES At December 31, 1999, the tax-related regulatory assets and liabilities were $22 million and $35 million, respectively. These assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized AFUDC. These liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. Details of the federal and state income tax provisions are shown below: 1999 1998 1997 ---------------------------------- (in thousands) Total provision for income taxes Federal -- Current $33,379 $20,500 $27,651 Deferred --current year 3,747 7,007 8,171 --reversal of prior years (7,720) 2,435 (9,236) ----------------------------------------------------------------- 29,406 29,942 26,586 ----------------------------------------------------------------- State -- Current 4,881 2,544 5,537 Deferred --current year 738 1,568 1,756 --reversal of prior years (908) 610 (2,499) ----------------------------------------------------------------- 4,711 4,722 4,794 ----------------------------------------------------------------- Total 34,117 34,664 31,380 ================================================================= The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities are as follows: 1999 1998 ----------------------------- (in thousands) Deferred tax liabilities: Accelerated depreciation $154,698 $153,768 Basis differences 8,967 9,642 Other 23,108 26,038 --------------------------------------------------------------- Total 186,773 189,448 --------------------------------------------------------------- Deferred tax assets: Other property basis differences 21,003 22,391 Pension and other benefits 9,608 9,441 Property insurance 3,419 1,526 Unbilled fuel 4,846 2,080 Other 11,071 14,406 --------------------------------------------------------------- Total 49,947 49,844 --------------------------------------------------------------- Net deferred tax liabilities 136,826 139,604 Portion included in current assets, net 2,738 4,248 --------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $139,564 $143,852 =============================================================== II-166 NOTES (continued) Mississippi Power Company 1999 Annual Report Deferred investment tax credits are amortized over the lives of the related property with such amortization normally applied as a credit to reduce depreciation in the Statements of Income. Credits amortized in this manner amounted to $1.2 million in 1999, 1998, and 1997. At December 31, 1999, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: 1999 1998 1997 ---------------------------------- Federal statutory rate 35.00% 35.00% 35.00% State income tax, net of federal deduction 3.37 3.34 3.51 Non-deductible book depreciation .77 .47 .47 Other (1.62) (1.04) (3.60) ------------------------------------------------------------------ Effective income tax rate 37.52% 37.77% 35.38% ================================================================== Southern Company files a consolidated federal income tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. 9. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES In February 1997, Mississippi Power Capital Trust I (Trust I), of which the Company owns all the common securities, issued $35 million of 7.75 percent mandatorily redeemable preferred securities. Substantially all of the assets of Trust I are $36 million aggregate principal amount of the Company's 7.75 percent junior subordinated notes due February 15, 2037. The Company considers that the mechanisms and obligations relating to the preferred securities, taken together, constitute a full and unconditional guarantee by the Company of the Trusts' payment obligations with respect to the preferred securities. The Trust is a subsidiary of the Company, and accordingly is consolidated in the Company's financial statements. 10. LONG-TERM DEBT DUE WITHIN ONE YEAR A summary of the improvement fund requirements and scheduled maturities and redemptions of long-term debt due within one year is as follows: 1999 1998 ------------------- (in thousands) Bond improvement fund requirement $1,000 $1,000 Less: Portion to be satisfied by certifying property additions 1,000 1,000 --------------------------------------------------------------- Cash sinking fund requirement - - Redemptions of first mortgage bonds - - Current portion of other long-term debt 30,000 50,000 Pollution control bond cash sinking fund requirements 20 20 --------------------------------------------------------------- Total $30,020 $50,020 =============================================================== The first mortgage bond improvement fund requirement is one percent of each outstanding series authenticated under the indenture of Mississippi Power prior to January 1 of each year, other than first mortgage bonds issued as collateral security for certain pollution control obligations. The requirement must be satisfied by June 1 of each year by depositing cash or reacquiring bonds, or by pledging additional property equal to 166-2/3 percent of such requirement. 11. COMMON STOCK DIVIDEND RESTRICTIONS Mississippi Power's first mortgage bond indenture and the corporate charter contain various common stock dividend restrictions. At December 31, 1999, approximately $118 million of retained earnings was restricted against the payment of cash dividends on common stock under the most restrictive terms of the mortgage indenture or corporate charter. II-167 NOTES (continued) Mississippi Power Company 1999 Annual Report 12. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for 1999 and 1998 are as follows: Net Income After Dividends Operating Operating On Preferred Quarter Ended Revenues Income Stock - -------------------------------------------------------------------- (in thousands) March 1999 $122,435 $18,122 $7,193 June 1999 158,590 31,289 14,953 September 1999 201,594 51,609 27,313 December 1999 150,385 18,736 5,350 March 1998 $122,156 $20,299 $8,388 June 1998 156,612 30,126 13,713 September 1998 191,699 50,948 28,309 December 1998 124,664 13,498 4,696 - -------------------------------------------------------------------- Mississippi Power's business is influenced by seasonal weather conditions and the timing of rate changes. II-168
SELECTED FINANCIAL AND OPERATING DATA 1995-1999 Mississippi Power Company 1999 Annual Report - --------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands)* $633,004 $595,131 $543,588 $544,029 $516,553 Net Income after Dividends on Preferred Stock (in thousands) $54,809 $55,105 $54,010 $52,723 $52,531 Cash Dividends on Common Stock (in thousands) $56,100 $51,700 $49,400 $43,900 $39,400 Return on Average Common Equity (percent) 14.00 14.15 14.00 13.90 14.26 Total Assets (in thousands) $1,251,136 $1,189,605 $1,166,829 $1,142,327 $1,148,953 Gross Property Additions (in thousands) $75,888 $68,231 $55,375 $61,314 $67,570 - --------------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $391,968 $391,231 $387,824 $383,734 $374,884 Preferred stock 31,809 31,809 31,896 74,414 74,414 Company obligated mandatorily redeemable preferred securities 35,000 35,000 35,000 - - Long-term debt 321,802 292,744 291,665 326,379 288,820 - --------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $780,579 $750,784 $746,385 $784,527 $738,118 ================================================================================================================================= Capitalization Ratios (percent): Common stock equity 50.2 52.1 52.0 48.9 50.8 Preferred stock 4.1 4.2 4.3 9.5 10.1 Company obligated mandatorily redeemable preferred securities 4.5 4.7 4.7 - - Long-term debt 41.2 39.0 39.0 41.6 39.1 - --------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 100.0 ================================================================================================================================= Security Ratings: First Mortgage Bonds - Moody's Aa3 Aa3 Aa3 Aa3 Aa3 Standard and Poor's AA- AA- AA- A+ A+ Duff & Phelps AA- AA- AA- AA- AA- Preferred Stock - Moody's a1 a1 a1 a1 a1 Standard and Poor's A- A A A A Duff & Phelps A+ A+ A+ A+ A+ ================================================================================================================================= Customers (year-end): Residential 157,592 156,530 156,650 154,630 154,014 Commercial 31,837 31,319 31,667 30,366 29,903 Industrial 546 587 642 639 642 Other 202 200 200 200 194 - --------------------------------------------------------------------------------------------------------------------------------- Total 190,177 188,636 189,159 185,835 184,753 ================================================================================================================================= Employees (year-end): 1,328 1,230 1,245 1,363 1,421 - --------------------------------------------------------------------------------------------------------------------------------- * 1999 data includes the true-up of the unbilled revenue estimates.
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SELECTED FINANCIAL AND OPERATING DATA 1995-1999 (continued) Mississippi Power Company 1999 Annual Report - -------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands)*: Residential $ 159,945 $157,642 $ 138,608 $ 137,055 $ 134,286 Commercial 153,936 145,677 134,208 131,734 131,034 Industrial 151,244 135,039 140,233 141,324 140,947 Other 4,309 4,209 4,193 4,013 3,914 - -------------------------------------------------------------------------------------------------------------------------------- Total retail 469,434 442,567 417,242 414,126 410,181 Sales for resale - non-affiliates 131,004 121,225 105,141 99,596 91,820 Sales for resale - affiliates 19,446 18,285 10,143 21,830 7,691 - -------------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 619,884 582,077 532,526 535,552 509,692 Other revenues 13,120 13,054 11,062 8,477 6,861 - -------------------------------------------------------------------------------------------------------------------------------- Total $633,004 $595,131 $543,588 $544,029 $516,553 ================================================================================================================================ Kilowatt-Hour Sales (in thousands)*: Residential 2,248,255 2,248,915 2,039,042 2,079,611 2,040,608 Commercial 2,847,342 2,623,276 2,407,520 2,315,860 2,242,163 Industrial 4,407,445 3,729,166 3,981,875 3,960,243 3,813,456 Other 40,091 39,772 40,508 39,297 38,559 - -------------------------------------------------------------------------------------------------------------------------------- Total retail 9,543,133 8,641,129 8,468,945 8,395,011 8,134,786 Sales for resale - non-affiliates 3,256,175 3,157,837 2,895,182 2,726,993 2,493,519 Sales for resale - affiliates 539,939 552,142 478,884 693,510 243,554 - -------------------------------------------------------------------------------------------------------------------------------- Total 13,339,247 12,351,108 11,843,011 11,815,514 10,871,859 ================================================================================================================================ Average Revenue Per Kilowatt-Hour (cents)*: Residential 7.11 7.01 6.80 6.59 6.58 Commercial 5.41 5.55 5.57 5.69 5.84 Industrial 3.43 3.62 3.52 3.57 3.70 Total retail 4.92 5.12 4.93 4.93 5.04 Sales for resale 3.96 3.76 3.42 3.55 3.84 Total sales 4.65 4.71 4.50 4.53 4.69 Residential Average Annual Kilowatt-Hour Use Per Customer * 14,301 14,376 13,132 13,469 13,307 Residential Average Annual Revenue Per Customer * $1,017.42 $1,007.68 $892.68 $887.66 $875.69 Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,086 2,086 2,086 2,086 2,086 Maximum Peak-Hour Demand (megawatts): Winter 2,125 1,740 1,922 2,030 1,637 Summer 2,439 2,339 2,209 2,117 2,095 Annual Load Factor (percent) 59.6 58.0 59.1 60.7 60.0 Plant Availability Fossil-Steam (percent): 91.0 90.0 92.4 91.8 92.1 - -------------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 69.4 66.5 70.5 70.4 58.0 Oil and gas 15.9 14.5 12.5 12.0 15.2 Purchased power - From non-affiliates 6.2 8.0 3.0 6.5 2.4 From affiliates 8.5 11.0 14.0 11.1 24.4 - -------------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 100.0 ================================================================================================================================ * 1999 data includes the true-up of the unbilled revenue estimates.
II-170 SAVANNAH ELECTRIC AND POWER COMPANY FINANCIAL SECTION II-171 MANAGEMENT'S REPORT Savannah Electric and Power Company 1999 Annual Report The management of Savannah Electric and Power Company has prepared--and is responsible for--the financial statements and related information included in this report. These statements were prepared in accordance with generally accepted accounting principles appropriate in the circumstances and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that books and records reflect only authorized transactions of the Company. Limitations exist in any system of internal controls, however, based on a recognition that the cost of the system should not exceed its benefits. The Company believes its system of internal accounting controls maintains an appropriate cost/benefit relationship. The Company's system of internal accounting controls is evaluated on an ongoing basis by the Company's internal audit staff. The Company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, composed of five directors who are not employees, provides a broad overview of management's financial reporting and control functions. Periodically, this committee meets with management, the internal auditors and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal controls and financial reporting matters. The internal auditors and the independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the Company's operations are conducted according to a high standard of business ethics. In management's opinion, the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of Savannah Electric and Power Company in conformity with generally accepted accounting principles. /s/G. Edison Holland, Jr G. Edison Holland, Jr. President and Chief Executive Officer /s/K. R. Willis K. R. Willis Vice President, Treasurer, Chief Financial Officer and Assistant Secretary February 16, 2000 II-172 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Savannah Electric and Power Company: We have audited the accompanying balance sheets and statements of capitalization of Savannah Electric and Power Company (a Georgia corporation and a wholly owned subsidiary of Southern Company) as of December 31, 1999 and 1998, and the related statements of income, common stockholder's equity, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements (pages II-181 through II-194) referred to above present fairly, in all material respects, the financial position of Savannah Electric and Power Company as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/Arthur Andersen LLP Atlanta, Georgia February 16, 2000 II-173 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Savannah Electric and Power Company 1999 Annual Report RESULTS OF OPERATIONS Earnings Savannah Electric and Power Company's net income after dividends on preferred stock for 1999 totaled $23.1 million, representing a decrease of $0.6 million or 2.4 percent from the prior year. Earnings were down primarily due to lower non-operating revenues. In 1998, earnings were $23.6 million, representing a $0.2 million, or 0.9 percent decrease from the prior year. This was principally the result of a decrease in other income, net. Revenues Total revenues for 1999 were $251.6 million, reflecting a 1.1 percent decrease when compared to 1998. The following table summarizes the factors affecting operating revenues for the past three years: Increase (Decrease) From Prior Year -------------------------------------- 1999 1998 1997 -------------------------------------- Retail -- (in thousands) Growth and price changes $ 5,633 $ (479) $ 7,664 Weather (5,257) 8,336 (6,186) Fuel cost recovery and other (438) 15,012 (10,002) ----------------------------------------------------------------- Total retail (62) 22,869 (8,524) ----------------------------------------------------------------- Sales for resale-- Non-affiliates (1,153) 1,081 1,469 Affiliates 1,135 964 (1,078) ----------------------------------------------------------------- Total sales for resale (18) 2,045 391 ----------------------------------------------------------------- Other operating revenues (2,781) 3,264 336 ----------------------------------------------------------------- Total operating revenues $(2,861) $ 28,178 $ (7,797) ================================================================= Percent change (1.1)% 12.5% (3.3)% ----------------------------------------------------------------- Retail revenues were relatively unchanged in 1999 when compared to 1998. Reduced demand for energy in the industrial sector and a base rate decrease to the small business customers partially offset by increased demand in the residential and commercial sectors contributed to this variance. In 1998, retail revenues increased by 10.4 percent over the prior year due primarily to unusually hot summer weather that resulted in increased energy sales to residential and commercial customers. A base rate decrease to the small business customer class, ordered by the Georgia Public Service Commission (GPSC), was effective in July 1998. See Note 3 to the financial statements for additional information. Under the Company's fuel cost recovery provisions, fuel revenues--including the fuel component of purchased energy--generally equal fuel expense and have no effect on earnings. Revenues from sales to utilities outside the service area under long-term contracts consist of capacity and energy components. Revenues from these sales were not material during the three-year period. Sales to affiliated companies within the Southern electric system vary from year to year depending on demand and the availability and cost of generating resources at each company. These sales do not have a significant impact on earnings. Energy Sales Changes in revenues are influenced heavily by the amount of energy sold each year. Kilowatt-hour (KWH) sales for 1999 and the percent change by year were as follows: KWH Percent Change ------------ ----------------------------- 1999 1999 1998 1997 ------------ ----------------------------- (in millions) Residential 1,579 2.6% 7.8% (1.9)% Commercial 1,288 4.2 6.9 1.3 Industrial 713 (20.7) 2.1 5.1 Other 133 1.1 5.3 (1.4) ------------ Total retail 3,713 (2.5) 6.0 0.8 Sales for resale-- Non-affiliates 51 (3.3) (43.5) 2.9 Affiliates 77 31.8 7.2 30.4 ------------ Total 3,841 (2.0)% 4.8 % 1.2 % ===================================================================== Total retail energy sales in 1999 were down by 2.5% from the prior year reflecting reduced energy sales of 20.7% to industrial customers due to the shut-down of one industrial customer's facilities in late 1998 and completed construction of a steam turbine unit by another industrial customer. These reductions were partially mitigated by increased energy sales of 2.6% and 4.2% to residential and commercial customers, respectively. In 1998, total retail energy sales were up 6.0% over the prior year, reflecting the impact of the hotter-than-normal weather on energy sales to II-174 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 1999 Annual Report residential and commercial customers and high demand from an industrial customer. Expenses Total operating expenses for 1999 were $201.5 million, a slight increase of $1.2 million from the prior year due primarily to increases in purchased power from non- affiliates and depreciation and amortization. Purchased power from non-affiliates increased due principally to higher demand for energy and increased costs associated with these power purchases. Maintenance expenses decreased this year compared to 1998 due to repair costs in 1998 related to a major turbine dismantle inspection. Depreciation and amortization increased reflecting additional depreciation charges related to the GPSC's accounting order. See Note 3 to the financial statements for additional information on the GPSC's 1998 accounting order. In 1998, total operating expenses were $200.3 million reflecting a $27.7 million increase from 1997. Major components of this increase included a $17.5 million increase in fuel, a $7.1 million increase in purchased power from non-affiliates, and a $5.5 million increase in maintenance expense. These increases, however, were partially offset by a $6.4 million decrease in purchased power from affiliates. The increase in fuel expense was primarily attributed to higher demand for energy. The increase in purchased power from non-affiliates primarily resulted from increased power marketing activities. Maintenance expenses were higher primarily due to scheduled turbine dismantle inspection costs. The decline in purchased power from affiliates was due primarily to an increase in internal generation reflecting system load growth. Fuel and purchased power costs constitute the single largest expense for the Company. The mix of energy supply is determined primarily by system load, the unit cost of fuel consumed, and the availability of units. The amount and sources of energy supply and the total average cost of energy supply were as follows: 1999 1998 1997 -------------------------- Total energy supply (millions of KWHs) 4,039 4,182 3,964 Sources of energy supply (percent) -- Coal 45 42 34 Oil 2 1 - Gas 10 12 5 Purchased Power 43 45 61 Total average cost of energy supply (cents) 2.44 2.35 2.02 - ----------------------------------------------------------------- Effects of Inflation The Company is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the Company is recovering its costs of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on the Company because of the large investment in utility plant 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 and preferred securities. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. Future Earnings Potential The results of operations for the past three years are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors ranging from energy sales growth to a less regulated, more competitive environment. Savannah Electric currently operates as a vertically integrated utility providing electricity to customers within the traditional service area of southeastern Georgia. Prices for electricity provided by the Company to retail customers are set by the GPSC. Prices for electricity relating to jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power are set by the Federal Energy Regulatory Commission (FERC). II-175 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 1999 Annual Report Future earnings in the near term will depend upon growth in energy sales, which 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 the Company's service area. The electric utility industry in the United States is currently undergoing a period of dramatic change as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). The Energy Act allows independent power producers (IPPs) to access the Company's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for industrial and commercial customers and sell energy generation to other utilities. Also, electricity sales for resale rates are being driven down by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. The Company is positioning the business to meet the challenge of this major change in the traditional practice of selling electricity. Although the Energy Act does not permit retail customer access, it was a major catalyst for the current restructuring and consolidation taking place within the utility industry. Numerous federal and state initiatives are in varying stages to promote wholesale and retail competition. Among other things, these initiatives allow customers to choose their electricity provider. As these initiatives materialize, the structure of the utility industry could radically change. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While various restructuring and competition initiatives have been or are being discussed in Georgia, none have been enacted to date. Enactment would require numerous issues to be resolved, including significant ones relating to transmission pricing and recovery of any stranded investments. The inability of the Company to recover its investments, including the regulatory assets described in Note 1 to the financial statements, could have a material adverse effect on financial condition and results of operation. The Company is attempting to minimize or reduce its cost exposure. Continuing to be a low-cost producer could provide opportunities to increase market share and profitability in markets that evolve with changing regulation. Conversely, if the Company does not remain a low-cost producer and provide quality service, then energy sales growth could be limited, and this could significantly erode earnings. Compliance costs related to current and future environmental laws and regulations could affect earnings if such costs are not fully recovered. The Clean Air Act and other important environmental items are discussed later under "Environmental Matters." Rates to retail customers served by the Company are regulated by the GPSC. As part of the Company's rate settlement in 1992, it was informally agreed that the Company's earned rate of return on common equity should be 12.95 percent. In 1998, the GPSC issued a four-year accounting order settling its review of the Company's earnings. See Note 3 to the financial statements for additional information. On December 20, 1999, the FERC issued its final rule on Regional Transmission Organizations (RTOs). The order encourages utilities owning transmission systems to form RTOs on a voluntary basis. To facilitate the development of RTOs, the FERC will convene regional conferences for utilities, customers, and other members of the public to discuss the formation of RTOs. In addition to participating in the regional conferences, utilities owning transmission systems, including the Company, are required to make a filing by October 15, 2000. The filing must contain either a proposal for RTO participation or a description of the efforts made to participate in an RTO, the reasons for non-participation, any obstacles to participation, and any plans for further work toward participation. The RTOs that are proposed in the filings should be operational by December 15, 2001. The Company is evaluating this issue and formulating its response. The outcome of this matter cannot now be determined. The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of the 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. See Note 1 to the financial II-176 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 1999 Annual Report statements under "Regulatory Assets and Liabilities" for additional information. Exposure to Market Risks Due to cost-based rate regulation, the Company has limited exposure to market volatility in interest rates and prices of electricity. To mitigate residual risks relative to movements in electricity prices, the Company enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market. Realized gains and losses are recognized in the income statement as incurred. At December 31, 1999, exposure from these activities was not material to the Company's financial statements. Also, based on the Company's overall interest rate exposure at December 31, 1999, a near-term 100 basis point change in interest rates would not materially affect the financial statements. New Accounting Standards The FASB has issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, which must be adopted by January 1, 2001. This statement establishes accounting and reporting standards for derivative instruments -- including certain derivative instruments embedded in other contracts -- and for hedging activities. The Company has not yet quantified the impact of adopting this statement on its financial statements; however, the adoption could increase volatility in earnings. Year 2000 Challenge The work undertaken by the Company to prepare critical computer systems and other date sensitive devices to function correctly in the Year 2000 was successful. There were no material incidents reported and no disruption of electric service within the service area. There were no reports of significant events regarding third parties that impacted revenues or expenses. Original projected total costs for Year 2000 readiness were approximately $1.2 million. Final projected costs are $1.3 million of which $0.1 million is projected to be spent in 2000. These costs include labor necessary to identify, test, and renovate affected devices and systems, and costs for reporting requirements to state and federal agencies. From its inception through December 31, 1999, the Year 2000 program costs, recognized as expense, amounted to $1.2 million. FINANCIAL CONDITION Overview The principal change in the Company's financial condition in 1999 was the addition of $29.8 million to utility plant. The funds needed for gross property additions are currently provided from operating activities, principally from earnings and non-cash charges to income such as depreciation and deferred income taxes and from financing activities. See Statements of Cash Flows for additional information. Capital Structure As of December 31, 1999, the Company's capital structure consisted of 48.3 percent common stockholders' equity, 11.0 percent trust preferred securities, and 40.7 percent long-term debt, excluding amounts due within one year. The Company's long-term financial objective for capitalization ratios is to maintain a capital structure of common stockholders' equity at 48 percent, preferred securities at 10 percent and debt at 42 percent. Maturities and retirements of long-term debt were $16 million in 1999, $30 million in 1998 and $14 million in 1997. Included in the 1999 maturities and retirements is the purchase by Savannah Electric of all $15 million outstanding of its 7 7/8% Series First Mortgage Bonds due May 1, 2025. During 1998, the Company issued $30 million of Series A 6 5/8% senior retail intermediate bonds maturing in 2015. The Company used these proceeds to redeem the remaining amount of its 8.30% first mortgage bonds due in 2022. Also in 1998, the Company redeemed all of its 1,400,000 shares of 6.64% Series Preferred Stock at a redemption price of $25 per share, plus accrued dividends through the date of redemption. In December 1998, Savannah Electric Capital Trust I, of which the Company owns all of the common securities, issued $40 million of 6.85% mandatorily redeemable preferred securities. II-177 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 1999 Annual Report The composite interest rates and dividend rates for the years 1997 through 1999 as of year-end were as follows: 1999 1998 1997 ------------------------------- Composite interest rates on long-term debt 6.4% 6.5% 6.9% Preferred stock dividend rate -% -% 6.6% Trust preferred securities dividend rate 6.9% 6.9% -% - ----------------------------------------------------------------- Capital Requirements for Construction The Company's projected construction expenditures for the next three years total $91.8 million ($25.6 million in 2000, $30.4 million in 2001, and $35.8 million in 2002). Actual construction costs may vary from this estimate because of factors such as changes in: business conditions; environmental regulations; load projections; the cost and efficiency of construction labor, equipment and materials; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. Construction of transmission and distribution facilities and upgrading of generating plants will be continuing. Other Capital Requirements In addition to the funds needed for the construction program, approximately $31.8 million will be needed by the end of 2002 for maturities of long-term debt and present sinking fund requirements. Environmental Matters In November 1990, the Clean Air Act was signed into law. Title IV of the Clean Air Act--the acid rain compliance provision of the law--significantly affected the Company and other subsidiaries of Southern Company. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants are required in two phases. Phase I compliance began in 1995 and initially affected 28 generating units of Southern Company. As a result of Southern Company's compliance strategy, an additional 22 generating units, which included four of the Company's units, were brought into compliance with Phase I requirements. Phase II compliance is required in 2000, and all fossil-fired generating plants will be affected. Southern Company achieved Phase I sulfur dioxide compliance at the affected plants by switching to low-sulfur coal, which required some equipment upgrades. Construction expenditures for Phase I nitrogen oxide and sulfur dioxide emissions compliance totaled approximately $2 million for Savannah Electric. For Phase II sulfur dioxide compliance, Southern Company currently uses emission allowances and increased fuel switching. Also, equipment to control nitrogen oxide emissions was installed on additional system fossil-fired plants as necessary to meet Phase II limits and ozone non-attainment requirements. Compliance for Phase II and initial ozone non-attainment requirements increased total estimated construction expenditures by approximately $105 million. Phase II compliance is not expected to have a material impact on Savannah Electric. A significant portion of costs related to the acid rain provision of the Clean Air Act is expected to be recovered through existing ratemaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. On November 3, 1999, the Environmental Protection Agency (EPA), brought a civil action in the U.S. District Court against Alabama Power, Georgia Power and the system service company. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The EPA concurrently issued to the integrated Southeast utilities a notice of violation related to 10 generating facilities, which includes the five facilities mentioned previously and the Company's Plant Kraft. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation, and to add Gulf Power, Mississippi Power, and Savannah Electric as defendants. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. Southern Company believes that its integrated utilities complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per II-178 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 1999 Annual Report day. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. In July 1997, the EPA revised the national ambient air quality standards for ozone and particulate matter. This revision makes the standards significantly more stringent. In September 1998, the EPA issued the final regional nitrogen oxide rules to the states for implementation. The final rule affects 22 states including Georgia. The EPA's July 1997 standards and the September 1998 rule are being challenged in the courts by several states and industry groups. Implementation of the final state rules for these three initiatives could require substantial further reductions in nitrogen oxide and sulfur dioxide emissions from fossil-fired generating facilities and other industries in these states. Additional compliance costs and capital expenditures resulting from the implementation of these rules and standards cannot be determined until the results of legal challenges are known, and the states have adopted their final rules. The EPA and state environmental regulatory agencies are reviewing and evaluating various other matters including: additional controls for hazardous air pollutant emissions; control strategies to reduce regional haze; and hazardous waste disposal requirements. The impact of new standards will depend on the development and implementation of applicable regulations. The Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the Company could incur substantial costs to clean up properties currently or previously owned. The Company conducts studies to determine the extent of any required cleanup costs and will recognize in the financial statements any costs to clean up known sites. Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of Southern Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electromagnetic fields, and other environmental and health concerns could significantly affect Southern Company. The impact of new legislation--if any--will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electromagnetic fields. Sources of Capital At December 31, 1999, the Company had $6.6 million of cash and $26.2 million of unused short-term and revolving credit arrangements with banks to meet its short-term cash needs and to provide additional interim funding for the Company's construction program. Revolving credit arrangements total $20 million, of which $10 million expires December 31, 2001 and $10 million expires December 31, 2002. It is anticipated that the funds required for construction and other purposes, including compliance with environmental regulation, will be derived from sources similar to those used in the past. These sources were primarily from the issuances of first mortgage bonds, other long-term debt, and preferred stock, in addition to pollution control revenue bonds issued for the Company's benefit by public authorities, to meet long-term external financing requirements. Recently, the Company's financings have consisted of unsecured debt and trust preferred securities. The Company is required to meet certain earnings coverage requirements specified in its mortgage indenture and corporate charter to issue new first mortgage bonds and preferred stock. The Company's coverage ratios are sufficiently high to permit, at present interest rate levels, any foreseeable security sales. In 1998, the Company obtained stockholder approval to amend the corporate charter including the elimination of the restrictions on the amount of unsecured indebtedness allowed. The amount of securities which the Company will be permitted to issue in the future will depend upon market conditions and other factors prevailing at that time. II-179 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 1999 Annual Report Cautionary Statement Regarding Forward-Looking Information Savannah Electric and Power Company's 1999 Annual Report contains forward-looking and historical information. The Company cautions that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking information. Accordingly, there can be no assurance that such indicated results will be realized. These factors include legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry; the extent and timing of the entry of additional competition in the Company's markets; potential business strategies--including acquisitions or dispositions of assets or internal restructuring--that may be pursued by the Company; state and federal rate regulation; changes in or application of environmental and other laws and regulations to which the Company is subject; political, legal and economic conditions and developments; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather and other natural phenomena; and other factors discussed in the reports--including Form 10-K--filed from time to time by the Company with the Securities and Exchange Commission. II-180
STATEMENTS OF INCOME For the Years Ended December 31, 1999, 1998, and 1997 Savannah Electric and Power Company 1999 Annual Report - -------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues (Note 1): Retail sales $242,265 $242,327 $219,458 Sales for resale -- Non-affiliates 3,395 4,548 3,467 Affiliates 4,151 3,016 2,052 Other revenues 1,783 4,564 1,300 - -------------------------------------------------------------------------------------------------------------------- Total operating revenues 251,594 254,455 226,277 - -------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 50,530 53,021 35,563 Purchased power -- Non-affiliates 14,398 9,460 2,347 Affiliates 33,398 35,687 42,107 Other 50,341 49,055 47,735 Maintenance 16,333 18,711 13,236 Depreciation and amortization (Notes 1 and 3) 23,841 22,032 20,152 Taxes other than income taxes 12,690 12,342 11,494 - -------------------------------------------------------------------------------------------------------------------- Total operating expenses 201,531 200,308 172,634 - -------------------------------------------------------------------------------------------------------------------- Operating Income 50,063 54,147 53,643 Other Income (Expense): Interest income 169 384 279 Other, net (663) (1,698) (542) - -------------------------------------------------------------------------------------------------------------------- Earnings Before Interest and Income Taxes 49,569 52,833 53,380 - -------------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 9,300 10,383 10,907 Interest on notes payable 879 278 172 Amortization of debt discount, premium and expense, net 948 853 739 Other interest charges 811 341 205 Distributions on preferred securities of subsidiary 2,740 167 - - -------------------------------------------------------------------------------------------------------------------- Total interest charges and other, net 14,678 12,022 12,023 - -------------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes 34,891 40,811 41,357 Income taxes (Notes 1 and 6) 11,808 15,101 15,186 - -------------------------------------------------------------------------------------------------------------------- Net Income 23,083 25,710 26,171 Dividends on Preferred Stock - 2,066 2,324 - -------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 23,083 $ 23,644 $ 23,847 ==================================================================================================================== The accompanying notes are an integral part of these statements.
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STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1999, 1998, and 1997 Savannah Electric and Power Company 1999 Annual Report - ------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------ (in thousands) Operating Activities: Net income $ 23,083 $ 25,710 $ 26,171 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 25,454 23,531 21,083 Deferred income taxes and investment tax credits, net (3,353) 7,011 3,841 Other, net (47) (89) (2,816) Changes in certain current assets and liabilities -- Receivables, net (5,999) (9,875) (1,938) Fossil fuel stock (2,125) 221 687 Materials and supplies (1,906) 484 1,033 Accounts payable 1,133 470 (1,608) Other 1,731 (4,859) 3,366 - ------------------------------------------------------------------------------------------------------------------------ Net cash provided from operating activities 37,971 42,604 49,819 - ------------------------------------------------------------------------------------------------------------------------ Investing Activities: Gross property additions (29,833) (18,071) (18,846) Other (1,715) 1,617 (1,418) - ------------------------------------------------------------------------------------------------------------------------ Net cash used for investing activities (31,548) (16,454) (20,264) - ------------------------------------------------------------------------------------------------------------------------ Financing Activities: Increase (decrease) in notes payable, net 34,300 - (5,000) Proceeds -- Other long-term debt - 30,000 13,870 Preferred securities - 40,000 - Capital contribution from parent company 1,099 - - Retirements -- First mortgage bonds (15,800) (30,000) - Other long-term debt (481) (478) (14,303) Preferred stock - (35,000) - Payment of preferred stock dividends - (2,556) (2,324) Payment of common stock dividends (25,200) (23,500) (20,500) Other 250 (4,798) (368) - ------------------------------------------------------------------------------------------------------------------------ Net cash used for financing activities (5,832) (26,332) (28,625) - ------------------------------------------------------------------------------------------------------------------------ Net Change in Cash and Cash Equivalents 591 (182) 930 Cash and Cash Equivalents at Beginning of Period 5,962 6,144 5,214 - ------------------------------------------------------------------------------------------------------------------------ Cash and Cash Equivalents at End of Period $ 6,553 $ 5,962 $ 6,144 ======================================================================================================================== Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of amount capitalized) $14,212 $12,198 $11,619 Income taxes (net of refunds) 12,647 9,666 11,150 - ------------------------------------------------------------------------------------------------------------------------ The accompanying notes are an integral part of these statements.
II-182
BALANCE SHEETS At December 31, 1999 and 1998 Savannah Electric and Power Company 1999 Annual Report - ------------------------------------------------------------------------------------------------------------------- Assets 1999 1998 - ------------------------------------------------------------------------------------------------------------------- (in thousands) Current Assets: Cash and cash equivalents $ 6,553 $ 5,962 Receivables -- Customer accounts receivable 20,752 18,030 Unrecovered retail fuel clause revenue 21,089 17,628 Other accounts and notes receivable 3,505 3,543 Affiliated companies 1,195 1,388 Accumulated provision for uncollectible accounts (237) (284) Fossil fuel stock, at average cost 7,109 4,984 Materials and supplies, at average cost (Note 1) 8,402 6,496 Other 2,869 4,772 - ------------------------------------------------------------------------------------------------------------------- Total current assets 71,237 62,519 - ------------------------------------------------------------------------------------------------------------------- Property, Plant and Equipment: In service (Notes 1 and 8) 804,096 781,964 Less accumulated provision for depreciation 360,639 341,930 - ------------------------------------------------------------------------------------------------------------------- 443,457 440,034 Construction work in progress 6,561 2,908 - ------------------------------------------------------------------------------------------------------------------- Total property, plant and equipment 450,018 442,942 - ------------------------------------------------------------------------------------------------------------------- Other Property and Investments 1,506 1,420 - ------------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes (Note 6) 16,063 17,130 Cash surrender value of life insurance for deferred compensation plans 16,305 14,179 Prepaid pension costs (Note 2) 1,201 3,281 Debt expense, being amortized 3,155 3,554 Premium on reacquired debt, being amortized 8,385 8,570 Other 2,348 2,204 - ------------------------------------------------------------------------------------------------------------------- Total deferred charges and other assets 47,457 48,918 - ------------------------------------------------------------------------------------------------------------------- Total Assets $570,218 $555,799 =================================================================================================================== The accompanying notes are an integral part of these balance sheets.
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BALANCE SHEETS At December 31, 1999 and 1998 Savannah Electric and Power Company 1999 Annual Report - ------------------------------------------------------------------------------------------------------------------ Liabilities and Stockholder's Equity 1999 1998 - ------------------------------------------------------------------------------------------------------------------ (in thousands) Current Liabilities: Securities due within one year (Note 8) $ 704 $ 689 Notes payable 34,300 - Accounts payable -- Affiliated 4,632 5,014 Other 11,118 10,833 Customer deposits 5,426 5,224 Taxes accrued -- Income taxes 3,046 2,467 Other 3,013 2,891 Interest accrued 3,237 3,815 Vacation pay accrued 2,142 1,978 Other 5,742 6,700 - ------------------------------------------------------------------------------------------------------------------ Total current liabilities 73,360 39,611 - ------------------------------------------------------------------------------------------------------------------ Long-term debt (See accompanying statements) 147,147 163,443 - ------------------------------------------------------------------------------------------------------------------ Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 6) 80,318 82,778 Deferred credits related to income taxes (Note 6) 19,687 21,349 Accumulated deferred investment tax credits (Note 6) 11,280 11,943 Deferred compensation plans 10,624 9,788 Employee benefits provisions (Note 2) 7,805 7,620 Other 5,150 3,402 - ------------------------------------------------------------------------------------------------------------------ Total deferred credits and other liabilities 134,864 136,880 - -------------------------------------------------------------------------------------------------------------------- Company obligated mandatorily redeemable preferred securities of subsidiary trust holding company junior subordinated notes (See accompanying statements) (Note 7) 40,000 40,000 - ------------------------------------------------------------------------------------------------------------------ Common stockholder's equity (See accompanying statements) 174,847 175,865 - ------------------------------------------------------------------------------------------------------------------ Total Liabilities and Stockholder's Equity $570,218 $555,799 ================================================================================================================== The accompanying notes are an integral part of these balance sheets.
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STATEMENTS OF CAPITALIZATION At December 31, 1999 and 1998 Savannah Electric and Power Company 1999 Annual Report - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands) (percent of total) Long-Term Debt (Note 8): First mortgage bonds -- Maturity Interest Rates -------- -------------- July 1, 2003 6.375% $20,000 $20,000 May 1, 2006 6.90% 20,000 20,000 July 1, 2023 7.40% 24,200 25,000 May 1, 2025 7.875% - 15,000 - ------------------------------------------------------------------------------------------------------------------------------------ Total first mortgage bonds 64,200 80,000 - ------------------------------------------------------------------------------------------------------------------------------------ Long-term notes payable -- 6.88% due June 1, 2001 10,000 10,000 6.625% due March 17, 2015 30,000 30,000 Adjustable rates (6.28% and 6.66% at 1/1/00) due 2001 20,000 20,000 - ------------------------------------------------------------------------------------------------------------------------------------ Total long-term notes payable 60,000 60,000 - ------------------------------------------------------------------------------------------------------------------------------------ Other long-term debt -- Pollution control revenue bonds -- Collateralized: Variable rates (4.00% at 1/1/99) due 2016 - 4,085 Non-collateralized: Variable rates (3.65% to 3.95% at 1/1/00) due 2016-2037 17,955 13,870 - ------------------------------------------------------------------------------------------------------------------------------------ Total other long-term debt 17,955 17,955 - ------------------------------------------------------------------------------------------------------------------------------------ Capitalized lease obligations 5,696 6,177 - ------------------------------------------------------------------------------------------------------------------------------------ Total long-term debt (annual interest requirement -- $9.5 million) 147,851 164,132 Less amount due within one year (Note 8) 704 689 - ------------------------------------------------------------------------------------------------------------------------------------ Total long-term debt excluding amount due within one year 147,147 163,443 40.7% 43.1% - ------------------------------------------------------------------------------------------------------------------------------------ Company Obligated Mandatorily Redeemable Preferred Securities (Note 7): $25 liquidation value -- 6.85% 40,000 40,000 - ------------------------------------------------------------------------------------------------------------------------------------ Total (annual distribution requirement -- $2.7 million) 40,000 40,000 11.0 10.5 - ------------------------------------------------------------------------------------------------------------------------------------ Common Stockholder's Equity (Note 9): 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 9,787 8,688 Retained earnings 110,837 112,954 - ------------------------------------------------------------------------------------------------------------------------------------ Total common stockholder's equity 174,847 175,865 48.3 46.4 - ------------------------------------------------------------------------------------------------------------------------------------ Total Capitalization $361,994 $379,308 100.0% 100.0% ==================================================================================================================================== The accompanying notes are an integral part of these statements.
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STATEMENTS OF COMMON STOCKHOLDER'S EQUITY For the Years Ended December 31, 1999, 1998, and 1997 Savannah Electric and Power Company 1999 Annual Report - --------------------------------------------------------------------------------------------------------------------------------- Common Paid-In Retained Stock Capital Earnings Total - --------------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at January 1, 1997 $54,223 $8,688 $109,373 $172,284 Net income after dividends on preferred stock - - 23,847 23,847 Cash dividends - - (20,500) (20,500) - --------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 54,223 8,688 112,720 175,631 Net income after dividends on preferred stock - - 23,644 23,644 Cash dividends - - (23,500) (23,500) Other - - 90 90 - --------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 54,223 8,688 112,954 175,865 Net income after dividends on preferred stock - - 23,083 23,083 Capital contributions from parent company - 1,099 - 1,099 Cash dividends - - (25,200) (25,200) - --------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 (Note 9) $54,223 $9,787 $110,837 $174,847 ================================================================================================================================= The accompanying notes are an integral part of these statements.
II-186 NOTES TO FINANCIAL STATEMENTS Savannah Electric and Power Company 1999 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Savannah Electric and Power Company (the Company), is a wholly owned subsidiary of Southern Company, which is the parent company of five integrated Southeast utilities, Southern Company Services, Inc. (SCS), Southern Communications Services (Southern LINC), Southern Company Energy Solutions, Southern Energy, Inc. (Southern Energy), Southern Nuclear Operating Company (Southern Nuclear), and other direct and indirect subsidiaries. The integrated Southeast utilities provide electric service in four states. Contracts among the integrated Southeast utilities--related to jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power--are regulated by the Federal Energy Regulatory Commission (FERC) and/or the Securities and Exchange Commission. SCS, a system service company provides, at cost, specialized services to Southern Company and subsidiary companies. Southern LINC provides digital wireless communications services to the operating companies and also markets these services to the public within the Southeast. Southern Company Energy Solutions develops new business opportunities related to energy products and services. Southern Nuclear provides services to Southern Company's nuclear power plants. Southern Energy acquires, develops, builds, owns and operates power production and delivery facilities and provides a broad range of energy-related services to utilities and industrial companies in selected countries around the world. Southern Energy businesses include independent power projects, integrated utilities, a distribution company, and energy trading and marketing businesses outside the southeastern United States. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries are subject to the regulatory provisions of the PUHCA. The Company also is subject to regulation by the FERC and the Georgia Public Service Commission (GPSC). The Company follows generally accepted accounting principles and complies with the accounting policies and practices prescribed by the GPSC. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates, and the actual results may differ from those estimates. Certain prior years' data presented in the financial statements has been reclassified to conform with the current year presentation. Related-Party Transactions The Company has an agreement with SCS under which the following services are rendered to the Company at cost: general and design engineering, purchasing, accounting and statistical, finance and treasury, tax, information resources, marketing, auditing, insurance and pension, human resources, systems and procedures, and other services with respect to business and operations and power pool operations. Costs for these services amounted to $16.0 million, $15.3 million, and $13.3 million during 1999, 1998, and 1997, respectively. Regulatory Assets and Liabilities The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues to the Company associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are expected to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Balance Sheets at December 31 relate to: 1999 1998 -------------------------- (in thousands) Deferred income tax charges $ 16,063 $ 17,130 Premium on reacquired debt 8,385 8,570 Deferred income tax credits (19,687) (21,349) Storm damage reserves (1,392) (1,580) Accelerated depreciation (3,000) (1,000) - --------------------------------------------------------------- Total $ 369 $ 1,771 =============================================================== In the event that a portion of the Company's operations is no longer subject to the provisions of FASB Statement No. 71, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the Company would be required to determine if any impairment to other assets exists, including plant, and write down the assets, if impaired, to their fair value. II-187 NOTES (continued) Savannah Electric and Power Company 1999 Annual Report Revenues and Fuel Costs The Company currently operates as a vertically integrated utility providing electricity to retail customers within its traditional service area of southeastern Georgia, and to wholesale customers in the Southeast. Revenues are accrued for service rendered but unbilled at the end of each fiscal period. Fuel costs are expensed as the fuel is used. Electric rates for the Company include provisions to adjust billings for fluctuations in fuel costs, the energy component of purchased power costs, and certain other costs. Revenues are adjusted for differences between recoverable fuel costs and amounts actually recovered in current regulated rates. The Company has a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. For all periods presented, uncollectible accounts averaged less than 1 percent of revenues. In 1999, the GPSC approved increases of slightly over three-tenths of a cent per kilowatt-hour in the Company's fuel allowance. Depreciation and Amortization Depreciation of the original cost of plant in service is provided primarily by using composite straight-line rates, which approximated 3.0 percent in 1999, and 2.9 percent in 1998 and 1997. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its cost--together with the cost of removal, less salvage--is charged to the accumulated provision for depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Depreciation expense includes an amount for the expected cost of removal of certain facilities. See Note 3 to the financial statements for more information. Income Taxes The Company, which is included in the consolidated federal income tax return filed by Southern Company, uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. Allowance for Funds Used During Construction (AFUDC) AFUDC represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new facilities. While cash is not realized currently from such allowance, it increases the revenue requirement over the service life of the plant through a higher rate base and higher depreciation expense. The composite rates used by the Company to calculate AFUDC were 6.26 percent in 1999, 8.00 percent in 1998 and 9.24 percent in 1997. Property, Plant and Equipment Property, plant and equipment is stated at original cost less regulatory disallowances and impairments. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and the estimated cost of funds used during construction. The cost of maintenance, repairs, and replacement of minor items of property is charged to maintenance expense. The cost of replacements of property (exclusive of minor items of property) is capitalized. Cash and Cash Equivalents For purposes of the financial statements, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. II-188 NOTES (continued) Savannah Electric and Power Company 1999 Annual Report Financial Instruments The Company's financial instruments for which the carrying amounts did not equal fair value at December 31 were as follows: Carrying Fair Amount Value -------------------------- (in millions) Long-term debt: At December 31, 1999 $142 $136 At December 31, 1998 158 162 Trust preferred securities: At December 31, 1999 $40 $31 At December 31, 1998 40 40 The fair values for long-term debt and preferred securities were based on either closing market prices or closing prices of comparable instruments. Materials and Supplies Generally, materials and supplies include the costs of transmission, distribution, and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when installed. 2. RETIREMENT BENEFITS The Company has defined benefit, trusteed, non-contributory pension plans that cover substantially all employees. The Company provides certain medical care and life insurance benefits for retired employees. Substantially all these employees may become eligible for such benefits when they retire. The Company funds trusts to the extent required by the GPSC. The measurement date for plan assets and obligations is September 30 of each year. Pension Plans Changes during the year in the projected benefit obligations and in the fair value of plan assets were as follows: Projected Benefit Obligations --------------------------- 1999 1998 - --------------------------------------------------------------- (in thousands) Balance at beginning of year $59,207 $51,720 Service cost 1,746 1,495 Interest cost 3,893 3,806 Benefits paid (3,414) (3,392) Actuarial (gain) loss and employee transfers (1,856) 4,343 Amendments 385 1,235 - --------------------------------------------------------------- Balance at end of year $59,961 $59,207 =============================================================== Plan Assets --------------------------- 1999 1998 - --------------------------------------------------------------- (in thousands) Balance at beginning of year $49,630 $50,630 Actual return on plan assets 8,168 171 Employer contributions - 2,464 Benefits paid (3,414) (3,392) Employee transfers 96 (243) - --------------------------------------------------------------- Balance at end of year $54,480 $49,630 =============================================================== The accrued pension costs recognized in the Balance Sheets were as follows: 1999 1998 - ----------------------------------------------------------------- (in thousands) Funded status $(5,481) $(9,577) Unrecognized transition obligation 178 266 Unrecognized prior service cost 2,996 2,874 Unrecognized net loss 3,508 9,718 - ----------------------------------------------------------------- Prepaid asset recognized in the Balance Sheets $ 1,201 $ 3,281 ================================================================= II-189 NOTES (continued) Savannah Electric and Power Company 1999 Annual Report Components of the plans' net periodic cost were as follows: 1999 1998 1997 - ----------------------------------------------------------------- (in thousands) Service cost $1,746 $1,495 $1,393 Interest cost 3,893 3,806 3,556 Expected return on plan assets (4,063) (3,992) (3,782) Recognized net loss 152 2 475 Net amortization 352 334 280 - ----------------------------------------------------------------- Net pension cost $2,080 $1,645 $1,922 ================================================================= Postretirement Benefits Changes during the year in the accumulated benefit obligations and in the fair value of plan assets were as follows: Accumulated Benefit Obligations --------------------------- 1999 1998 - --------------------------------------------------------------- (in thousands) Balance at beginning of year $23,556 $20,899 Service cost 404 348 Interest cost 1,549 1,528 Benefits paid (756) (839) Actuarial (gain) loss and employee transfers (1,849) 1,620 - --------------------------------------------------------------- Balance at end of year $22,904 $23,556 =============================================================== Plan Assets --------------------------- 1999 1998 - --------------------------------------------------------------- (in thousands) Balance at beginning of year $3,803 $3,110 Actual return on plan assets 476 85 Employer contributions 1,731 1,447 Benefits paid (756) (839) - --------------------------------------------------------------- Balance at end of year $5,254 $3,803 =============================================================== The accrued postretirement costs recognized in the Balance Sheets were as follows: 1999 1998 - --------------------------------------------------------------- (in thousands) Funded status $(17,650) $(19,753) Unrecognized transition obligation 6,419 6,913 Unrecognized net loss 3,311 5,444 Fourth quarter contributions 1,336 1,152 - --------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $(6,584) $ (6,244) =============================================================== Components of the plans' net periodic cost were as follows: 1999 1998 1997 - ---------------------------------------------------------------- (in thousands) Service cost $ 404 $ 348 $ 319 Interest cost 1,549 1,528 1,499 Expected return on plan assets (345) (276) (211) Recognized net loss 152 104 125 Net amortization 494 494 494 - ---------------------------------------------------------------- Net postretirement cost $2,254 $2,198 $2,226 ================================================================ The weighted average rates assumed in the actuarial calculations for both the pension plans and postretirement benefits were: 1999 1998 - --------------------------------------------------------------- Discount 7.50% 6.75% Annual salary increase 5.00 4.25 Long-term return on plan assets 8.50 8.50 - --------------------------------------------------------------- An additional assumption used in measuring the accumulated postretirement benefit obligations was a weighted average medical care cost trend rate of 7.74 percent for 1999, decreasing gradually to 5.50 percent through the year 2005, and remaining at that level thereafter. An annual increase or decrease in the assumed medical care cost trend rate of 1 percent would affect the accumulated benefit obligation and the service and interest cost components at December 31, 1999 as follows: II-190 NOTES (continued) Savannah Electric and Power Company 1999 Annual Report 1 Percent 1 Percent Increase Decrease - --------------------------------------------------------------- (in thousands) Benefit obligation $1,316 $(1,244) Service and interest costs 106 (100) =============================================================== The Company has a supplemental retirement plan for certain executive employees. The plan is unfunded and payable from the general funds of the Company. The Company has purchased life insurance on participating executives, and plans to use these policies to satisfy this obligation. Benefit costs associated with this plan were $0.5 million for 1999, and $0.4 million for 1998 and 1997. Work Force Reduction Program In 1997, the Company incurred a $1.9 million, one-time charge to other operation expense for costs related to the implementation of a work force reduction program. 3. REGULATORY MATTERS On November 3, 1999, the Environmental Protection Agency (EPA), brought a civil action in the U.S. District Court against Alabama Power, Georgia Power and the system service company. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The EPA concurrently issued to the integrated Southeast utilities a notice of violation related to 10 generating facilities, which includes the five facilities mentioned previously and the Company's Plant Kraft. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation, and to add Gulf Power, Mississippi Power, and Savannah Electric as defendants. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. Southern Company believes that its integrated utilities complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. Rates to retail customers served by the Company are regulated by the GPSC. As part of the Company's rate settlement in 1992, it was informally agreed that the Company's earned rate of return on common equity should be 12.95 percent. In 1998, the GPSC approved a four-year accounting order for the Company. Under this order, the Company will reduce the electric rates of its small business customers by approximately $11 million over the next four years. The Company will also expense an additional $1.95 million in storm damage accruals and accrue an additional $8 million in depreciation on generating assets over the term of the order. The additional depreciation will be accumulated in a regulatory liability account to be available to mitigate any potential stranded costs. In addition, the Company has discretionary authority to provide up to an additional $0.3 million per year in storm damage accruals and up to an additional $4.0 million in depreciation expense over the four years. The Company is also precluded from asking for a rate increase except upon significant changes in economic conditions, new laws, or regulations. There will be a quarterly monitoring of the Company's earnings performance. 4. CONSTRUCTION PROGRAM The Company is engaged in a continuous construction program, currently estimated to total $25.6 million in 2000, $30.4 million in 2001, and $35.8 million in 2002. The construction program is subject to periodic review and revision, and actual construction costs may vary from the above estimates because of numerous factors. These factors include: changes in business conditions; revised load growth estimates; changes in environmental regulations; increasing costs of labor, equipment, and materials; and changes in cost of capital. The Company does not have any traditional baseload generating plants under construction. However, construction related to transmission and distribution facilities and the upgrading of generating plants will continue. II-191 NOTES (continued) Savannah Electric and Power Company 1999 Annual Report 5. FINANCING AND COMMITMENTS General To the extent possible, the Company's construction program is expected to be financed from internal sources and from the issuance of additional long-term debt and capital contributions from Southern Company. The amounts of long-term debt and preferred securities that can be issued in the future will be contingent on market conditions, the maintenance of adequate earnings levels, regulatory authorizations, and other factors. Bank Credit Arrangements At the end of 1999, unused credit arrangements with six banks totaled $26.2 million and expire at various times during 2000. The Company has revolving credit arrangements of $20 million, of which $10 million expires December 31, 2001 and $10 million expires December 31, 2002. These agreements allow short-term borrowings to be converted into term loans, payable in 12 equal quarterly installments, with the first installment due at the end of the first calendar quarter after the applicable termination date or at an earlier date at the Company's option. In connection with these credit arrangements, the Company agrees to pay commitment fees based on the unused portions of the commitments. Assets Subject to Lien As amended and supplemented, the Company's Indenture of Mortgage, which secures the first mortgage bonds issued by the Company, constitutes a direct first lien on substantially all of the Company's fixed property and franchises. A second lien for $10 million of bank debt is secured by a portion of the Plant Kraft property and a second lien for $34 million in bank notes is secured by a portion of the Plant McIntosh property. Fuel and Purchased Power Commitments To supply a portion of the fuel requirements of its generating plants, the Company has entered into long-term commitments for the procurement of fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels, and other financial commitments. The Company has fuel commitments of $15 million and $9 million for 2000 and 2001, respectively. In 1999, the Company entered into a purchased power agreement for 200 megawatts of capacity from Georgia Power Company's combined cycle combustion turbine units currently under construction at Plant Wansley and due to begin operation in 2002. Operating Leases The Company has rental agreements with various terms and expiration dates. Rental expenses totaled $0.5 million for 1999, $1.1 million for 1998 and $1.2 million for 1997. At December 31, 1999, estimated future minimum lease payments for noncancelable operating leases were as follows: Rental Commitments -------------------- (in thousands) 2000 $ 483 2001 483 2002 483 2003 483 2004 483 2005 and thereafter $6,485 - ------------------------------------------------------------- 6. INCOME TAXES At December 31, 1999, tax-related regulatory assets and liabilities were $16.1 million and $19.7 million, respectively. The assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized AFUDC. The liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. II-192 NOTES (continued) Savannah Electric and Power Company 1999 Annual Report Details of income tax provisions are as follows: 1999 1998 1997 -------------------------------- (in thousands) Total provision for income taxes Federal -- Currently payable $12,968 $ 6,763 $ 9,743 Deferred -- current year 354 8,377 4,522 -- reversal of prior years (3,683) (2,565) (1,381) - ------------------------------------------------------------------ 9,639 12,575 12,884 - ------------------------------------------------------------------ State -- Currently payable 2,193 1,327 1,603 Deferred -- current year (34) 1,174 569 -- reversal of prior years 10 25 130 - ------------------------------------------------------------------ 2,169 2,526 2,302 - ------------------------------------------------------------------ Total $11,808 $15,101 $15,186 ================================================================== The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows: 1999 1998 -------------------- Deferred tax liabilities: (in thousands) Accelerated depreciation $73,400 $75,187 Property basis differences 6,917 7,591 Other 12,031 10,187 - ---------------------------------------------------------------- Total 92,348 92,965 - ---------------------------------------------------------------- Deferred tax assets: Pension and other benefits 6,925 4,892 Other 2,935 2,828 - ---------------------------------------------------------------- Total 9,860 7,720 - ---------------------------------------------------------------- Net deferred tax liabilities 82,488 85,245 Portions included in current assets, net (2,170) (2,467) - ---------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $80,318 $82,778 ================================================================ Deferred investment tax credits are amortized over the lives of the related property with such amortization normally applied as a credit to reduce depreciation in the Statements of Income. Credits amortized in this manner amounted to $0.7 million in 1999, 1998 and 1997. At December 31, 1999, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: 1999 1998 1997 ----------------------------- Federal statutory tax rate 35% 35% 35% State income tax, net of federal income tax benefit 4 4 4 Other (5) (2) (2) ---------------------------------------------------------------- Effective income tax rate 34% 37% 37% ================================================================ Southern Company files a consolidated federal income tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. 7. CUMULATIVE PREFERRED STOCK AND TRUST PREFERRED SECURITIES In November 1998, the Company redeemed all of its 1,400,000 shares of 6.64% Series Preferred Stock at a redemption price of $25 per share, plus accrued dividends through the date of redemption. In December 1998, Savannah Electric Capital Trust I, of which the Company owns all of the common securities, issued $40 million of 6.85% mandatorily redeemable preferred securities. Substantially all of the assets of the Trust are $40 million aggregate principal amount of the Company's 6.85% junior subordinated notes due December 31, 2028. The Company considers that the mechanisms and obligations relating to the preferred securities, taken together, constitute a full and unconditional guarantee by the Company of payment obligations with respect to the preferred securities of Savannah Electric Capital Trust I. Savannah Electric Capital Trust I is a subsidiary of the Company, and accordingly is consolidated in the Company's financial statements. 8. LONG-TERM DEBT AND LONG-TERM DEBT DUE WITHIN ONE YEAR The Company's Indenture related to its First Mortgage Bonds is unlimited as to the authorized amount of bonds which may be issued, provided that required property additions, earnings and other provisions of such Indenture are met. II-193 NOTES (continued) Savannah Electric and Power Company 1999 Annual Report Maturities and retirements of long-term debt were $16 million in 1999, $30 million in 1998 and $14 million in 1997. Included in the 1999 maturities and retirements is the purchase by Savannah Electric of all $15 million outstanding of its 7 7/8% Series First Mortgage Bonds due May 1, 2025. In 1998, the Company issued $30 million of Series A 6 5/8% senior retail intermediate bonds maturing in 2015. The Company used these proceeds to redeem the remaining amount of its 8.30% first mortgage bonds due in 2022. Assets acquired under capital leases are recorded as utility plant in service, and the related obligation is classified as other long-term debt. Leases are capitalized at the net present value of the future lease payments. However, for ratemaking purposes, these obligations are treated as operating leases, and as such, lease payments are charged to expense as incurred. A summary of the sinking fund requirements and scheduled maturities and redemptions of long-term debt due within one year at December 31 is as follows: 1999 1998 --------------------- (in thousands) Bond sinking fund requirement $650 $800 Less: Portion to be satisfied by certifying property additions 650 - Reacquired bonds and/or cash deposits - 800 - ------------------------------------------------------------------- Cash sinking fund requirement - - Other long-term debt maturities 704 689 - ------------------------------------------------------------------- Total $704 $689 =================================================================== The first mortgage bond improvement (sinking) fund requirements amount to 1 percent of each outstanding series of bonds authenticated under the Indenture prior to January 1 of each year, other than those issued to collateralize pollution control and other obligations. The requirements may be satisfied by depositing cash or reacquiring bonds, or by pledging additional property equal to 1 2/3 times the requirements. The sinking fund requirements of first mortgage bonds were satisfied by cash redemption in 1999 and 1998. It is anticipated that the 2000 requirement will be satisfied by certifying property additions. Sinking fund requirements and/or maturities through 2004 applicable to long-term debt are as follows: $0.7 million in 2000; $30.6 million in 2001; $0.5 million in 2002; $20.4 million in 2003; and $0.4 million in 2004. 9. COMMON STOCK DIVIDEND RESTRICTIONS The Company's Indenture contains certain limitations on the payment of cash dividends on common stock. At December 31, 1999, approximately $68 million of retained earnings was restricted against the payment of cash dividends on common stock under the terms of the Indenture. 10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Summarized quarterly financial data for 1999 and 1998 are as follows (in thousands): Net Income After Operating Operating Dividends on Quarter Ended Revenues Income Preferred Stock - ------------------------------------------------------------------ March 1999 $47,098 $ 5,637 $ 1,209 June 1999 61,692 12,495 5,268 September 1999 91,849 27,081 13,705 December 1999 50,955 4,850 2,901 March 1998 $48,381 $ 8,277 $ 2,426 June 1998 69,616 17,269 7,807 September 1998 84,224 24,777 12,518 December 1998 52,234 3,824 893 - ------------------------------------------------------------------ The Company's business is influenced by seasonal weather conditions and a seasonal rate structure, among other factors. The quarterly operating income information above has been reclassified to reflect the Company's current presentation of income tax expense. II-194
SELECTED FINANCIAL AND OPERATING DATA 1995-1999 Savannah Electric and Power Company 1999 Annual Report - -------------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $251,594 $254,455 $226,277 $234,074 $225,729 Net Income after Dividends on Preferred Stock (in thousands) $23,083 $23,644 $23,847 $23,940 $23,395 Cash Dividends on Common Stock (in thousands) $25,200 $23,500 $20,500 $19,600 $17,600 Return on Average Common Equity (percent) 13.16 13.45 13.71 14.08 14.20 Total Assets (in thousands) $570,218 $555,799 $547,352 $544,900 $524,662 Gross Property Additions (in thousands) $29,833 $18,071 $18,846 $28,950 $26,503 - -------------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $174,847 $175,865 $175,631 $172,284 $167,812 Preferred stock - - 35,000 35,000 35,000 Company obligated mandatorily redeemable preferred securities 40,000 40,000 - - - Long-term debt 147,147 163,443 142,846 164,406 153,679 - -------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $361,994 $379,308 $353,477 $371,690 $356,491 ================================================================================================================================ Capitalization Ratios (percent): Common stock equity 48.3 46.4 49.7 46.4 47.1 Preferred stock - - 9.9 9.4 9.8 Company obligated mandatorily redeemable preferred securities 11.0 10.5 - - - Long-term debt 40.7 43.1 40.4 44.2 43.1 - -------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 100.0 ================================================================================================================================ Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 A1 A1 Standard and Poor's AA- AA- AA- A+ A+ Preferred Stock - Moody's a2 a2 a2 a2 a2 Standard and Poor's A- A A A A ================================================================================================================================ Customers (year-end): Residential 112,891 110,437 109,092 106,657 104,624 Commercial 15,433 15,328 14,233 13,877 13,339 Industrial 67 63 64 65 65 Other 417 377 1,129 1,097 1,048 - -------------------------------------------------------------------------------------------------------------------------------- Total 128,808 126,205 124,518 121,696 119,076 ================================================================================================================================ Employees (year-end): 533 542 535 571 584 - --------------------------------------------------------------------------------------------------------------------------------
II-195
SELECTED FINANCIAL AND OPERATING DATA 1995-1999 (continued) Savannah Electric and Power Company 1999 Annual Report - ----------------------------------------------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $ 112,371 $109,393 $ 96,587 $ 101,607 $ 95,208 Commercial 88,449 86,231 78,949 80,494 75,117 Industrial 32,233 37,865 35,301 37,077 36,040 Other 9,212 8,838 8,621 8,804 8,386 - ----------------------------------------------------------------------------------------------------------------------------- Total retail 242,265 242,327 219,458 227,982 214,751 Sales for resale - non-affiliates 3,395 4,548 3,467 1,998 1,851 Sales for resale - affiliates 4,151 3,016 2,052 3,130 7,200 - ----------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 249,811 249,891 224,977 233,110 223,802 Other revenues 1,783 4,564 1,300 964 1,927 - ----------------------------------------------------------------------------------------------------------------------------- Total $251,594 $254,455 $226,277 $234,074 $225,729 ============================================================================================================================= Kilowatt-Hour Sales (in thousands): Residential 1,579,068 1,539,792 1,428,337 1,456,651 1,402,148 Commercial 1,287,832 1,236,337 1,156,078 1,141,218 1,099,570 Industrial 713,448 900,012 881,261 838,753 887,141 Other 132,555 131,142 124,490 126,215 126,057 - ----------------------------------------------------------------------------------------------------------------------------- Total retail 3,712,903 3,807,283 3,590,166 3,562,837 3,514,916 Sales for resale - non-affiliates 51,548 53,294 94,280 91,610 87,747 Sales for resale - affiliates 76,988 58,415 54,509 41,808 63,731 - ----------------------------------------------------------------------------------------------------------------------------- Total 3,841,439 3,918,992 3,738,955 3,696,255 3,666,394 ============================================================================================================================= Average Revenue Per Kilowatt-Hour (cents): Residential 7.12 7.10 6.76 6.98 6.79 Commercial 6.87 6.97 6.83 7.05 6.83 Industrial 4.52 4.21 4.01 4.42 4.06 Total retail 6.52 6.36 6.11 6.40 6.11 Sales for resale 5.87 6.77 3.71 3.84 5.98 Total sales 6.50 6.38 6.02 6.31 6.10 Residential Average Annual Kilowatt-Hour Use Per Customer 14,100 14,061 13,231 13,771 13,478 Residential Average Annual Revenue Per Customer $1,003.39 $998.94 $894.73 $960.58 $915.15 Plant Nameplate Capacity Ratings (year-end) (megawatts) 788 788 788 788 788 Maximum Peak-Hour Demand (megawatts): Winter 719 582 625 666 630 Summer 875 846 802 811 811 Annual Load Factor (percent) 51.2 54.9 54.3 53.1 52.9 Plant Availability Fossil-Steam (percent): 72.8 72.9 93.7 77.6 83.3 - ----------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 44.6 41.6 34.4 27.7 23.9 Oil and gas 12.3 12.9 5.2 3.1 5.9 Purchased power - From non-affiliates 5.3 3.4 1.4 2.1 2.3 From affiliates 37.8 42.1 59.0 67.1 67.9 - ----------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 100.0 =============================================================================================================================
II-196 PART III Items 10, 11, 12 and 13 for SOUTHERN are incorporated by reference to ELECTION OF DIRECTORS in SOUTHERN's definitive Proxy Statement relating to the 2000 annual meeting of stockholders. The ages of directors and executive officers in Item 10 set forth below are as of December 31, 1999. Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS ALABAMA Identification of directors of ALABAMA. Elmer B. Harris (1) President and Chief Executive Officer Age 60 Served as Director since 3-1-89 Whit Armstrong (2) Age 52 Served as Director since 9-24-82 David J. Cooper, Sr. (2) Age 54 Served as Director since 4-24-98 H. Allen Franklin (2) Age 55 Served as Director since 10-22-99 R. Kent Henslee (2) Age 64 Served as Director since 10-22-99 Carl E. Jones, Jr. (2) Age 59 Served as Director since 4-22-88 Patricia M. King (2) Age 54 Served as Director since 7-25-97 James K. Lowder (2) Age 50 Served as Director since 7-25-97 Wallace D. Malone, Jr. (2) Age 63 Served as Director since 6-22-90 Thomas C. Meredith (2) Age 58 Served as Director since 10-23-98 Mayer Mitchell (2) Age 66 Served as Director since 10-22-99 William V. Muse (2) Age 60 Served as Director since 2-26-93 John T. Porter (2) Age 68 Served as Director since 10-22-93 Robert D. Powers (2) Age 49 Served as Director since 1-24-92 Andreas Renschler (2) Age 41 Served as Director since 1-23-98 C. Dowd Ritter (2) Age 52 Served as Director since 7-25-97 James H. Sanford (2) Age 55 Served as Director since 8-1-83 John C. Webb, IV (2) Age 57 Served as Director since 4-22-77 (1) Previously served as Director of ALABAMA from 1980 to 1985. (2) No position other than Director. Each of the above is currently a director of ALABAMA, serving a term running from the last annual meeting of ALABAMA's stockholder (April 23, 1999) for one year until the next annual meeting or until a successor is elected and qualified, except for Mr. Franklin, Mr. Henslee and Mr. Mitchell, whose elections were effective on the date indicated. III-1 There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he or she was or is to be selected as a director or nominee, other than any arrangements or understandings with directors or officers of ALABAMA acting solely in their capacities as such. Identification of executive officers of ALABAMA. Elmer B. Harris (1) President, Chief Executive Officer and Director Age 60 Served as Executive Officer since 3-1-89 Banks H. Farris Executive Vice President Age 64 Served as Executive Officer since 12-3-91 Michael D. Garrett Executive Vice President Age 50 Served as Executive Officer since 3-1-98 William B. Hutchins, III Executive Vice President, Chief Financial Officer and Treasurer Age 56 Served as Executive Officer since 12-3-91 C. Alan Martin Executive Vice President Age 51 Served as Executive Officer since 1-1-00 Jerry L. Stewart Senior Vice President Age 50 Served as Executive Officer since 7-23-99 (1) Previously served as executive officer of ALABAMA from 1979 to 1985. Each of the above is currently an executive officer of ALABAMA, serving a term running from the last annual meeting of the directors (April 23, 1999) for one year until the next annual meeting or until his successor is elected and qualified, except for Mr. Martin and Mr. Stewart, whose elections were effective on the dates indicated. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he was or is to be selected as an officer, other than any arrangements or understandings with officers of ALABAMA acting solely in their capacities as such. Identification of certain significant employees. None. Family relationships. None. Business experience. Elmer B. Harris - President and Chief Executive Officer since 1989. Director of SOUTHERN and AmSouth Bancorporation. Whit Armstrong - President, Chairman of the Board and Chief Executive Officer of The Citizens Bank, Enterprise, Alabama. Also, President, Chairman of the Board and Chief Executive Officer of Enterprise Capital Corporation, Inc. David J. Cooper, Sr. - President of Cooper/T. Smith Corporation, a maritime company with a core business of stevedoring and tugboats. Director of Cooper/T. Smith Corporation and subsidiaries. Chairman of the Board, American Equity Underwriters, Inc., Mobile, Alabama. H. Allen Franklin - President and Chief Operating Officer of SOUTHERN. He previously served as President and Chief Executive Officer of GEORGIA from 1994 to 1999. Director of GEORGIA and GULF. R. Kent Henslee - Managing Partner of the law firm of Henslee, Robertson & Strawn, L.L.C., Gadsden, Alabama. Carl E. Jones, Jr. - President and Chief Executive Officer of Regions Financial Corporation, Birmingham, Alabama. Patricia M. King - President and Chief Executive Officer of King Motor Co., Inc., King's Highway, Inc. and King Imports, Inc., Anniston, Alabama. James K. Lowder - President and Chief Executive Officer of The Colonial Company (real estate development and sales), Montgomery, Alabama. III-2 Wallace D. Malone, Jr. - Chairman and Chief Executive Officer of SouthTrust Corporation, bank holding company, Birmingham, Alabama. Thomas C. Meredith - Chancellor of The University of Alabama System, Tuscaloosa, Alabama. Director of ATMOS Energy Corporation, Dallas, Texas. Mayer Mitchell - President of Mitchell Brothers, Inc. (real estate and investments), Mobile, Alabama. Director of The Banc Corporation, Birmingham, Alabama. William V. Muse - President of Auburn University, Auburn, Alabama. John T. Porter - Pastor of Sixth Avenue Baptist Church, Birmingham, Alabama. Robert D. Powers - President of The Eufaula Agency, Inc. (real estate and insurance), Eufaula, Alabama. Andreas Renschler - President of Mcc smart Gmbh, Germany, a division of Daimler Chrysler. C. Dowd Ritter - Chairman, President, Chief Executive Officer of AmSouth Bancorporation and AmSouth Bank, Birmingham, Alabama. James H. Sanford - Chairman, HOME Place Farms Inc. (diversified farmers and ginners), Prattville, Alabama. President, Autauga Quality Cotton Association, Prattville, Alabama. Chairman of the Board, Sylvest Farms of Georgia, Inc., College Park, Georgia. Chairman of the Board, Sylvest Farms, Inc., Montgomery, Alabama. John C. Webb, IV - President, Webb Lumber Company, Inc. (wholesale lumber and wood products sales), Demopolis, Alabama. Banks H. Farris - Executive Vice President - Customer Service since 1994. Responsible for providing the overall management of human resources, information resources, power delivery and marketing departments, customer service centers and the six geographic divisions. Michael D. Garrett - Executive Vice President - External Affairs since 1998. He previously served as Senior Vice President of External Affairs from February 1994 to March 1998. Responsible for governmental relations, environmental, public relations, economic development, corporate real estate and corporate services. William B. Hutchins, III - Executive Vice President and Chief Financial Officer since 1991. Treasurer was added to his responsibilities in 1998. Responsible for financial and accounting operations, corporate planning and treasury operations. C. Alan Martin - Executive Vice President - External Affairs since January 2000. He previously served as Executive Vice President and Chief Marketing Officer for SOUTHERN from 1998 to 1999. Responsible for governmental relations, environmental, public relations, economic development, corporate real estate and corporate services. Jerry L. Stewart - Senior Vice President - Fossil and Hydro Generation since 1999. He previously served as Vice President of Fuel Services for SCS from 1992 to 1999. Responsible for providing overall management of the Fossil Generation, Hydro Generation, Power Generation Support and Fuels Department. Involvement in certain legal proceedings. None. III-3 GEORGIA Identification of directors of GEORGIA. David M. Ratcliffe President and Chief Executive Officer Age 51 Served as Director since 6-1-99 Daniel P. Amos (1) Age 48 Served as Director since 5-21-97 Juanita P. Baranco (1) Age 50 Served as Director since 5-21-97 William A. Fickling, Jr. (1) Age 67 Served as Director since 4-18-73 H. Allen Franklin (1) Age 55 Served as Director since 1-1-94 L. G. Hardman III (1) Age 60 Served as Director since 6-25-79 James R. Lientz, Jr. (1) Age 56 Served as Director since 7-21-93 Zell Miller (1) Age 68 Served as Director since 2-17-99 G. Joseph Prendergast (1) Age 54 Served as Director since 1-20-93 Herman J. Russell (1) Age 69 Served as Director since 5-18-88 William Jerry Vereen (1) Age 59 Served as Director since 5-18-88 Carl Ware (1) (2) Age 56 Served as Director since 2-15-95 (1) No position other than Director. (2) Previously served as Director of GEORGIA from 1980 to 1991. Each of the above is currently a director of GEORGIA, serving a term running from the last annual meeting of GEORGIA's stockholder (May 19, 1999) for one year until the next annual meeting or until a successor is elected and qualified, except for Mr. Ratcliffe, who was elected on the date indicated. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he or she was or is to be selected as a director or nominee, other than any arrangements or understandings with directors or officers of GEORGIA acting solely in their capacities as such. Identification of executive officers of GEORGIA. David M. Ratcliffe President, Chief Executive Officer and Director Age 51 Served as Executive Officer since 3-1-98 William C. Archer, III Executive Vice President - External Affairs Age 51 Served as Executive Officer since 4-6-95 Thomas A. Fanning Executive Vice President, Treasurer and Chief Financial Officer Age 42 Served as Executive Officer since 6-12-99 Gene R. Hodges Executive Vice President - Customer Operations Age 61 Served as Executive Officer since 11-19-86 Wayne T. Dahlke Senior Vice President - Power Delivery Age 58 Served as Executive Officer since 4-19-89 III-4 James K. Davis Senior Vice President - Corporate Relations Age 59 Served as Executive Officer since 10-1-93 Robert H. Haubein Senior Vice President - Fossil/Hydro Power Age 59 Served as Executive Officer since 2-19-92 Leonard J. Haynes Senior Vice President - Marketing Age 49 Served as Executive Officer since 10-13-98 Fred D. Williams Senior Vice President - Resource Policy & Planning Age 55 Served as Executive Officer since 11-18-92 Each of the above is currently an executive officer of GEORGIA, serving a term running from the last annual meeting of the directors (May 19, 1999) for one year until the next annual meeting or until his successor is elected and qualified, except for Mr. Fanning, who was elected on the date indicated. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he was or is to be selected as an officer, other than any arrangements or understandings with officers of GEORGIA acting solely in their capacities as such. Identification of certain significant employees. None. Family relationship None. Business experience. David M. Ratcliffe - President and Chief Executive Officer of GEORGIA since June 1999. He previously served as Executive Vice President, Treasurer and Chief Financial Officer from 1998 to 1999. Senior Vice President of External Affairs for SOUTHERN from 1995 to 1998. Director of Mississippi Chemical Corporation. Daniel P. Amos - President and Chief Executive Officer, American Family Life Assurance Company, Incorporated (AFLAC), Columbus, Georgia. Director, AFLAC Incorporated (and subsidiaries), CIT Group and Greystone Capital Partners, I.L.P. Juanita P. Baranco - Business owner of Baranco Automotive Group. Director of Federal Reserve Bank of Atlanta and John H. Harland Company, Decatur, Georgia. William A. Fickling, Jr. - Chairman of the Board, Chief Executive Officer of Beech Street Corporation (provider of managed care services) since 1989. He previously served as President from 1995 to 1996. H. Allen Franklin - President and Chief Operating Officer of SOUTHERN since 1999. He previously served as President and Chief Executive Officer of GEORGIA from 1994 to 1999. Director of ALABAMA and GULF. L. G. Hardman III - Chairman of the Board and Chief Executive Officer of First Commerce Bancorp, Inc. Chairman of the Board of The First National Bank of Commerce, Georgia and Chairman of the Board, President and Treasurer of Harmony Grove Mills, Inc. (real estate investments). Director of SOUTHERN. James R. Lientz, Jr. - President, Bank of America (formerly NationsBank) Mid-South Banking Group since 1993. Director of Cerulean Companies, Inc. and Blue Cross/Blue Shield of Georgia. Zell Miller - Former Governor of Georgia. He served two terms as Governor of the State of Georgia, leaving office in January 1999. He previously served as Lieutenant Governor of Georgia. Director of Albany-based Gray Communications, Atlanta-based Post Properties, Atlanta-based Law Companies Group and United Community Banks, Inc., Blairsville, GA. G. Joseph Prendergast - President and Chief Operating Officer, Wachovia Corporation and Wachovia Bank, N.A., Winston Salem, North Carolina since April 1999. He previously served as Senior Executive Vice President, Wachovia Corporation, heading the banking division comprising the companies' consumer and corporate banking activities and Wachovia Bank, N.A. Director of Willamette Industries, Inc. III-5 Herman J. Russell - Chairman and Chief Executive Officer of H. J. Russell & Company (construction), Atlanta, Georgia. Chairman of the Board, Citizens Trust Bank, Atlanta, Georgia. Director of Citizens Bancshares Corporation and National Service Industries, Atlanta, Georgia. William Jerry Vereen - President, Treasurer, Chief Executive Officer, and Director of Riverside Manufacturing Company (manufacture and sale of uniforms), Moultrie, Georgia. Director of Gerber Scientific, Inc., Textile Clothing Technology Corporation, Cerulean Companies, Inc. and Blue Cross/Blue Shield of Georgia. Carl Ware - Executive Vice President, The Coca-Cola Company since January 2000. He previously served as President, Africa Group, The Coca-Cola Company. Director of Charlotte-based Coca-Cola Bottling Co. Consolidated. William C. Archer, III - Executive Vice President - External Affairs since September 1995. He previously served as Senior Vice President of External Affairs from April 1995 to September 1995. Vice President of Human Resources for SCS from 1992 to 1995. Responsible for governmental and regulatory affairs, corporate relations, land department, environmental affairs, corporate communications, risk management, corporate security, regulatory and litigation support, corporate concerns and economic development. Thomas A. Fanning - Executive Vice President, Treasurer and Chief Financial Officer since June 1999. He previously served as Senior Vice President of Strategy for SOUTHERN from June 1998 to June 1999. Senior Vice President and Chief Information Officer for SOUTHERN from March 1995 to 1998. Vice President, Treasurer and Assistant Secretary for SCS from January to March 1995. Responsible for accounting, corporate secretary, finance and procurement. Gene R. Hodges - Executive Vice President - Customer Operations, Power Delivery and Safety since 1992. Responsible for the northern and southern regions and power delivery, customer service, region safety and labor relations' areas. Wayne T. Dahlke - Senior Vice President - Power Delivery since 1992. Responsible for transmission and construction, planning and projects, distribution, forestry and right of way services and system operations. James K. Davis - Senior Vice President - Corporate Relations since 1993. Responsible for corporate relations and consumer affairs. Robert H. Haubein - Senior Vice President - Fossil/ Hydro Power since 1994. Responsible for fossil/hydro power generation, labor relations, safety and health. Leonard J. Haynes - Senior Vice President - Marketing since 1998. He previously served as Vice President of Marketing from October 1995 to November 1998. Responsible for GEORGIA's and SAVANNAH's Power Marketing organizations as well as SOUTHERN's national accounts organization. Fred D. Williams - Senior Vice President - Resource Policy and Planning since 1997. He previously served as Senior Vice President of Wholesale Power Marketing from 1995 to 1997. Senior Vice President of Bulk Power Markets from 1992 to August 1995. Responsible for managing the supply needs for retail and wholesale customers and developing policy and recommendations for future industry structure. Involvement in certain legal proceedings. None. III-6 GULF Identification of directors of GULF. Travis J. Bowden President and Chief Executive Officer Age 61 Served as Director since 2-1-94 Fred C. Donovan, Sr. (1) Age 59 Served as Director since 1-18-91 H. Allen Franklin (1) Age 55 Served as Director since 6-29-99 W. Deck Hull, Jr. (1) Age 67 Served as Director since 10-14-83 Joseph K. Tannehill (1) Age 66 Served as Director since 7-19-85 Barbara H. Thames (1) Age 59 Served as Director since 2-28-97 (1) No position other than Director. Each of the above is currently a director of GULF, serving a term running from the last annual meeting of GULF's stockholder (June 29, 1999) for one year until the next annual meeting or until a successor is elected and qualified. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he or she was or is to be selected as a director or nominee, other than any arrangements or understandings with directors or officers of GULF acting solely in their capacities as such. Identification of executive officers of GULF. Travis J. Bowden President, Chief Executive Officer and Director Age 61 Served as Executive Officer since 2-1-94 Francis M. Fisher, Jr. Vice President - Power Delivery and Customer Operations Age 51 Served as Executive Officer since 5-19-89 John E. Hodges, Jr. Vice President - Marketing and Employee/External Affairs Age 56 Served as Executive Officer since 5-19-89 Robert G. Moore Vice President - Power Generation and Transmission Age 50 Served as Executive Officer since 7-25-97 Arlan E. Scarbrough Vice President - Finance Age 63 Served as Executive Officer since 9-21-77 Each of the above is currently an executive officer of GULF, serving a term running from the last annual meeting of the directors (July 23, 1999) for one year until the next annual meeting or until his successor is elected and qualified. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he was or is to be selected as an officer, other than any arrangements or understandings with officers of GULF acting solely in their capacities as such. Identification of certain significant employees. None. Family relationships. None. Business experience. Travis J. Bowden - President and Chief Executive Officer since 1994. Fred C. Donovan, Sr. - President of Baskerville - Donovan, Inc., an architectural and engineering firm, Pensacola, Florida. III-7 H. Allen Franklin - President and Chief Operating Officer of SOUTHERN since 1999. He previously served as President and Chief Executive Officer of GEORGIA from 1994 to 1999. Director of ALABAMA and GEORGIA. W. Deck Hull, Jr. - President and Director of Hull Company, Panama City, Florida since 1997. He previously served as Vice Chairman of the SunTrust Bank, West Florida, Panama City, Florida from 1993 to 1997. Joseph K. Tannehill - President, Chairman and Chief Executive Officer of Tannehill International Industries, Inc., Lynn Haven, Florida since 1991. Chairman and Chief Executive Officer of Merrick Industries, Inc., Lynn Haven, Florida since 1991. Director of Regions Bank of North Florida, Panama City, Florida. Barbara H. Thames - Chief Operating Officer of West Florida Regional Medical Center, Pensacola, Florida (a-for-profit Healthcare Corporation) since 1998. She previously served as Chief Executive Officer of Santa Rosa Medical Center, Milton, Florida. Francis M. Fisher, Jr. - Vice President - Power Delivery and Customer Operations since 1996. He previously served as Vice President of Employee and External Relations from 1989 to 1996. Responsible for power delivery, customer operations, corporate real estate, and total quality management and serves as compliance officer. John E. Hodges, Jr. - Vice President - Marketing and Employee/External Affairs since 1996. He previously served as Vice President of Customer Operations from 1989 to 1996. Responsible for corporate communications, marketing, governmental affairs, economic development, safety and health, employee relations and human resources-coastal region. Robert G. Moore - Vice President - Power Generation and Transmission of GULF and Vice President of Fossil Generation of SCS since 1997. He previously served as Plant Manager of Plant Bowen at GEORGIA. Responsible for the generation and transmission of electricity and bulk power marketing efforts. Arlan E. Scarbrough - Vice President - Finance since 1980. Responsible for all accounting, financial and regulatory matters. Involvement in certain legal proceedings. None. III-8 MISSISSIPPI Identification of directors of MISSISSIPPI. Dwight H. Evans President and Chief Executive Officer Age 51 Served as Director since 3-27-95 Edwin E. Downer (1) Age 68 Served as Director since 4-24-84 Robert S. Gaddis (1) Age 68 Served as Director since 1-21-86 Linda T. Howard (1) Age 56 Served as Director since 2-24-99 Aubrey K. Lucas (1) Age 65 Served as Director since 4-24-84 Malcolm Portera (1) Age 53 Served as Director since 4-6-99 George A. Schloegel (1) Age 59 Served as Director since 7-26-95 Philip J. Terrell (1) Age 46 Served as Director since 2-22-95 N. Eugene Warr (1) Age 64 Served as Director since 1-21-86 (1) No position other than Director. Each of the above is currently a director of MISSISSIPPI, serving a term running from the last annual meeting of MISSISSIPPI's stockholder (April 6, 1999) for one year until the next annual meeting or until a successor is elected and qualified. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he or she was or is to be selected as a director or nominee, other than any arrangements or understandings with directors or officers of MISSISSIPPI acting solely in their capacities as such. Identification of executive officers of MISSISSIPPI. Dwight H. Evans President, Chief Executive Officer and Director Age 51 Served as Executive Officer since 3-27-95 H. E. Blakeslee Vice President - Customer Services and Retail Marketing Age 59 Served as Executive Officer since 1-25-84 Mark S. Lynch Vice President - Power Generation and Delivery Age 46 Served as Executive Officer since 10-1-99 Don E. Mason Vice President - External Affairs and Corporate Services Age 58 Served as Executive Officer since 7-27-83 Michael W. Southern Vice President, Secretary, Treasurer and Chief Financial Officer Age 47 Served as Executive Officer since 1-1-95 Each of the above is currently an executive officer of MISSISSIPPI, serving a term running from the last annual meeting of the directors (April 28, 1999) for one year until the next annual meeting or until a successor is elected and qualified, except for Mr. Lynch, who was elected on the date indicated. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he was or is to be selected as an officer, other than any arrangements or understandings with officers of MISSISSIPPI acting solely in their capacities as such. III-9 Identification of certain significant employees. None. Family relationships. None. Business experience. Dwight H. Evans - President and Chief Executive Officer since 1995. He previously served as Executive Vice President of External Affairs of GEORGIA from 1989 to 1995. Edwin E. Downer - Business consultant specializing in economic analysis, management controls and procedural studies, Meridian, Mississippi. Robert S. Gaddis - Chairman of the Advisory Board of Trustmark National Bank, Laurel, Mississippi. Linda T. Howard - President of Howard Industries, Inc., Laurel, Mississippi. Aubrey K. Lucas - President Emeritus and Distinguished Professor of Higher Education at the University of Southern Mississippi, Hattiesburg, Mississippi. Malcolm Portera - President, Mississippi State University, Starkville, Mississippi. George A. Schloegel - President and Chief Executive Officer of Hancock Bank. President, Chief Executive Officer and Director of Hancock Bank Securities Corporation. Vice Chairman of Hancock Holding Company. Director of Hancock Bank of Mississippi and Hancock Bank of Louisiana. Philip J. Terrell - Superintendent of Schools, Pass Christian Public School District, Pass Christian, Mississippi; and adjunct Professor of Education at William Carey College, Gulfport, Mississippi. N. Eugene Warr - Retailer, Gulfport, Mississippi. Director of Coast Community Bank, formerly SouthTrust Bank of Mississippi, Biloxi, Mississippi. H. E. Blakeslee - Vice President - Customer Services and Retail Marketing since 1984. Responsible for rate design, revenue forecasting, marketing, district operations, corporate compliance, distribution engineering, customer accounting, vehicle maintenance centers and customer call center. Mark S. Lynch - Vice President - Power Generation and Delivery since 1999. He previously served as President and Chief Executive Officer of Empresa Electrica del Norte Grande, S.A. from 1996 to 1999. Responsible for generating plants, environmental quality, fuel services, power generation technical services, transmission, system planning, bulk power contracts, system operations and control, system protection and real estate. Don E. Mason - Vice President - External Affairs and Corporate Services since 1983. Responsible for external affairs, corporate communications, security, risk management, economic development and general services, as well as the human resources function. Michael W. Southern - Vice President, Secretary, Treasurer and Chief Financial Officer since 1995. He previously served as Director of Corporate Finance of SCS from 1994 to 1995. Responsible for accounting, secretary/treasury, corporate planning, procurement and information resources. Involvement in certain legal proceedings. None. III-10 SAVANNAH Identification of directors of SAVANNAH. G. Edison Holland, Jr. President and Chief Executive Officer Age 47 Served as Director since 7-15-97 Gus H. Bell (1) Age 62 Served as Director since 7-20-99 Archie H. Davis (1) Age 58 Served as Director since 2-18-97 Walter D. Gnann (1) Age 64 Served as Director since 5-17-83 Robert B. Miller, III (1) Age 54 Served as Director since 5-17-83 Arnold M. Tenenbaum (1) Age 63 Served as Director since 5-17-77 (1) No position other than Director. Each of the above is currently a director of SAVANNAH, serving a term running from the last annual meeting of SAVANNAH's stockholder (May 18, 1999) for one year until the next annual meeting or until a successor is elected and qualified, except for Mr. Bell, who was elected on the date indicated. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he or she was or is to be selected as a director or nominee, other than any arrangements or understandings with directors or officers of SAVANNAH acting solely in their capacities as such. Identification of executive officers of SAVANNAH. G. Edison Holland, Jr. President, Chief Executive Officer and Director Age 47 Served as Executive Officer since 7-15-97 Lewis A. Jeffers Vice President - Power Generation Age 44 Served as Executive Officer since 11-2-99 W. Miles Greer Vice President - Customer Operations and External Affairs Age 56 Served as Executive Officer since 11-20-85 Kirby R. Willis Vice President, Treasurer, Chief Financial Officer and Assistant Corporate Secretary Age 48 Served as Executive Officer since 1-1-94 Each of the above is currently an executive officer of SAVANNAH, serving a term running from the meeting of the directors held on July 20, 1999 for the ensuing year, except for Mr. Jeffers who was elected on the date indicated. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he was or is to be selected as an officer, other than any arrangements or understandings with officers of SAVANNAH acting solely in their capacities as such. Identification of certain significant employees. None. Family relationships None. Business experience. G. Edison Holland, Jr. - President and Chief Executive Officer since 1997. He previously served as Vice President of Power Generation/Transmission and Corporate Counsel of GULF from 1995 to 1997. Served as a partner in the law firm of Beggs & Lane from 1979 to 1997. Director of SunTrust Bank of Savannah. Gus H. Bell, III - President and Chief Executive Officer of Hussey, Gay, Bell and DeYoung, Inc., (specializing in environmental, industrial, structural, architectural and civil engineering), Savannah, Georgia. Director of SunTrust Bank of Savannah. III-11 Archie H. Davis - President and Chief Executive Officer of The Savannah Bancorp and The Savannah Bank, N.A., Savannah, Georgia. Member of the Board of Directors of Thomaston Mills, Thomaston, Georgia.. Walter D. Gnann - President of Walt's TV, Appliance and Furniture Co., Inc., Springfield, Georgia. Robert B. Miller, III - President of American Building Systems, Inc., Savannah, Georgia. Arnold M. Tenenbaum - President and Director of Chatham Steel Corporation. Director of First Union Bank of Georgia, First Union Bank of Savannah and Cerulean Corporation. W. Miles Greer - Vice President - Customer Operations and External Affairs since 1998. He previously served as Vice President of Marketing and Customer Service from 1994 to 1998. Responsible for customer services, transmission and distribution, engineering, system operation and external affairs. Lewis A. Jeffers - Vice President - Power Generation since 1999. He previously served as General Manager of Power Generation from February 1999 to November 1999; General Manager for Plants Smith and Scholz at GULF from May 1996 through January 1999; and Assistant General Manager at ALABAMA for Plant Barry from September 1993 to May 1996. Responsible for operations and maintenance of Plants Kraft, Riverside and McIntosh. Kirby R. Willis - Vice President, Treasurer and Chief Financial Officer since 1994 and Assistant Corporate Secretary effective 1998. Responsible primarily for accounting, financial, labor relations, corporate services, corporate compliance, environmental and safety activities. Involvement in certain legal proceedings. None Section 16(a) Beneficial Ownership Reporting Compliance. MISSISSIPPI's Mr. Lynch filed an Initial Statement of Beneficial Ownership of Equity Securities on Form 3, late. III-12 Item 11. EXECUTIVE COMPENSATION Summary Compensation Tables. The following tables set forth information concerning any Chief Executive Officer and the four most highly compensated executive officers whose total annual salary and bonus exceeded $100,000 during 1999 for each of the integrated Southeast utilities (ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH). Key terms used in this Item will have the following meanings:- AME.............................Above-market earnings on deferred compensation ESP.............................Employee Savings Plan ESOP............................Employee Stock Ownership Plan SBP.............................Supplemental Benefit Plan ERISA...........................Employee Retirement Income Security Act
ALABAMA SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION LONG-TERM COMPENSATION Number of Securities Long- Name Underlying Term and Other Annual Stock Incentive All Other Principal Compensation Options Payouts Compensation Position Year Salary($) Bonus($) ($)1 (Shares) ($)2 ($)3 - ------------------------------------------------------------------------------------------------------------------------ Elmer B. Harris President, 1999 550,674 97,125 15,301 31,341 330,618 29,800 Chief Executive 1998 545,102 192,751 19,060 29,411 249,971 30,180 Officer, 1997 500,700 101,002 20,453 35,648 247,224 30,172 Director Banks H. Farris 1999 306,954 46,723 16,342 13,485 205,980 16,439 Executive Vice 1998 275,822 32,631 8,530 11,473 178,829 14,764 President 1997 247,170 37,500 7,218 13,513 155,313 14,379 William B. Hutchins, III Executive Vice 1999 256,665 36,365 9,573 11,246 152,585 13,804 President, 1998 237,532 34,646 3,010 8,118 132,472 12,678 Chief Financial 1997 217,756 31,400 1,383 9,834 115,170 12,441 Officer
See next page for footnotes. III-13
ALABAMA SUMMARY COMPENSATION TABLE (Continued) ANNUAL COMPENSATION LONG-TERM COMPENSATION Number of Securities Long- Name Underlying Term and Other Annual Stock Incentive All Other Principal Compensation Options Payouts Compensation Position Year Salary($) Bonus($) ($)1 (Shares) ($)2 ($)3 - ------------------------------------------------------------------------------------------------------------------------ Michael D. Garrett 4 1999 256,211 36,375 21,268 11,249 132,434 13,496 Executive Vice 1998 221,731 57,026 12,389 7,800 105,866 11,558 President 1997 - - - - - - Jerry L. Stewart4 1999 182,097 26,996 1,884 6,340 122,003 9,794 Senior Vice President 1998 - - - - - - 1997 - - - - - - 1 Tax reimbursement by ALABAMA and certain personal benefits. 2 Payouts made in 1998, 1999 and 2000 for the four-year performance periods ending December 31, 1997, 1998 and 1999, respectively. 3 ALABAMA contributions to the ESP, ESOP, and non-pension related accruals under the SBP (ERISA excess plan under which accruals are made to offset Internal Revenue Code imposed limitations under the ESP and ESOP) for the following:- Name ESP ESOP SBP Elmer B. Harris $5,691 $897 $23,212 Banks H. Farris 7,401 897 8,141 William B. Hutchins, III 6,603 897 6,304 Michael D. Garrett 5,691 897 6,908 Jerry L. Stewart 7,200 897 1,697 4 Messrs. Garrett and Stewart were named executive officers effective April 24, 1998 and July 23, 1999, respectively.
III-14
GEORGIA SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION LONG-TERM COMPENSATION Number of Securities Long- Name Underlying Term and Other Annual Stock Incentive All Other Principal Compensation Options Payouts Compensation Position Year Salary($) Bonus($) ($)1 (Shares) ($)2 ($)3 - ---------------------------------------------------------------------------------------------------------------------------- H. Allen Franklin 4 President, 1999 603,658 126,000 31,023 71,153 375,137 32,654 Chief Executive 1998 564,329 237,502 7,078 30,521 283,629 31,590 Officer, Director 1997 511,505 129,426 14,219 36,544 280,513 31,350 David M. Ratcliffe President, 1999 388,819 85,389 16,051 24,110 321,983 20,885 Chief Executive 1998 339,672 62,700 3,934 14,039 218,175 12,255 Officer, Director 1997 313,152 50,515 10,828 17,086 207,322 18,342 Robert H. 1999 278,502 59,882 11,801 11,209 152,585 13,693 Haubein, Jr. 1998 239,448 35,683 1,922 8,175 132,472 13,007 Senior Vice President 1997 220,358 35,683 657 9,952 115,170 11,981 Gene R. Hodges 1999 243,487 44,086 12,538 10,604 152,585 13,259 Executive 1998 244,284 42,595 4,543 8,317 132,472 13,087 Vice President 1997 228,336 39,058 5,544 10,271 126,075 13,111 Thomas A. Fanning 5 Executive Vice President, Treasurer 1999 233,644 48,312 4,504 10,458 152,585 12,396 and Chief 1998 - - - - - - Financial Officer 1997 - - - - - - William C. Archer 1999 220,706 40,120 16,609 7,972 152,585 11,844 Executive 1998 216,246 121,261 67,940 7,390 132,472 11,404 Vice President 1997 197,870 40,054 3,410 8,953 84,048 11,280 1 Tax reimbursement by GEORGIA on certain personal benefits, including $64,679 in 1998 for Mr. Archer related to a cash award. 2 Payouts made in 1998, 1999 and 2000 for the four-year performance periods ending December 31, 1997, 1998 and 1999, respectively. 3 GEORGIA contributions to the ESP, ESOP, and non-pension related accruals under the SBP (ERISA excess plan under which accruals are made to offset Internal Revenue Code imposed limitations under the ESP and ESOP) for the following:- Name ESP ESOP SBP H. Allen Franklin $6,242 $897 $25,515 David M. Ratcliffe 7,301 897 12,687 Robert H. Haubein, Jr. 6,647 897 6,149 Gene R. Hodges 7,200 897 5,162 Thomas A. Fanning 7,200 897 4,299 William C. Archer 5,838 897 5,109 4 Mr. Franklin resigned as President and Chief Executive Officer of GEORGIA to become Chief Operating Officer of SOUTHERN effective June, 1999. He was replaced by Mr. Ratcliffe effective June, 1999. 5 Mr. Fanning was named an executive officer effective June 12, 1999.
III-15
GULF SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION LONG-TERM COMPENSATION Number of Securities Long- Name Underlying Term and Other Annual Stock Incentive All Other Principal Compensation Options Payouts Compensation Position Year Salary($) Bonus($) ($)1 (Shares) ($)2 ($)3 - ------------------------------------------------------------------------------------------------------------------------ Travis J. Bowden President, 1999 332,482 40,229 10,199 14,514 251,300 18,171 Chief Executive 1998 329,280 35,121 3,839 13,583 218,175 18,068 Officer, Director 1997 306,584 33,933 2,842 16,694 207,322 17,888 Arlan E. Scarbrough 1999 199,142 14,839 6,557 7,181 111,258 10,641 Vice President 1998 196,661 18,071 3,253 6,721 96,594 10,218 1997 180,642 18,212 1,440 8,142 84,048 10,235 John E. Hodges, Jr. 1999 194,832 14,518 8,556 7,026 111,258 10,470 Vice President 1998 192,765 17,680 915 6,575 96,594 10,014 1997 178,428 17,989 2,418 8,042 91,977 10,185 Francis M. 1999 177,934 13,259 6,508 6,417 111,258 9,558 Fisher, Jr. 1998 175,719 16,147 240 6,005 96,594 9,329 Vice President 1997 160,783 16,274 479 7,275 84,048 9,182 Robert G. Moore 1999 161,641 22,981 13,949 5,829 97,722 8,569 Vice President 1998 159,332 18,626 525 4,881 72,767 8,325 1997 149,926 23,474 - 4,741 46,551 7,550 1 Tax reimbursement by GULF on certain personal benefits. 2 Payouts made in 1998, 1999 and 2000 for the four-year performance periods ending December 31, 1997, 1998 and 1999, respectively. 3 GULF contributions to the ESP, ESOP, and non-pension related accruals under the SBP (ERISA excess plan under which accruals are made to offset Internal Revenue Code imposed limitations under the ESP and ESOP) for the following:- Name ESP ESOP SBP Travis J. Bowden $6,779 $897 $10,495 Arlan E. Scarbrough 6,526 897 3,218 John E. Hodges, Jr. 6,390 897 3,183 Francis M. Fisher, Jr. 6,276 897 2,385 Robert G. Moore 6,699 897 973
III-16
MISSISSIPPI SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION LONG-TERM COMPENSATION Number of Securities Long- Name Underlying Term and Other Annual Stock Incentive All Other Principal Compensation Options Payouts Compensation Position Year Salary($) Bonus($) ($)1 (Shares) ($)2 ($)3 - ------------------------------------------------------------------------------------------------------------------------ Dwight H. Evans President, Chief 1999 288,494 43,702 3,375 12,614 251,300 15,507 Executive 1998 283,195 42,603 5,051 11,693 218,175 15,291 Officer, Director 1997 262,678 39,643 3,830 14,303 126,075 15,025 H. E. Blakeslee 1999 207,769 37,649 8,070 7,481 111,258 11,254 Vice President 1998 207,416 36,202 47 7,068 96,594 10,979 1997 192,029 38,863 697 8,687 91,977 10,991 Andrew J. Dearman, III 4 1999 173,490 71,648 10,527 5,843 103,585 8,543 Vice President 1998 159,713 41,031 600 4,893 83,087 8,343 1997 141,393 21,008 2,083 5,871 42,903 21,354 Don E. Mason 1999 203,584 36,891 821 7,330 111,258 10,243 Vice President 1998 203,234 29,560 4,497 6,926 96,594 10,757 1997 188,126 41,889 839 8,512 84,048 10,675 Michael W. Southern Vice President Chief Financial 1999 189,117 34,369 8,891 6,469 103,585 9,590 Officer, Secretary, 1998 174,334 34,130 - 5,997 83,087 8,978 Treasurer 1997 155,151 31,406 1,590 6,281 65,768 8,757 Mark S. Lynch 5 1999 174,833 18,940 16 6,178 111,258 9,566 Vice President 1998 - - - - - - 1997 - - - - - - 1 Tax reimbursement by MISSISSIPPI on certain personal benefits. 2 Payouts made in 1998, 1999 and 2000 for the four-year performance periods ending December 31, 1997, 1998 and 1999, respectively. 3 MISSISSIPPI contributions to the ESP, ESOP, and non-pension related accruals under the SBP (ERISA excess plan under which accruals are made to offset Internal Revenue Code imposed limitations under the ESP and ESOP) for the following:- Name ESP ESOP SBP Dwight H. Evans $6,697 $897 $7,913 H. E. Blakeslee 5,691 897 4,666 Andrew J. Dearman, III 6,567 897 1,079 Don E. Mason 5,691 897 3,655 Michael W. Southern 5,691 897 3,002 Mark S. Lynch 7,200 897 1,469 4 Effective September 1999, Mr. Dearman transferred to Southern Energy into the position of Senior Vice President and Chief Technical Officer. 5 Mr. Lynch was named an executive officer effective October 1, 1999.
III-17
SAVANNAH SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION LONG-TERM COMPENSATION Number of Securities Long- Name Underlying Term and Other Annual Stock Incentive All Other Principal Compensation Options Payouts Compensation Position Year Salary($) Bonus($) ($)1 (Shares) ($)2 ($)3 - --------------------------------------------------------------------------------------------------------------------------- G. Edison Holland, Jr. President, 1999 254,914 42,626 21,588 8,375 166,052 13,392 Chief Executive 1998 233,330 26,019 17,309 7,951 128,608 8,246 Officer, Director 1997 202,413 26,231 3,046 8,640 91,977 49,892 W. Miles Greer 1999 168,713 21,322 1,874 6,130 79,476 15,150 Vice President 1998 160,207 16,054 13 4,901 69,000 13,179 1997 138,643 16,294 805 4,924 60,636 10,740 Kirby R. Willis Vice President, 1999 156,068 19,546 259 5,028 79,476 11,767 Chief Financial 1998 155,236 15,554 13 4,748 69,000 10,581 Officer, Treasurer 1997 134,794 15,915 182 4,809 60,636 9,322 Lewis A. Jeffers 4 1999 134,538 19,023 379 3,809 63,146 6,972 Vice President 1998 - - - - - - 1997 - - - - - - 1 Tax reimbursement by SAVANNAH on certain personal benefits, including membership fees of $11,669 for Mr. Holland, Jr. in 1998. 2 Payouts made in 1998, 1999 and 2000 for the four-year performance periods ending December 31, 1997, 1998 and 1999, respectively. 3 SAVANNAH contributions to the ESP, under Section 401(k) of the Internal Revenue Code, ESOP, and SBP or AME for the following:- Name ESP ESOP SBP or AME G. Edison Holland, Jr. $6,983 $897 $5,512 W. Miles Greer 6,698 897 7,555 Kirby R. Willis 5,674 897 5,196 Lewis A. Jeffers 6,036 897 39 In 1997, Mr. Holland received a one-time lump-sum payment of $38,654, given in connection with his appointment to his current position. 4 Mr. Jeffers was named an executive officer effective November 2, 1999.
III-18
STOCK OPTION GRANTS IN 1999 Stock Option Grants. The following table sets forth all stock option grants to the named executive officers of each operating subsidiary during the year ending December 31, 1999. Individual Grants Grant Date Value # of % of Total Securities Options Exercise Underlying Granted to or Options Employees in Base Price Expiration Grant Date Name Granted1 Fiscal Year2 ($/Sh)1 Date1 Present Value($)3 ----------------------------------------------------------------------------------------------------------- ALABAMA Elmer B. Harris 31,341 1.5 26.5625 05/01/2009 197,135 Banks H. Farris 13,485 0.6 26.5625 06/01/2005 59,873 William B. Hutchins, III 11,246 0.5 26.5625 07/19/2009 70,737 Michael D. Garrett 11,249 0.5 26.5625 07/19/2009 70,756 Jerry L. Stewart 6,340 0.3 26.5625 07/19/2009 39,879 GEORGIA H. Allen Franklin 71,153 3.4 26.5625 07/19/2009 447,552 David M. Ratcliffe 24,110 1.1 26.5625 07/19/2009 151,652 Robert H. Haubein, Jr. 11,209 0.5 26.5625 07/19/2009 70,505 Gene R. Hodges 10,604 0.5 26.5625 04/01/2008 62,352 Thomas A. Fanning 10,458 0.5 26.5625 07/19/2009 65,781 William C. Archer 7,972 0.4 26.5625 07/19/2009 50,144 GULF Travis J. Bowden 14,514 0.7 26.5625 09/01/2008 85,342 Arlan E. Scarbrough 7,181 0.3 26.5625 11/01/2006 35,618 John E. Hodges, Jr. 7,026 0.3 26.5625 07/19/2009 44,194 Francis M. Fisher, Jr. 6,417 0.3 26.5625 07/19/2009 40,363 Robert G. Moore 5,829 0.3 26.5625 07/19/2009 36,664 See next page for footnotes.
III-19
STOCK OPTION GRANTS IN 1999 Individual Grants Grant Date Value # of % of Total Securities Options Exercise Underlying Granted to or Options Employees in Base Price Expiration Grant Date Name Granted1 Fiscal Year2 ($/Sh)1 Date1 Present Value($)3 ----------------------------------------------------------------------------------------------------------- MISSISSIPPI Dwight H. Evans 12,614 0.6 26.5625 07/19/2009 79,342 H. E. Blakeslee 7,481 0.4 26.5625 07/19/2009 47,055 Andrew J. Dearman, III 5,843 0.3 26.5625 07/19/2009 36,752 Don E. Mason 7,330 0.3 26.5625 07/19/2009 46,106 Michael W. Southern 6,469 0.3 26.5625 07/19/2009 40,690 Mark S. Lynch 6,178 0.3 26.5625 07/19/2009 38,860 SAVANNAH G. Edison Holland, Jr. 8,375 0.4 26.5625 07/19/2009 52,679 W. Miles Greer 6,130 0.3 26.5625 07/19/2009 38,558 Kirby R. Willis 5,028 0.2 26.5625 07/19/2009 31,626 Lewis A. Jeffers 3,809 0.2 26.5625 07/19/2009 23,959 1 Performance Stock Plan grants were made on July 19, 1999, and vest annually at a rate of one-third on the anniversary date of the grant. Grants fully vest upon termination because of death, total disability, or retirement and expire the earlier of five years after such event or their normal expiration date. The exercise price is the average of the high and low fair market value of SOUTHERN's common stock on the date granted. Options may be transferred to family trusts and family limited partnerships. In accordance with the terms of the Performance Stock Plan, Mr. Bowden's unexercised options expire on September 1, 2008, five years after his normal retirement date; Mr. Farris' unexercised options expire on June 1, 2005, five years after his normal retirement date; Mr. Harris' unexercised options expire on May 1, 2009, five years after his normal retirement date; Mr. Gene R. Hodges' unexercised options expire on April 1, 2008, five years after his normal retirement date; and Mr. Scarbrough's unexercised options expire on November 1, 2006, five years after his normal retirement date. 2 A total of 2,108,818 stock options were granted in 1999. 3 Value was calculated using the Black-Scholes option valuation model. The actual value, if any, ultimately realized depends on the market value of SOUTHERN's common stock at a future date. Significant assumptions used to calculate this value: price volatility - 20.74%; risk-free rate of return - 5.79%; dividend opportunity -50%; time to exercise - 10 years; reductions for probability of forfeiture before vesting - 7.79%; and reductions for probability of forfeiture before expiration - 13.40%. These assumptions reflect the effects of cash dividend equivalents paid to participants under the Performance Dividend Plan assuming targets are met.
III-20 AGGREGATED STOCK OPTION EXERCISES IN 1999 AND YEAR-END OPTION VALUES Aggregated Stock Option Exercises. The following table sets forth information concerning options exercised during the year ending December 31, 1999, by the named executive officers and the value of unexercised options held by them as of December 31, 1999.
Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options at Options at Fiscal Fiscal Year-End (#) Year-End($)1 Shares Acquired Value Exercisable/ Exercisable/ Name on Exercise (#) Realized($)2 Unexercisable Unexercisable - ------------------------------------------------------------------------------------------------------------- ALABAMA Elmer B. Harris 4,718 71,802 219,394/70,733 915,188/30,688 Banks H. Farris - - 38,372/28,070 66,409/11,351 William B. Hutchins, III - - 43,701/22,100 113,519/8,458 Michael D. Garrett - - 11,596/20,918 16,443/6,946 Jerry L Stewart - - 16,843/14,169 23,814/6,151 GEORGIA H. Allen Franklin - - 191,114/111,645 700,904/31,389 David M. Ratcliffe 3,984 53,908 85,160/42,959 307,716/14,711 Robert H. Haubein, Jr. - - 37,975/22,166 81,698/8,558 Gene R. Hodges - - 38,577/21,876 81,361/8,856 Thomas A. Fanning - - 16,422/20,560 22,818/7,872 William C. Archer - - 20,538/17,833 28,079/7,690 GULF Travis J. Bowden - - 19,094/32,878 24,772/14,393 Arlan E. Scarbrough - - 9,292/16,184 12,007/7,011 John E. Hodges, Jr. - - 24,796/15,877 38,885/6,926 Francis M. Fisher, Jr. - - 7,853/14,264 10,158/6,166 Robert G. Moore - - 12,039/11,680 16,514/4,064 See next page for footnotes.
III-21
AGGREGATED STOCK OPTION EXERCISES IN 1999 AND YEAR-END OPTION VALUES Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options at Options at Fiscal Fiscal Year-End (#) Year-End($)1 Shares Acquired Value Exercisable/ Exercisable/ Name on Exercise (#) Realized($)2 Unexercisable Unexercisable - -------------------------------------------------------------------------------------------------------------- MISSISSIPPI Dwight H. Evans - - 55,961/28,385 136,976/12,332 H. E. Blakeslee - - 31,701/16,982 66,471/7,463 Andrew J. Dearman, III - - 12,920/12,108 18,323/4,926 Don E. Mason - - 20,994/16,639 29,511/7,311 Michael W. Southern - - 15,139/13,930 20,562/5,396 Mark S. Lynch - - 10,336/13,490 11,447/5,367 SAVANNAH G. Edison Holland, Jr. - - 40,342/18,475 105,982/7,440 W. Miles Greer - - 12,505/12,104 17,221/4,225 Kirby R. Willis - - 11,770/10,777 16,256/4,097 Lewis A. Jeffers - - 0/3,809 0/0 1 This represents the excess of the fair market value of SOUTHERN's common stock of $23.50 per share, as of December 31, 1999, above the exercise price of the options. The Exercisable column reports the "value" of options that are vested and therefore could be exercised. The Unexercisable column reports the "value" of options that are not vested and therefore could not be exercised as of December 31, 1999. 2 The "Value Realized" is ordinary income, before taxes, and represents the amount equal to the excess of the fair market value of the shares at the time of exercise over the exercise price.
III-22 LONG-TERM INCENTIVE PLANS - AWARDS IN 1999 Long-Term Incentive Plans. The following table sets forth the long-term incentive plan awards made to the named executive officers for the performance period January 1, 1999 through December 31, 2002.
Estimated Future Payouts under Non-Stock Price-Based Plans Performance or Other Period Number of Until Maturation Threshold Target Maximum Name Units (#)1 or Payout ($)2 ($)2 ($)2 - --------------------------------------------------------------------------------------------------------------- ALABAMA Elmer B. Harris 321,879 4 years 160,940 321,879 643,758 Banks H. Farris 128,474 4 years 64,237 128,474 256,948 William B. Hutchins, III 95,170 4 years 47,585 95,170 190,340 Michael D. Garrett 82,601 4 years 41,301 82,601 165,203 Jerry L. Stewart 76,095 4 years 38,048 76,095 152,190 GEORGIA H. Allen Franklin 438,499 4 years 219,250 438,499 876,998 David M. Ratcliffe 200,827 4 years 100,414 200,827 401,654 Robert H. Haubein, Jr. 95,170 4 years 47,585 95,170 190,340 Gene R. Hodges 95,170 4 years 47,585 95,170 190,340 Thomas A. Fanning 95,170 4 years 47,585 95,170 190,340 William C. Archer 95,170 4 years 47,585 95,170 190,340 GULF Travis J. Bowden 156,741 4 years 78,370 156,741 313,482 Arlan E. Scarbrough 69,394 4 years 34,697 69,394 138,788 John E. Hodges, Jr. 69,394 4 years 34,697 69,394 138,788 Francis M. Fisher, Jr. 69,394 4 years 34,697 69,394 138,788 Robert G. Moore 60,952 4 years 30,476 60,952 121,903
See next page for footnotes. III-23
LONG-TERM INCENTIVE PLANS - AWARDS IN 1999 Estimated Future Payouts under Non-Stock Price-Based Plans Performance or Other Period Number of Until Maturation Threshold Target Maximum Name Units (#)1 or Payout ($)2 ($)2 ($)2 - ---------------------------------------------------------------------------------------------------------------- MISSISSIPPI Dwight H. Evans 156,741 4 years 78,370 156,741 313,482 H. E. Blakeslee 69,394 4 years 34,697 69,394 138,788 Andrew J. Dearman, III 64,608 4 years 32,304 64,608 129,215 Don E. Mason 69,394 4 years 34,697 69,394 138,788 Michael W. Southern 64,608 4 years 32,304 64,608 129,215 Mark S. Lynch 69,394 4 years 34,697 69,394 138,788 SAVANNAH G. Edison Holland, Jr. 103,570 4 years 51,785 103,570 207,139 W. Miles Greer 49,571 4 years 24,786 49,571 99,142 Kirby R. Willis 49,571 4 years 24,786 49,571 99,142 Lewis A. Jeffers 39,385 4 years 19,692 39,385 78,770 1 A performance unit is a method of assigning a dollar value to a performance award opportunity. Under the Executive Productivity Improvement Plan, the number of units granted to Messrs. Harris and Franklin is 65% of the average of Messrs. Harris' and Franklin's base salary range mid-points. All other executive officers listed in this table are participants in the Productivity Improvement Plan of SOUTHERN, the number of units granted to these named executive officers is based on the weighted average of the base salary mid-points as of December 31 for each calendar year in the four-year computation period. No awards are paid unless the participant remains employed by the company through the end of the performance period. 2 The threshold, target and maximum value of a unit is 50 percent, 100 percent and 200 percent, respectively. These percentages can vary based on SOUTHERN's return on common equity and total shareholder return relative to selected groups of electric and gas utilities. If certain minimum performance relative to the selected groups is not achieved, there will be no payout; nor is there a payout if the current earnings of SOUTHERN are not sufficient to fund the dividend rate paid in the last calendar year. The Plan provides that in the discretion of the committee, extraordinary income may be excluded for purposes of calculating the amount available for the payment of awards. All awards are payable in cash at the end of the performance period.
III-24 DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE Pension Plan Table. The following table sets forth the estimated annual pension benefits payable at normal retirement age under SOUTHERN's qualified Pension Plan, as well as supplemental benefits, based on the stated compensation and years of service with the SOUTHERN system for the named executives at ALABAMA, GEORGIA, GULF and MISSISSIPPI and Mr. Holland at SAVANNAH. Compensation for pension purposes is limited to the average of the highest three of the final 10 years' compensation -- base salary plus the excess of annual and long-term incentive compensation over 25 percent of base salary (reported under column titled "Salary", "Bonus", and "Long-Term Incentive Payouts" in the Summary Compensation Tables on pages III-13 through III-18). The amounts shown in the table were calculated according to the final average pay formula and are based on a single life annuity without reduction for joint and survivor annuities (although married employees are required to have their pension benefits paid in one of various joint and survivor annuity forms, unless the employee elects otherwise with the spouse's consent) or computation of the Social Security offset which would apply in most cases. This offset amounts to one-half of the estimated Social Security benefit (primary insurance amount) in excess of $3,900 per year times the number of years of accredited service, divided by the total possible years of accredited service to normal retirement age.
Years of Accredited Service Remuneration 15 20 25 30 35 40 - ------------ ----------------------------------------------------------------- $ 100,000 $ 25,500 $ 34,000 $ 42,500 $ 51,000 $ 59,500 $ 68,000 300,000 76,500 102,000 127,500 153,000 178,500 204,000 500,000 127,500 170,000 212,500 255,000 297,500 340,000 700,000 178,500 238,000 297,500 357,000 416,500 476,000 900,000 229,500 306,000 382,500 459,000 535,500 612,000 1,100,000 280,500 374,000 467,500 561,000 654,500 748,000 1,300,000 331,500 442,000 552,500 663,000 773,500 884,000
As of December 31, 1999, the applicable compensation levels and years of accredited service are presented in the following tables: ALABAMA Compensation Accredited Name Level Years of Service Elmer B. Harris $878,724 40 Banks H. Farris 429,312 40 William B. Hutchins, III 348,304 33 Michael D. Garrett 309,688 31 Jerry L. Stewart 257,848 26 III-25 GEORGIA Compensation Accredited Name Level Years of Service H. Allen Franklin $967,132 28 David M. Ratcliffe 583,968 28 Robert H. Haubein, Jr. 344,444 32 Gene R. Hodges 356,788 35 Thomas A. Fanning 329,728 18 William C. Archer 323,200 28 GULF Compensation Accredited Name Level Years of Service Travis J. Bowden1 $505,372 33 Arlan E. Scarbrough 257,876 36 John E. Hodges, Jr. 257,548 33 Francis M. Fisher, Jr. 240,780 28 Robert G. Moore 210,200 26 MISSISSIPPI Compensation Accredited Name Level Years of Service Dwight H. Evans $448,124 28 H. E. Blakeslee 288,660 34 Andrew J. Dearman, III 229,043 24 Don E. Mason 281,516 33 Michael W. Southern 244,592 24 Mark S. Lynch 262,193 10 SAVANNAH Compensation Accredited Name Level Years of Service G. Edison Holland, Jr.2 $336,428 16 W. Miles Greer 157,144 15 Kirby R. Willis 149,479 25 Lewis A. Jeffers 124,064 20 1 The number of accredited years of service includes 10 years credited to Mr. Bowden pursuant to a supplemental pension agreement. 2 The number of accredited years of service includes 9 years and 3 months credited to Mr. Holland pursuant to a supplemental pension agreement. III-26 Effective January 1, 1998, SAVANNAH merged its pension plan into the SOUTHERN Pension Plan. SAVANNAH also has in effect a supplemental executive retirement plan for certain of its executive employees. The plan is designed to provide participants with a supplemental retirement benefit, which, in conjunction with social security and benefits under SOUTHERN's qualified pension plan, will equal 70 percent of the highest three of the final 10 years' average annual earnings (excluding incentive compensation). The following table sets forth the estimated combined annual pension benefits under SOUTHERN's pension and SAVANNAH's supplemental executive retirement plans in effect during 1999 which are payable to SAVANNAH's named executives, except Mr. Holland who participates in the plans described on page III-25, upon retirement at the normal retirement age after designated periods of accredited service and at a specified compensation level. Years of Accredited Service Remuneration 15 25 35 - -------------------------- -- -- -- $ 90,000 $ 63,000 $ 63,000 $ 63,000 120,000 84,000 84,000 84,000 150,000 105,000 105,000 105,000 180,000 126,000 126,000 126,000 210,000 147,000 147,000 147,000 260,000 182,000 182,000 182,000 280,000 196,000 196,000 196,000 300,000 210,000 210,000 210,000 320,000 224,000 224,000 224,000 340,000 238,000 238,000 238,000 III-27 Compensation of Directors. Standard Arrangements. The following table presents compensation paid to the directors, during 1999 for service as a member of the board of directors and any board committee(s), except that employee directors received no fees or compensation for service as a member of the board of directors or any board committee. All or a portion of these fees payable in cash may be deferred under the Deferred Compensation Plan until membership on the board is terminated or may be payable in SOUTHERN common stock at the election of the director.
ALABAMA GEORGIA GULF MISSISSIPPI SAVANNAH Cash Retainer Fee $17,000 $20,000 $10,000 $10,000 $10,000 Stock Retainer Fee $3,000 $3,000 $2,000 $2,000 $2,000 Meeting Fee 900 900 750 750 750 Committees: Audit 900 900 750 750 750 Compensation 900 900 750 750 750 Executive 900 900 - - 750 Finance - 900 - 750 - Nominating 900 - - - - Nuclear Safety 900 - - - - Nuclear Operations Overview - 1,800 - - -
Effective January 1, 1997, the Outside Directors Pension Plan (the "Plan") was terminated and benefits payable under the Plan were frozen. Non-employee directors serving as of January 1, 1997, were given a one-time election to receive a Plan benefit buy-out equal to the actuarial present value of future Plan benefits or receive benefits under the terms of the Plan at the annual retainer rate in effect on December 31, 1996. Directors who elected to receive the benefit buy-out were required to defer receipt of that amount under the Deferred Compensation Plan until termination from board membership. Directors who elected to continue to participate under the terms of the Plan are entitled to benefits upon retirement from the board on the retirement date designated in the respective companies' by-laws. The annual benefit payable is based upon length of service and varies from 75 percent of the annual retainer in effect on December 31, 1996, if the participant has at least 60 months of service on the board of one or more system companies, to 100 percent if the participant has at least 120 months of such service. Payments will continue for the greater of the lifetime of the participant or 10 years. Other Arrangements. No director received other compensation for services as a director during the year ending December 31, 1999 in addition to or in lieu of that specified by the standard arrangements specified above. III-28 Employment Contracts and Termination of Employment and Change in Control Arrangements. Each registrant has adopted SOUTHERN's Change in Control Plan which is applicable to certain of its officers, and has entered into individual change in control agreements with its most highly compensated executive officers. If an executive is involuntarily terminated, other than for cause, within two years following a change in control of SOUTHERN the agreements provide for: o lump sum payment of two or three times annual compensation, o up to five years' coverage under group health and life insurance plans, o immediate vesting of all stock options and stock appreciation rights previously granted, o payment of any accrued long-term and short-term bonuses and dividend equivalents, and o payment of any excise tax liability incurred as a result of payments made under the agreement. A change in control is defined under the agreements as: o acquisition of at least 20 percent of the SOUTHERN's stock, o a change in the majority of the members of the SOUTHERN's board of directors, o a merger or other business combination that results in SOUTHERN's shareholders immediately before the merger owning less than 65 percent of the voting power after the merger, or o a sale of substantially all the assets of SOUTHERN. If a change in control affects only a subsidiary of SOUTHERN, these payments would only be made to executives of the affected subsidiary who are involuntarily terminated as a result of that change in control. SOUTHERN also has amended its short- and long-term incentive plans to provide for pro-rata payments at not less than target-level performance if a change in control occurs and the plans are not continued or replaced with comparable plans. On February 28, 1998, SOUTHERN and GEORGIA entered into a Deferred Compensation Agreement with Mr. Franklin. On the fifth anniversary of the Agreement, if still employed by SOUTHERN or one of its subsidiaries, Mr. Franklin will receive the cash value of the number of shares of common stock that could have been purchased for $500,000 on February 28, 1998, and on which dividends were reinvested throughout the five-year period. If certain performance goals are met, Mr. Franklin also will receive the estimated income tax expense on the compensation. Mr. Franklin may elect to defer receipt of the award until termination of employment. GEORGIA assigned this agreement to SCS effective July 8, 1999. Report on Repricing of Options. None. Compensation Committee Interlocks and Insider Participation. None. III-29 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Certain Beneficial Owners. SOUTHERN is the beneficial owner of 100% of the outstanding common stock of registrants: ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH. - ------------------------------------------------------------------------------- Amount and Name and Address Nature of Percent of Beneficial Beneficial of Title of Class Owner Ownership Class - ------------------------------------------------------------------------------- Common Stock The Southern Company 100% 270 Peachtree Street, N.W. Atlanta, Georgia 30303 Registrants: ALABAMA 5,608,955 GEORGIA 7,761,500 GULF 992,717 MISSISSIPPI 1,121,000 SAVANNAH 10,844,635 Security Ownership of Management. The following table shows the number of shares of SOUTHERN common stock and operating subsidiary preferred stock owned by the directors, nominees and executive officers as of December 31, 1999. It is based on information furnished by the directors, nominees and executive officers. The shares owned by all directors, nominees and executive officers as a group constitute less than one percent of the total number of shares of the respective classes outstanding on December 31, 1999. Name of Directors, Nominees and Number of Shares Executive Officers Title of Class Beneficially Owned (1) (2) - ------------------ -------------- -------------------------- ALABAMA Whit Armstrong SOUTHERN Common 17,972 David J. Cooper, Sr. SOUTHERN Common 1,191 H. Allen Franklin SOUTHERN Common 220,337 Elmer B. Harris SOUTHERN Common 260,741 R. Kent Henslee SOUTHERN Common 4,019 Carl E. Jones, Jr. SOUTHERN Common 12,249 Patricia M. King SOUTHERN Common 306 James K. Lowder SOUTHERN Common 6,241 III-30 Name of Directors, Nominees and Number of Shares Executive Officers Title of Class Beneficially Owned (1) (2) - ------------------ -------------- -------------------------- Wallace D. Malone, Jr. SOUTHERN Common 627 Thomas C. Meredith SOUTHERN Common 416 Mayer Mitchell SOUTHERN Common 19 William V. Muse SOUTHERN Common 726 John T. Porter SOUTHERN Common 1,181 Robert D. Powers SOUTHERN Common 726 Andreas Renschler SOUTHERN Common 1,223 C. Dowd Ritter SOUTHERN Common 306 James H. Sanford SOUTHERN Common 658 John C. Webb, IV SOUTHERN Common 12,925 Banks H. Farris SOUTHERN Common 43,485 Michael D. Garrett SOUTHERN Common 18,216 William B. Hutchins, III SOUTHERN Common 59,771 C. Alan Martin SOUTHERN Common 5,320 Jerry L. Stewart SOUTHERN Common 24,221 The directors, nominees, and executive officers as a group SOUTHERN Common 692,874 GEORGIA Daniel P. Amos SOUTHERN Common 297 Juanita P. Baranco SOUTHERN Common 297 W. A. Fickling, Jr. SOUTHERN Common 1,245 III-31 Name of Directors, Nominees and Number of Shares Executive Officers Title of Class Beneficially Owned (1) (2) - ------------------ -------------- -------------------------- H. Allen Franklin SOUTHERN Common 220,337 L. G. Hardman III SOUTHERN Common 17,422 James R. Lientz, Jr. SOUTHERN Common 1,271 Zell Miller SOUTHERN Common 373 G. Joseph Prendergast SOUTHERN Common 1,331 Herman J. Russell SOUTHERN Common 2,962 W. J. Vereen SOUTHERN Common 5,628 Carl Ware SOUTHERN Common 800 William C. Archer, III SOUTHERN Common 27,794 Thomas A. Fanning SOUTHERN Common 23,726 Robert H. Haubein, Jr. SOUTHERN Common 40,381 Gene R. Hodges SOUTHERN Common 56,540 David M. Ratcliffe SOUTHERN Common 95,158 The directors, nominees and executive officers as a group SOUTHERN Common 629,177 GULF Travis J. Bowden SOUTHERN Common 29,368 Fred C. Donovan, Sr. SOUTHERN Common 526 H. Allen Franklin SOUTHERN Common 220,337 W. Deck Hull, Jr. SOUTHERN Common 3,164 Joseph K. Tannehill SOUTHERN Common 4,541 III-32 Name of Directors, Nominees and Number of Shares Executive Officers Title of Class Beneficially Owned (1) (2) - ------------------ -------------- -------------------------- Barbara H. Thames SOUTHERN Common 247 Francis M. Fisher, Jr. SOUTHERN Common 14,873 John E. Hodges, Jr. SOUTHERN Common 48,551 Robert G. Moore SOUTHERN Common 24,517 Arlan E. Scarbrough SOUTHERN Common 26,396 The directors, nominees and executive officers as a group SOUTHERN Common 372,520 MISSISSIPPI Edwin E. Downer SOUTHERN Common 5,289 Dwight H. Evans SOUTHERN Common 79,309 Robert S. Gaddis SOUTHERN Common 2,143 Linda T. Howard SOUTHERN Common 66 Malcolm Portera SOUTHERN Common 59 George A. Schloegel SOUTHERN Common 589 Philip J. Terrell SOUTHERN Common 945 N. Eugene Warr SOUTHERN Common 1,081 H. E. Blakeslee SOUTHERN Common 36,328 Mark S. Lynch SOUTHERN Common 70 Don E. Mason SOUTHERN Common 45,019 Michael W. Southern SOUTHERN Common 19,730 The directors, nominees and executive officers as a group SOUTHERN Common 190,628 III-33 Name of Directors, Nominees and Number of Shares Executive Officers Title of Class Beneficially Owned (1) (2) - ------------------ -------------- -------------------------- SAVANNAH Gus H. Bell, III SOUTHERN Common 38 Archie H. Davis SOUTHERN Common 275 Walter D. Gnann SOUTHERN Common 1,757 G. Edison Holland, Jr. SOUTHERN Common 43,065 Robert B. Miller, III SOUTHERN Common 536 Arnold M. Tenenbaum SOUTHERN Common 890 Lewis A. Jeffers SOUTHERN Common 7,923 W. Miles Greer SOUTHERN Common 15,900 Kirby R. Willis SOUTHERN Common 17,992 The directors, nominees and executive officers as a group SOUTHERN Common 88,377 Changes in control. SOUTHERN and the operating affiliates know of no arrangements which may at a subsequent date result in any change in control. _______________________ (1) As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security and/or investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). (2) The shares shown include shares of SOUTHERN common stock of which certain directors and executive officers have the right to acquire beneficial ownership within 60 days pursuant to the Executive Stock Plan, as follows: Mr. Blakeslee, 31,701 shares; Mr. Evans, 55,961 shares; Mr. Farris, 38,372 shares; Mr. Franklin, 191,114 shares; Mr. Greer, 12,505 shares; Mr. Harris, 219,394 shares; Mr. Haubein, 37,975 shares; Mr. G. R. Hodges, 38,577 shares; Mr. J. E. Hodges, 24,796 shares; Mr. Holland, 40,342 shares; Mr. Hutchins, 43,701 shares; Mr. Mason, 20,994 shares; Mr. Southern, 15,139 shares, and Mr. Willis, 11,770 shares. Also included are shares of SOUTHERN common stock held by the spouses of the following directors: Mr. Gaddis, 1,200 shares; Mr. Hardman, 100 shares; and Mr. Harris, 310 shares. Also included are shares of common stock held in the Southern Company Deferred Stock Trust of which certain directors have the power to direct the voting, as follows: Mr. Hardman, 7,461 shares. III-34 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ALABAMA Transactions with management and others. Mr. Whit Armstrong is President, Chairman and Chief Executive Officer of The Citizens Bank, Enterprise, Alabama; Mr. Carl E. Jones, Jr. is President and Chief Executive Officer of Regions Financial Corporation, Birmingham, Alabama; Mr. Wallace D. Malone is Chairman and Chief Executive Officer of SouthTrust Corporation, Birmingham, Alabama. Mr. C. Dowd Ritter is Chairman, President and Chief Executive Officer of AmSouth Bancorporation and AmSouth Bank, Birmingham, Alabama. During 1999, these banks furnished a number of regular banking services in the ordinary course of business to ALABAMA. ALABAMA intends to maintain normal banking relations with all the aforesaid banks in the future. Certain business relationships. None. Indebtedness of management. None. Transactions with promoters. None. GEORGIA Transactions with management and others. Mr. L. G. Hardman III is Chairman of the Board of The First National Bank of Commerce, Georgia; Mr. James R. Lientz, Jr. is President of Bank of America Mid-South Banking Group, Atlanta, Georgia; Mr. G. Joseph Prendergast is President and Chief Operating Officer, Wachovia Corporation and Wachovia Bank, N.A., Winston Salem, North Carolina, and Mr. Herman J. Russell is Chairman of the Board of Citizens Trust Bank, Atlanta, Georgia. During 1999, these banks furnished a number of regular banking services in the ordinary course of business to GEORGIA. GEORGIA intends to maintain normal banking relations with all the aforesaid banks in the future. In 1999, GEORGIA leased a building from Riverside Manufacturing Co. for $86,925. Also, Riverside Manufacturing sold to GEORGIA fire retardant uniforms for $134,464. Mr. William J. Vereen is Chief Executive Officer, President, Treasurer and Director of Riverside Manufacturing Co. Certain business relationships. None. Indebtedness of management. None. Transactions with promoters. None. GULF Transactions with management and others. In 1999, GULF paid to Merrick Industries, Inc. and Merrick Environmental Technology, Inc., $560,712 for coal handling equipment and air pollution control equipment. Mr. Tannehill is Chairman and Chief Executive Officer of both companies. Certain business relationships. None. Indebtedness of management. None. Transactions with promoters. None. MISSISSIPPI Transactions with management and others. Mr. Robert S. Gaddis is Chairman of the Advisory Board of Trustmark National Bank, Laurel, Mississippi; Mr. George A. Schloegel is President of Hancock Bank, Gulfport, Mississippi. During 1999, these banks furnished a number of regular banking services in the ordinary course of business to MISSISSIPPI. MISSISSIPPI intends to maintain normal banking relations with the aforesaid banks in the future. Certain business relationships. None. Indebtedness of management. None. Transactions with promoters. None. III-35 SAVANNAH Transactions with management and others. Mr. Archie Davis is President of The Savannah Bank, N.A., Savannah, Georgia; During 1999, this bank furnished a number of regular banking services in the ordinary course of business to SAVANNAH. SAVANNAH intends to maintain normal banking relations with the aforesaid bank in the future. Certain business relationships. None. Indebtedness of management. None. Transactions with promoters. None. III-36 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report on this Form 10-K: (1) Financial Statements: Reports of Independent Public Accountants on the financial statements for SOUTHERN and Subsidiary Companies, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH are listed under Item 8 herein. The financial statements filed as a part of this report for SOUTHERN and Subsidiary Companies, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH are listed under Item 8 herein. (2) Financial Statement Schedules: Reports of Independent Public Accountants as to Schedules for SOUTHERN and Subsidiary Companies, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH are included herein on pages IV-11 through IV-16. Financial Statement Schedules for SOUTHERN and Subsidiary Companies, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH are listed in the Index to the Financial Statement Schedules at page S-1. (3) Exhibits: Exhibits for SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH are listed in the Exhibit Index at page E-1. (b) Reports on Form 8-K during the fourth quarter of 1999 were as follows: None. IV-1 Pursuant to the requirements of Section 13 or 15(d) 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: A. W. Dahlberg, Chairman and Chief Executive Officer By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 24, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. A. W. Dahlberg Chairman of the Board and Chief Executive Officer (Principal Executive Officer) W. L. Westbrook Financial Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) Directors: Dorrit J. Bern Elmer B. Harris Thomas F. Chapman Donald M. James A. D. Correll David J. Lesar H. Allen Franklin Zack T. Pate L. G. Hardman III Gerald J. St. Pe' By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 24, 2000 Pursuant to the requirements of Section 13 or 15(d) 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: Elmer B. Harris, President and Chief Executive Officer By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 24, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. Elmer B. Harris President, Chief Executive Officer and Director (Principal Executive Officer) William B. Hutchins, III Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) Art P. Beattie Vice President, and Comptroller (Principal Accounting Officer) Directors: Whit Armstrong Thomas C. Meredith David J. Cooper Mayer Mitchell H. Allen Franklin William V. Muse R. Kent Henslee John T. Porter Carl E. Jones, Jr. Robert D. Powers Patricia M. King C. Dowd Ritter James K. Lowder James H. Sanford Wallace D. Malone, Jr. John Cox Webb, IV By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 24, 2000 IV-2 Pursuant to the requirements of Section 13 or 15(d) 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 By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 24, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. David M. Ratcliffe President, Chief Executive Officer and Director (Principal Executive Officer) Thomas A. Fanning Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) Cliff S. Thrasher Vice President, Comptroller and Chief Accounting Officer (Principal Accounting Officer) Directors: Daniel P. Amos Zell Miller Juanita P. Baranco G. Joseph Prendergast William A. Fickling, Jr. Herman J. Russell H. Allen Franklin William Jerry Vereen L. G. Hardman III Carl Ware James R. Lientz, Jr. By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 24, 2000 Pursuant to the requirements of Section 13 or 15(d) 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: Travis J. Bowden, President and Chief Executive Officer By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 24, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. Travis J. Bowden President, Chief Executive Officer and Director (Principal Executive Officer) Arlan E. Scarbrough Vice President - Finance (Principal Financial and Accounting Officer) Directors: Fred C. Donovan, Sr. Joseph K. Tannehill H. Allen Franklin Barbara H. Thames W. Deck Hull, Jr. By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 24, 2000 IV-3 Pursuant to the requirements of Section 13 or 15(d) 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: Dwight H. Evans, President and Chief Executive Officer By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 24, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. Dwight H. Evans President, Chief Executive Officer and Director (Principal Executive Officer) Michael W. Southern Vice President, Secretary, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) Directors: Edwin E. Downer Malcolm Portera Robert S. Gaddis George A. Schloegel Linda T. Howard Philip J. Terrell Aubrey K. Lucas Gene Warr By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 24, 2000 Pursuant to the requirements of Section 13 or 15(d) 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: G. Edison Holland, Jr., President and Chief Executive Officer By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 24, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. G. Edison Holland, Jr. President, Chief Executive Officer and Director (Principal Executive Officer) Kirby R. Willis Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) Directors: Gus H. Bell, III Robert B. Miller, III Archie H. Davis Arnold M. Tenenbaum Walter D. Gnann By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 24, 2000 IV-4 Arthur Andersen LLP Exhibit 23(a) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 16, 2000 on the financial statements of The Southern Company and its subsidiaries and the related financial statement schedule, included in this Form 10-K, into The Southern Company's previously filed Registration Statement File Nos. 2-78617, 33-3546, 33-30171, 33-51433, 33-54415, 33-57951, 33-58371, 33-60427, 333-09077, 333-44127, 333-44261, 333-64871 and 333-31808. /s/ Arthur Andersen LLP Atlanta, Georgia March 22, 2000 IV-5 Arthur Andersen LLP Exhibit 23(b) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 16, 2000 on the financial statements of Alabama Power Company and the related financial statement schedule, included in this Form 10-K, into Alabama Power Company's previously filed Registration Statement File No. 333-67453. /s/ Arthur Andersen LLP Birmingham, Alabama March 22, 2000 IV-6 Arthur Andersen LLP Exhibit 23(c) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 16, 2000 on the financial statements of Georgia Power Company and the related financial statement schedule, included in this Form 10-K, into Georgia Power Company's previously filed Registration Statement File Nos. 333-43895 and 333-75193. /s/ Arthur Andersen LLP Atlanta, Georgia March 22, 2000 IV-7 Arthur Andersen LLP Exhibit 23(d) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 16, 2000 on the financial statements of Gulf Power Company and the related financial statement schedule, included in this Form 10-K, into Gulf Power Company's previously filed Registration Statement File Nos. 33-50165 and 333-42033. /s/ Arthur Andersen LLP Atlanta, Georgia March 22, 2000 IV-8 Arthur Andersen LLP Exhibit 23(e) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 16, 2000 on the financial statements of Mississippi Power Company and the related financial statement schedule, included in this Form 10-K, into Mississippi Power Company's previously filed Registration Statement File No. 333-45069. /s/ Arthur Andersen LLP Atlanta, Georgia March 22, 2000 IV-9 Arthur Andersen LLP Exhibit 23(f) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 16, 2000 on the financial statements of Savannah Electric and Power Company and the related financial statement schedule, included in this Form 10-K, into Savannah Electric and Power Company's previously filed Registration Statement File No. 333-46171. /s/ Arthur Andersen LLP Atlanta, Georgia March 22, 2000 IV-10 Arthur Andersen LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE To The Southern Company: We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of The Southern Company and its subsidiaries included in this Form 10-K, and have issued our report thereon dated February 16, 2000. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to The Southern Company and its subsidiaries (page S-2) is the responsibility of The Southern Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. /s/ Arthur Andersen LLP Atlanta, Georgia February 16, 2000 IV-11 Arthur Andersen LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE To Alabama Power Company: We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of Alabama Power Company included in this Form 10-K, and have issued our report thereon dated February 16, 2000. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to Alabama Power Company (page S-3) is the responsibility of Alabama Power Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Birmingham, Alabama February 16, 2000 IV-12 Arthur Andersen LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE To Georgia Power Company: We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of Georgia Power Company included in this Form 10-K, and have issued our report thereon dated February 16, 2000. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to Georgia Power Company (page S-4) is the responsibility of Georgia Power Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Atlanta, Georgia February 16, 2000 IV-13 Arthur Andersen LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE To Gulf Power Company: We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of Gulf Power Company included in this Form 10-K, and have issued our report thereon dated February 16, 2000. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to Gulf Power Company (page S-5) is the responsibility of Gulf Power Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Atlanta, Georgia February 16, 2000 IV-14 Arthur Andersen LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE To Mississippi Power Company: We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of Mississippi Power Company included in this Form 10-K, and have issued our report thereon dated February 16, 2000. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to Mississippi Power Company (page S-6) is the responsibility of Mississippi Power Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Atlanta, Georgia February 16, 2000 IV-15 Arthur Andersen LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE To Savannah Electric and Power Company: We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of Savannah Electric and Power Company included in this Form 10-K, and have issued our report thereon dated February 16, 2000. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to Savannah Electric and Power Company (page S-7) is the responsibility of Savannah Electric and Power Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Atlanta, Georgia February 16, 2000 IV-16 INDEX TO FINANCIAL STATEMENT SCHEDULES
Schedule Page II Valuation and Qualifying Accounts and Reserves 1999, 1998 and 1997 The Southern Company and Subsidiary Companies.......................................................... S-2 Alabama Power Company.................................................................................. S-3 Georgia Power Company.................................................................................. S-4 Gulf Power Company..................................................................................... S-5 Mississippi Power Company.............................................................................. S-6 Savannah Electric and Power Company.................................................................... S-7 Schedules I through V not listed above are omitted as not applicable or not required. Columns omitted from schedules filed have been omitted because the information is not applicable or not required.
S-1
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Stated in Thousands of Dollars) Additions ---------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period ------------------------------------- ------------------------ -------------- ------------------- --------------- ---------------- Provision for uncollectible accounts 1999.......................... $112,511 $55,042 $(11,805) $96,838 (1) $ 58,910 1998.......................... 77,056 64,789 6,325 35,659 (1) 112,511 1997.......................... 31,587 35,930 36,290 (2) 26,751 (1) 77,056 - -------------------
Notes: (1) Represents write-off of accounts considered to be uncollectible, less recoveries of amounts previously written off. (2) Includes the addition of a Purchased Reserve in the amount of $37,000 related to the acquisition of CEPA. S-2
ALABAMA POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Stated in Thousands of Dollars) Additions --------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period ------------------------------------ ------------------------------------- ------------------ ----------------- --------------- Provision for uncollectible accounts 1999.......................... $1,855 $13,995 $- $11,733 (Note) $4,117 1998.......................... 2,272 7,702 - 8,119 (Note) 1,855 1997.......................... 1,171 8,580 - 7,479 (Note) 2,272 - ------------------- Note: Represents write-off of accounts considered to be uncollectible, less recoveries of amounts previously written off.
S-3
GEORGIA POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Stated in Thousands of Dollars) Additions --------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period ----------------------------------- ----------------------- -------------- ------------------ ----------------- ---------------- Provision for uncollectible accounts 1999.......................... $5,500 $14,406 $- $12,906 (Note) $7,000 1998.......................... 3,000 17,856 - 15,356 (Note) 5,500 1997.......................... 4,000 7,888 - 8,888 (Note) 3,000 - ------------------- Note: Represents write-off of accounts considered to be uncollectible, less recoveries of amounts previously written off.
S-4
GULF POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Stated in Thousands of Dollars) Additions -------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period ------------------------------------ ------------------------ --------------- ------------------ ---------------- --------------- Provision for uncollectible accounts 1999.......................... $996 $2,230 $- $2,200 (Note) $1,026 1998.......................... 796 2,288 - 2,088 (Note) 996 1997.......................... 789 1,350 - 1,343 (Note) 796 - ------------------- Note: Represents write-off of accounts considered to be uncollectible, less recoveries of amounts previously written off.
S-5
MISSISSIPPI POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Stated in Thousands of Dollars) Additions -------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period ------------------------------------ ------------------------- -------------- ------------------ ---------------- --------------- Provision for uncollectible accounts 1999.......................... $621 $1,964 $ - $1,888 (Note) $697 1998.......................... 698 1,510 31 1,618 (Note) 621 1997.......................... 839 1,128 56 1,325 (Note) 698 - ------------------- Note: Represents write-off of accounts considered to be uncollectible, less recoveries of amounts previously written off.
S-6
SAVANNAH ELECTRIC AND POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Stated in Thousands of Dollars) Additions ------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period -------------------------------------- ---------------------- ------------ ------------------ --------------- ----------------- Provision for uncollectible accounts 1999.......................... $284 $594 $- $641 (Note) $237 1998.......................... 354 417 - 487 (Note) 284 1997.......................... 632 192 - 470 (Note) 354 - ------------------- Note: Represents write-off of accounts receivable considered to be uncollectible, less recoveries of amounts previously written off.
S-7 EXHIBIT INDEX The following exhibits indicated by an asterisk preceding the exhibit number are filed herewith. The balance of the exhibits have heretofore been filed with the SEC, respectively, as the exhibits and in the file numbers indicated and are incorporated herein by reference. The exhibits marked with a pound sign are management contracts or compensatory plans or arrangements required to be filed herewith and required to be identified as such by Item 14 of Form 10-K. Reference is made to a duplicate list of exhibits being filed as a part of this Form 10-K, which list, prepared in accordance with Item 601 of Regulation S-K of the SEC, immediately precedes the exhibits being physically filed with this Form 10-K. (1) Underwriting Agreements GEORGIA (c) - Distribution Agreement dated November 29, 1995 between GEORGIA and Lehman Brothers Inc.; Donaldson, Lufkin & Jenrette Securities Corporation; J. P. Morgan Securities Inc.; Salomon Brothers Inc and Smith Barney Inc. relating to $300,000,000 First Mortgage Bonds Secured Medium-Term Notes. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1995, as Exhibit 1(c).) (3) Articles of Incorporation and By-Laws SOUTHERN (a) 1 - Composite Certificate of Incorporation of SOUTHERN, reflecting all amendments thereto through January 5, 1994. (Designated in Registration No. 33-3546 as Exhibit 4(a), in Certificate of Notification, File No. 70-7341, as Exhibit A and in Certificate of Notification, File No. 70-8181, as Exhibit A.) (a) 2 - By-laws of SOUTHERN as amended effective October 21, 1991, and as presently in effect. (Designated in Form U-1, File No. 70-8181, as Exhibit A-2.) ALABAMA (b) 1 - Charter of ALABAMA and amendments thereto through August 10, 1998. (Designated in Registration Nos. 2-59634 as Exhibit 2(b), 2-60209 as Exhibit 2(c), 2-60484 as Exhibit 2(b), 2-70838 as Exhibit 4(a)-2, 2-85987 as Exhibit 4(a)-2, 33-25539 as Exhibit 4(a)-2, 33-43917 as Exhibit 4(a)-2, in Form 8-K dated February 5, 1992, File No. 1-3164, as Exhibit 4(b)-3, in Form 8-K dated July 8, 1992, File No. 1-3164, as Exhibit 4(b)-3, in Form 8-K dated October 27, 1993, File No. 1-3164, as Exhibits 4(a) and 4(b), in Form 8-K dated November 16, 1993, File No. 1-3164, as Exhibit 4(a), in Certificate of Notification, File No. 70-8191, as Exhibit A, in ALABAMA's Form 10-K for the year ended December 31, 1997, File No. 1-3164, as Exhibit 3(b)2 and Form 8-K dated August 10, 1998, File No. 1-3164, as Exhibit 4.4.) E-1 (b) 2 - By-laws of ALABAMA as amended effective July 23, 1993, and as presently in effect. (Designated in Form U-1, File No. 70-8191, as Exhibit A-2.) GEORGIA (c) 1 - Charter of GEORGIA and amendments thereto through January 26, 1998. (Designated in Registration Nos. 2-63392 as Exhibit 2(a)-2, 2-78913 as Exhibits 4(a)-(2) and 4(a)-(3), 2-93039 as Exhibit 4(a)-(2), 2-96810 as Exhibit 4(a)-2, 33-141 as Exhibit 4(a)-(2), 33-1359 as Exhibit 4(a)(2), 33-5405 as Exhibit 4(b)(2), 33-14367 as Exhibits 4(b)-(2) and 4(b)-(3), 33-22504 as Exhibits 4(b)-(2), 4(b)-(3) and 4(b)-(4), in GEORGIA's Form 10-K for the year ended December 31, 1991, File No. 1-6468, as Exhibits 4(a)(2) and 4(a)(3), in Registration No. 33-48895 as Exhibits 4(b)-(2) and 4(b)-(3), in Form 8-K dated December 10, 1992, File No. 1-6468 as Exhibit 4(b), in Form 8-K dated June 17, 1993, File No. 1-6468, as Exhibit 4(b), in Form 8-K dated October 20, 1993, File No. 1-6468, as Exhibit 4(b) and in GEORGIA's Form 10-K for the year ended December 31, 1997, File No. 1-6468, as Exhibit 3(c)2.) (c) 2 - By-laws of GEORGIA as amended effective July 18, 1990, and as presently in effect. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 3.) GULF (d) 1 - Restated Articles of Incorporation of GULF and amendments thereto through January 28, 1998. (Designated in Registration No. 33-43739 as Exhibit 4(b)-1, in Form 8-K dated January 15, 1992, File No. 0-2429, as Exhibit 1(b), in Form 8-K dated August 18, 1992, File No. 0-2429, as Exhibit 4(b)-2, in Form 8-K dated September 22, 1993, File No. 0-2429, as Exhibit 4, in Form 8-K dated November 3, 1993, File No. 0-2429, as Exhibit 4 and in GULF's Form 10-K for the year ended December 31, 1997, File No. 0-2429, as Exhibit 3(d)2.) (d) 2 - By-laws of GULF as amended effective July 26, 1996, and as presently in effect. (Designated in Form U-1, File No. 70-8949, as Exhibit A-2(c).) MISSISSIPPI (e) 1 - Articles of Incorporation of MISSISSIPPI, articles of merger of Mississippi Power Company (a Maine corporation) into MISSISSIPPI and articles of amendment to the articles of incorporation of MISSISSIPPI through December 31, 1997. (Designated in Registration No. 2-71540 as Exhibit 4(a)-1, in Form U5S for 1987, File No. 30-222-2, as Exhibit B-10, in Registration No. 33-49320 as Exhibit 4(b)-(1), in Form 8-K dated August 5, 1992, File No. 0-6849, as Exhibits 4(b)-2 and 4(b)-3, in Form 8-K dated August 4, 1993, File No. 0-6849, as Exhibit 4(b)-3, in Form 8-K dated August 18, 1993, File No. 0-6849, as Exhibit 4(b)-3 and in MISSISSIPPI's Form 10-K for the year ended December 31, 1997, File No. 0-6849, as Exhibit 3(e)2.) E-2 (e) 2 - By-laws of MISSISSIPPI as amended effective April 2, 1996, and as presently in effect. (Designated in Form U5S for 1995, File No. 30-222-2, as Exhibit B-10.) SAVANNAH (f) 1 - Charter of SAVANNAH and amendments thereto through December 2, 1998. (Designated in Registration Nos. 33-25183 as Exhibit 4(b)-(1), 33-45757 as Exhibit 4 (b)-(2), in Form 8-K dated November 9, 1993, File No. 1-5072, as Exhibit 4(b) and in SAVANNAH's Form 10-K for the year ended December 31, 1998, as Exhibit 3(f)2.) (f) 2 - By-laws of SAVANNAH as amended effective February 16, 1994, and as presently in effect. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1993, as Exhibit 3(f)2.) (4) Instruments Describing Rights of Security Holders, Including Indentures SOUTHERN (a) 1 - Subordinated Note Indenture dated as of February 1, 1997, among SOUTHERN, Southern Company Capital Funding, Inc. and Bankers Trust Company, as Trustee, and indentures supplemental thereto dated as of February 4, 1997. (Designated in Registration Nos. 333-28349 as Exhibits 4.1 and 4.2 and 333-28355 as Exhibit 4.2.) (a) 2 - Subordinated Note Indenture dated as of June 1, 1997, among SOUTHERN, Southern Company Capital Funding, Inc. and Bankers Trust Company, as Trustee, and indentures supplemental thereto through that dated as of December 23, 1998. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit (4)(a)2, in Form 8-K dated June 18, 1998, File No. 1-3526, as Exhibit 4.2 and in Form 8-K dated December 18, 1998, File No. 1-3526, as Exhibit 4.4.) (a) 3 - Amended and Restated Trust Agreement of Southern Company Capital Trust I dated as of February 1, 1997. (Designated in Registration No. 333-28349 as Exhibit 4.6) (a) 4 - Amended and Restated Trust Agreement of Southern Company Capital Trust II dated as of February 1, 1997. (Designated in Registration No. 333-28355 as Exhibit 4.6) (a) 5 - Amended and Restated Trust Agreement of Southern Company Capital Trust III dated as of June 1, 1997. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit (4)(a)5.) (a) 6 - Amended and Restated Trust Agreement of Southern Company Capital Trust IV dated as of June 1, 1998. (Designated in Form 8-K dated June 18, 1998, File No. 1-3526, as Exhibit 4.5.) E-3 (a) 7 - Amended and Restated Trust Agreement of Southern Company Capital Trust V dated as of December 1, 1998. (Designated in Form 8-K dated December 18, 1998, File No. 1-3526, as Exhibit 4.7A.) (a) 8 - Capital Securities Guarantee Agreement relating to Southern Company Capital Trust I dated as of February 1, 1997. (Designated in Registration No. 333-28349 as Exhibit 4.10) (a) 9 - Capital Securities Guarantee Agreement relating to Southern Company Capital Trust II dated as of February 1, 1997. (Designated in Registration No. 333-28355 as Exhibit 4.10) (a) 10 - Preferred Securities Guarantee Agreement relating to Southern Company Capital Trust III dated as of June 1, 1997. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit (4)(a)8.) (a) 11 - Preferred Securities Guarantee Agreement relating to Southern Company Capital Trust IV dated as of June 1, 1998. (Designated in Form 8-K dated June 18, 1998, File No. 1-3626, as Exhibit 4.8.) (a) 12 - Preferred Securities Guarantee Agreement relating to Southern Company Capital Trust V dated as of December 1, 1998. (Designated in Form 8-K dated December 18, 1998, File No. 1-3526, as Exhibit 4.11A.) ALABAMA (b) 1 - Indenture dated as of January 1, 1942, between ALABAMA and The Chase Manhattan Bank (formerly Chemical Bank), as Trustee, and indentures supplemental thereto through that dated as of December 1, 1994. (Designated in Registration Nos. 2-59843 as Exhibit 2(a)-2, 2-60484 as Exhibits 2(a)-3 and 2(a)-4, 2-60716 as Exhibit 2(c), 2-67574 as Exhibit 2(c), 2-68687 as Exhibit 2(c), 2-69599 as Exhibit 4(a)-2, 2-71364 as Exhibit 4(a)-2, 2-73727 as Exhibit 4(a)-2, 33-5079 as Exhibit 4(a)-2, 33-17083 as Exhibit 4(a)-2, 33-22090 as Exhibit 4(a)-2, in ALABAMA's Form 10-K for the year ended December 31, 1990, File No. 1-3164, as Exhibit 4(c), in Registration Nos. 33-43917 as Exhibit 4(a)-2, 33-45492 as Exhibit 4(a)-2, 33-48885 as Exhibit 4(a)-2, 33-48917 as Exhibit 4(a)-2, in Form 8-K dated January 20, 1993, File No. 1-3164, as Exhibit 4(a)-3, in Form 8-K dated February 17, 1993, File No. 1-3164, as Exhibit 4(a)-3, in Form 8-K dated March 10, 1993, File No. 1-3164, as Exhibit 4(a)-3, in Certificate of Notification, File No. 70-8069, as Exhibits A and B, in Form 8-K dated June 24, 1993, File No. 1-3164, as Exhibit 4, in Certificate of Notification, File No. 70-8069, as Exhibit A, in Form 8-K dated November 16, 1993, File No. 1-3164, as Exhibit 4(b), in Certificate of Notification, File No. 70-8069, as Exhibits A and B, in Certificate of Notification, File No. 70-8069, as Exhibit A, in Certificate of Notification, File No. 70-8069, as Exhibit A and in Form 8-K dated November 30, 1994, File No. 1-3164, as Exhibit 4.) (b) 2 - Subordinated Note Indenture dated as of January 1, 1996, between ALABAMA and The Chase Manhattan Bank (formerly Chemical Bank), as Trustee, and indenture supplemental thereto dated as of January 1, 1996. (Designated in Certificate of Notification, File No. 70-8461, as Exhibits E and F.) E-4
(b) 3 - Subordinated Note Indenture dated as of January 1, 1997, between ALABAMA and The Chase Manhattan Bank, as Trustee, and indentures supplemental thereto through that dated as of February 25, 1999. (Designated in Form 8-K dated January 9, 1997, File No. 1-3164, as Exhibits 4.1 and 4.2 and in Form 8-K dated February 18, 1999, File No. 3164, as Exhibit 4.2.) (b) 4 - Senior Note Indenture dated as of December 1, 1997, between ALABAMA and The Chase Manhattan Bank, as Trustee, and indentures supplemental thereto through that dated September 30, 1999. (Designated in Form 8-K dated December 4, 1997, File No. 1-3164, as Exhibits 4.1 and 4.2, in Form 8-K dated February 20, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated April 17, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated August 11, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated September 8, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated September 16, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated October 7, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated October 28, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated November 12, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated May 19, 1999, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated August 13, 1999, File No. 1-3164, as Exhibit 4.2 and in Form 8-K dated September 21, 1999, File No. 1-3164, as Exhibit 4.2.) (b) 5 - Amended and Restated Trust Agreement of Alabama Power Capital Trust I dated as of January 1, 1996. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit D.) (b) 6 - Amended and Restated Trust Agreement of Alabama Power Capital Trust II dated as of January 1, 1997. (Designated in Form 8-K dated January 9, 1997, File No. 1-3164, as Exhibit 4.5.) (b) 7 - Amended and Restated Trust Agreement of Alabama Power Capital Trust III dated as of February 1, 1999. (Designated in Form 8-K dated February 18, 1999, File No. 1-3164, as Exhibit 4.5.) (b) 8 - Guarantee Agreement relating to Alabama Power Capital Trust I dated as of January 1, 1996. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit G.) (b) 9 - Guarantee Agreement relating to Alabama Power Capital Trust II dated as of January 1, 1997. (Designated in Form 8-K dated January 9, 1997, File No. 1-3164, as Exhibit 4.8.) (b) 10 - Guarantee Agreement relating to Alabama Power Capital Trust III dated as of February 1, 1999. (Designated in Form 8-K dated February 18, 1999, File No. 1-3164, as Exhibit 4.8.) GEORGIA (c) 1 - Indenture dated as of March 1, 1941, between GEORGIA and The Chase Manhattan Bank (formerly Chemical Bank), as Trustee, and indentures supplemental thereto dated as of March 1, 1941, March 3, 1941 (3 indentures), E-5 March 6, 1941 (139 indentures), March 1, 1946 (88 indentures) and December 1, 1947, through October 15, 1995. (Designated in Registration Nos. 2-4663 as Exhibits B-3 and B-3(a), 2-7299 as Exhibit 7(a)-2, 2-61116 as Exhibit 2(a)-3 and 2(a)-4, 2-62488 as Exhibit 2(a)-3, 2-63393 as Exhibit 2(a)-4, 2-63705 as Exhibit 2(a)-3, 2-68973 as Exhibit 2(a)-3, 2-70679 as Exhibit 4(a)-(2), 2-72324 as Exhibit 4(a)-2, 2-73987 as Exhibit 4(a)-(2), 2-77941 as Exhibits 4(a)-(2) and 4(a)-(3), 2-79336 as Exhibit 4(a)-(2), 2-81303 as Exhibit 4(a)-(2), 2-90105 as Exhibit 4(a)-(2), 33-5405 as Exhibit 4(a)-(2), 33-14367 as Exhibits 4(a)-(2) and 4(a)-(3), 33-22504 as Exhibits 4(a)-(2), 4(a)-(3) and 4(a)-(4), 33-32420 as Exhibit 4(a)-(2), 33-35683 as Exhibit 4(a)-(2), in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 4(a)(3), in Form 10-K for the year ended December 31, 1991, File No. 1-6468, as Exhibit 4(a)(5), in Registration No. 33-48895 as Exhibit 4(a)-(2), in Form 8-K dated August 26, 1992, File No. 1-6468, as Exhibit 4(a)-(3), in Form 8-K dated September 9, 1992, File No. 1-6468, as Exhibits 4(a)-(3) and 4(a)-(4), in Form 8-K dated September 23, 1992, File No. 1-6468, as Exhibit 4(a)-(3), in Form 8-A dated October 12, 1992, as Exhibit 2(b), in Form 8-K dated January 27, 1993, File No. 1-6468, as Exhibit 4(a)-(3), in Registration No. 33-49661 as Exhibit 4(a)-(2), in Form 8-K dated July 26, 1993, File No. 1-6468, as Exhibit 4, in Certificate of Notification, File No. 70-7832, as Exhibit M, in Certificate of Notification, File No. 70-7832, as Exhibit C, in Certificate of Notification, File No. 70-7832, as Exhibits K and L, in Certificate of Notification, File No. 70-8443, as Exhibit C, in Certificate of Notification, File No. 70-8443, as Exhibit C, in Certificate of Notification, File No. 70-8443, as Exhibit E, in Certificate of Notification, File No. 70-8443, as Exhibit E, in Certificate of Notification, File No. 70-8443, as Exhibit E, in GEORGIA's Form 10-K for the year ended December 31, 1994, File No. 1-6468, as Exhibits 4(c)2 and 4(c)3, in Certificate of Notification, File No. 70-8443, as Exhibit C, in Certificate of Notification, File No. 70-8443, as Exhibit C, in Form 8-K dated May 17, 1995, File No. 1-6468, as Exhibit 4 and in GEORGIA's Form 10-K for the year ended December 31, 1995, File No. 1-6468, as Exhibits 4(c)2, 4(c)3, 4(c)4, 4(c)5 and 4(c)6.) (c) 2 - Indenture dated as of December 1, 1994, between GEORGIA and Trust Company Bank, as Trustee and indentures supplemental thereto through that dated as of December 15, 1994. (Designated in Certificate of Notification, File No. 70-8461, as Exhibits E and F.) (c) 3 - Subordinated Note Indenture dated as of August 1, 1996, between GEORGIA and The Chase Manhattan Bank, as Trustee, and indentures supplemental thereto through January 1, 1997. (Designated in Form 8-K dated August 21, 1996, File No. 1-6468, as Exhibits 4.1 and 4.2 and in Form 8-K dated January 9, 1997, File No. 1-6468, as Exhibit 4.2.) (c) 4 - Subordinated Note Indenture dated as of June 1, 1997, between GEORGIA and The Chase Manhattan Bank, as Trustee, and indentures supplemental thereto through that dated as of February 25, 1999. (Designated in Certificate of Notification, File No. 70-8461, as Exhibits D and E and Form 8-K dated February 17, 1999, File No. 1-6468, as Exhibit 4.4.) E-6 (c) 5 - Senior Note Indenture dated as of January 1, 1998, between GEORGIA and The Chase Manhattan Bank, as Trustee, and indentures supplemental thereto through that dated as of February 22, 2000. (Designated in Form 8-K dated January 21, 1998, File No. 1-6468, as Exhibits 4.1 and 4.2, in Forms 8-K each dated November 19, 1998, File No. 1-6468, as Exhibit 4.2, in Form 8-K dated March 3, 1999, File No. 1-6469 as Exhibit 4.2 and in Form 8-K dated February 15, 2000, File No. 1-6469 as Exhibit 4.2.) (c) 6 - Amended and Restated Trust Agreement of Georgia Power Capital Trust I dated as of August 1, 1996. (Designated in Form 8-K dated August 21, 1996, File No. 1-6468, as Exhibit 4.5.) (c) 7 - Amended and Restated Trust Agreement of Georgia Power Capital Trust II dated as of January 1, 1997. (Designated in Form 8-K dated January 9, 1997, File No. 1-6468, as Exhibit 4.5.) (c) 8 - Amended and Restated Trust Agreement of Georgia Power Capital Trust III dated as of June 1, 1997. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit C.) (c) 9 - Amended and Restated Trust Agreement of Georgia Power Capital Trust IV dated as of February 1, 1999. (Designated in Form 8-K dated February 17, 1999, as Exhibit 4.7-A) (c) 10 - Guarantee Agreement relating to Georgia Power Capital Trust I dated as of August 1, 1996. (Designated in Form 8-K dated August 21, 1996, File No. 1-6468, as Exhibit 4.8.) (c) 11 - Guarantee Agreement relating to Georgia Power Capital Trust II dated as of January 1, 1997. (Designated in Form 8-K dated January 9, 1997, File No. 1-6468, as Exhibit 4.8.) (c) 12 - Guarantee Agreement relating to Georgia Power Capital Trust III dated as of June 1, 1997. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit F.) (c) 13 - Guarantee Agreement relating to Georgia Power Capital Trust IV dated as of February 1, 1999.(Designated in Form 8-K dated February 17, 1999, as Exhibit 4.11-A.) GULF (d) 1 - Indenture dated as of September 1, 1941, between GULF and The Chase Manhattan Bank (formerly The Chase Manhattan Bank (National Association)), as Trustee, and indentures supplemental thereto through November 1, 1996.(Designated in Registration Nos. 2-4833 as Exhibit B-3, 2-62319 as Exhibit 2(a)-3, 2-63765 as Exhibit 2(a)-3, 2-66260 as Exhibit 2(a)-3, 33-2809 as Exhibit 4(a)-2, 33-43739 as Exhibit 4(a)-2, in GULF's Form 10-K for the year ended December 31, 1991, File No. 0-2429, as Exhibit 4(b), in Form 8-K dated August 18, 1992, File No. 0-2429, as Exhibit 4(a)-3, in Registration No. 33-50165 as Exhibit 4(a)-2, in Form 8-K dated July 12, 1993, File No.0-2429, as Exhibit 4, in Certificate of Notification, File No. 70-8229, as Exhibit A, in Certificate of Notification, File No. 70-8229, as Exhibits E and F, in Form 8-K dated January 17, 1996, File No. 0-2429, as Exhibit 4, in Certificate of Notification, File No. 70-8229, as Exhibit A, in Certificate of Notification, File No. 70-8229, as Exhibit A and in Form 8-K dated November 6, 1996, File No. 0-2429, as Exhibit 4.) E-7 (d) 2 - Subordinated Note Indenture dated as of January 1, 1997, between GULF and The Chase Manhattan Bank, as Trustee, and indentures supplemental thereto through that dated as of January 1, 1998. (Designated in Form 8-K dated January 27, 1997, File No. 0-2429, as Exhibits 4.1 and 4.2, in Form 8-K dated July 28, 1997, File No. 0-2429, as Exhibit 4.2 and in Form 8-K dated January 13, 1998, File No. 0-2429, as Exhibit 4.2.) (d) 3 - Senior Note Indenture dated as of January 1, 1998, between GULF and The Chase Manhattan Bank, as Trustee, and indenture supplemental thereto dated as of August 24, 1999. (Designated in Form 8-K dated June 17, 1998, File No. 0-2429, as Exhibits 4.1 and 4.2 and in Form 8-K dated August 17, 1999, File No. 0-2429, as Exhibit 4.2.) (d) 4 - Amended and Restated Trust Agreement of Gulf Power Capital Trust I dated as of January 1, 1997.(Designated in Form 8-K dated January 27, 1997, File No. 0-2429, as Exhibit 4.5.) (d) 5 - Amended and Restated Trust Agreement of Gulf Power Capital Trust II dated as of January 1, 1998.(Designated in Form 8-K dated January 13, 1998, File No. 0-2429, as Exhibit 4.5.) (d) 6 - Guarantee Agreement relating to Gulf Power Capital Trust I dated as of January 1, 1997.(Designated in Form 8-K dated January 27, 1997, File No. 0-2429, as Exhibit 4.8.) (d) 7 - Guarantee Agreement relating to Gulf Power Capital Trust II dated as of January 1, 1998.(Designated in Form 8-K dated January 13, 1998, File No. 0-2429, as Exhibit 4.8.) MISSISSIPPI (e) 1 - Indenture dated as of September 1, 1941, between MISSISSIPPI and Bankers Trust Company, as Successor Trustee, and indentures supplemental thereto through December 1, 1995. (Designated in Registration Nos. 2-4834 as Exhibit B-3, 2-62965 as Exhibit 2(b)-2, 2-66845 as Exhibit 2(b)-2, 2-71537 as Exhibit 4(a)-(2), 33-5414 as Exhibit 4(a)-(2), 33-39833 as Exhibit 4(a)-2, in MISSISSIPPI's Form 10-K for the year ended December 31, 1991, File No. 0-6849, as Exhibit 4(b), in Form 8-K dated August 5, 1992, File No. 0-6849, as Exhibit 4(a)-2, in Second Certificate of Notification, File No. 70-7941, as Exhibit I, in MISSISSIPPI's Form 8-K dated February 26, 1993, File No. 0-6849, as Exhibit 4(a)-2, in Certificate of Notification, File No. 70-8127, as Exhibit A, in Form 8-K dated June 22, 1993, File No. 0-6849, as Exhibit 1, in Certificate of Notification, File No. 70-8127, as Exhibit A, in Form 8-K dated March 8, 1994, File No. 0-6849, as Exhibit 4, in Certificate of Notification, File No. 70-8127, as Exhibit C and in Form 8-K dated December 5, 1995, File No. 0-6849, as Exhibit 4.) E-8 (e) 2 - Senior Note Indenture dated as of May 1, 1998 between MISSISSIPPI and Bankers Trust Company, as Trustee and indentures supplemental thereto through May 20, 1998. (Designated in Form 8-K dated May 14, 1998, File No. 0-6849, as Exhibits 4.1, 4.2(a) and 4.2(b).) (e) 3 - Subordinated Note Indenture dated as of February 1, 1997, between MISSISSIPPI and Bankers Trust Company, as Trustee, and indenture supplemental thereto dated as of February 1, 1997. (Designated in Form 8-K dated February 20, 1997, File No. 0-6849, as Exhibits 4.1 and 4.2.) (e) 4 - Amended and Restated Trust Agreement of Mississippi Power Capital Trust I dated as of February 1, 1997. (Designated in Form 8-K dated February 20, 1997, File No. 0-6849, as Exhibit 4.5.) (e) 5 - Guarantee Agreement relating to Mississippi Power Capital Trust I dated as of February 1, 1997.(Designated in Form 8-K dated February 20, 1997, File No. 0-6849, as Exhibit 4.8.) SAVANNAH (f) 1 - Indenture dated as of March 1, 1945, between SAVANNAH and The Bank of New York, New York, as Trustee, and indentures supplemental thereto through May 1, 1996. (Designated in Registration Nos. 33-25183 as Exhibit 4(a)-(1), 33-41496 as Exhibit 4(a)-(2), 33-45757 as Exhibit 4(a)-(2), in SAVANNAH's Form 10-K for the year ended December 31, 1991, File No. 1-5072, as Exhibit 4(b), in Form 8-K dated July 8, 1992, File No. 1-5072, as Exhibit 4(a)-3, in Registration No. 33-50587 as Exhibit 4(a)-(2), in Form 8-K dated July 22, 1993, File No. 1-5072, as Exhibit 4, in Form 8-K dated May 18, 1995, File No. 1-5072, as Exhibit 4 and in Form 8-K dated May 23, 1996, File No. 1-5072, as Exhibit 4.) (f) 2 - Senior Note Indenture dated as of March 1, 1998 between SAVANNAH and The Bank of New York, as Trustee and indenture supplemental thereto dated as of March 1, 1998. (Designated in Form 8-K dated March 9, 1998, File No. 1-5072, as Exhibits 4.1 and 4.2.) (f) 3 - Subordinated Note Indenture dated as of December 1, 1998, between SAVANNAH and The Bank of New York, as Trustee, and indenture supplemental thereto dated as of December 9, 1998. (Designated in Form 8-K dated December 3, 1998, File No. 1-5072, as Exhibit 4.3 and 4.4.) (f) 4 - Amended and Restated Trust Agreement of Savannah Electric Capital Trust I dated as of December 1, 1998. (Designated in Form 8-K dated December 3, 1998, File No. 1-5072, as Exhibit 4.7.) (f) 5 - Guarantee Agreement relating to Savannah Electric Capital Trust I dated as of December 1, 1998. (Designated in Form 8-K dated December 3, 1998, File No. 1-5072, as Exhibit 4.11.) E-9 (10) Material Contracts SOUTHERN (a) 1 - Service contracts dated as of January 1, 1984, between SCS and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SEGCO and SOUTHERN and Amendment No. 1 dated as of September 6, 1985 between SCS and SOUTHERN. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1984, File No. 1-3526, as Exhibit 10(a) and in SOUTHERN's Form 10-K for the year ended December 31, 1985, File No. 1-3526, as Exhibit 10(a)(3).) (a) 2 - Service contract dated as of July 17, 1981, between SCS and SEI. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1985, File No. 1-3526, as Exhibit 10(a)(2).) (a) 3 - Service contract dated as of March 3, 1988, between SCS and SAVANNAH. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1987, File No. 1-5072, as Exhibit 10-p.) (a) 4 - Service contract dated as of January 15, 1991, between SCS and Southern Nuclear. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1991, File No. 1-3526, as Exhibit 10(a)(4).) (a) 5 - Service contract dated as of December 12, 1994, between SCS and Mobile Energy Services Company, Inc. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)58.) (a) 6 - Interchange contract dated October 28, 1988, effective January 1, 1989, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1988, File No. 1-5072, as Exhibit 10(b).) (a) 7 - Agreement dated as of January 27, 1959, Amendment No. 1 dated as of October 27, 1982 and Amendment No. 2 dated November 4, 1993 and effective June 1, 1994, among SEGCO, ALABAMA and GEORGIA. (Designated in Registration No. 2-59634 as Exhibit 5(c), in GEORGIA's Form 10-K for the year ended December 31, 1982, File No. 1-6468, as Exhibit 10(d)(2) and in ALABAMA's Form 10-K for the year ended December 31, 1994, File No. 1-3164, as Exhibit 10(b)18.) (a) 8 - Joint Committee Agreement dated as of August 27, 1976, among GEORGIA, OPC, MEAG and Dalton. (Designated in Registration No. 2-61116 as Exhibit 5(d).) (a) 9 - Edwin I. Hatch Nuclear Plant Purchase and Ownership Participation Agreement dated as of January 6, 1975, between GEORGIA and OPC. (Designated in Form 8-K for January, 1975, File No. 1-6468, as Exhibit (b)(1).) (a) 10 - Edwin I. Hatch Nuclear Plant Operating Agreement dated as of January 6, 1975, between GEORGIA and OPC. (Designated in Form 8-K for January, 1975, File No. 1-6468, as Exhibit (b)(3).) E-10 (a) 11 - Revised and Restated Integrated Transmission System Agreement dated as of November 12, 1990, between GEORGIA and OPC. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(g).) (a) 12 - Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of March 26, 1976, between GEORGIA and OPC. (Designated in Certificate of Notification, File No. 70-5592, as Exhibit A.) (a) 13 - Plant Hal Wansley Operating Agreement dated as of March 26, 1976, between GEORGIA and OPC. (Designated in Certificate of Notification, File No. 70-5592, as Exhibit B.) (a) 14 - Edwin I. Hatch Nuclear Plant Purchase and Ownership Participation Agreement dated as of August 27, 1976, between GEORGIA, MEAG and Dalton. (Designated in Form 8-K dated as of June 13, 1977, File No. 1-6468, as Exhibit (b)(1).) (a) 15 - Edwin I. Hatch Nuclear Plant Operating Agreement dated as of August 27, 1976, between GEORGIA, MEAG and Dalton. (Designated in Form 8-K for February 1977, File No. 1-6468, as Exhibit (b)(2).) (a) 16 - Alvin W. Vogtle Nuclear Units Number One and Two Purchase and Ownership Participation Agreement dated as of August 27, 1976 and Amendment No. 1 dated as of January 18, 1977, among GEORGIA, OPC, MEAG and Dalton. (Designated in Form U-1, File No. 70-5792, as Exhibit B-1 and in Form 8-K for January 1977, File No. 1-6468, as Exhibit (B)(3).) (a) 17 - Alvin W. Vogtle Nuclear Units Number One and Two Operating Agreement dated as of August 27, 1976, among GEORGIA, OPC, MEAG and Dalton. (Designated in Form U-1, File No. 70-5792, as Exhibit B-2.) (a) 18 - Alvin W. Vogtle Nuclear Units Number One and Two Purchase, Amendment, Assignment and Assumption Agreement dated as of November 16, 1983, between GEORGIA and MEAG. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1983, File No. 1-6468, as Exhibit 10(k)(4).) (a) 19 - Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of August 27, 1976, between GEORGIA and MEAG. (Designated in Form 8-K dated as of July 5, 1977, File No. 1-6468, as Exhibit (b)(2).) (a) 20 - Plant Hal Wansley Operating Agreement dated as of August 27, 1976, between GEORGIA and MEAG.(Designated in Form 8-K dated as of July 5, 1977, File No. 1-6468, as Exhibit (b)(4).) (a) 21 - Nuclear Operating Agreement between Southern Nuclear and GEORGIA dated as of July 1, 1993. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit 10(a)21.) (a) 22 - Pseudo Scheduling and Services Agreement between GEORGIA and MEAG dated as of April 8, 1997. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit 10(a)22.) E-11 (a) 23 - Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of April 19, 1977, between GEORGIA and Dalton. (Designated in Form 8-K dated as of June 13, 1977, File No. 1-6468, as Exhibit (b)(3).) (a) 24 - Plant Hal Wansley Operating Agreement dated as of April 19, 1977, between GEORGIA and Dalton. (Designated in Form 8-K dated as of June 13, 1977, File No. 1-6468, as Exhibit (b)(7).) (a) 25 - Plant Robert W. Scherer Units Number One and Two Purchase and Ownership Participation Agreement dated as of May 15, 1980, Amendment No. 1 dated as of December 30, 1985, Amendment No. 2 dated as of July 1, 1986, Amendment No. 3 dated as of August 1, 1988 and Amendment No. 4 dated as of December 31, 1990, among GEORGIA, OPC, MEAG and Dalton. (Designated in Form U-1, File No. 70-6481, as Exhibit B-3, in SOUTHERN's Form 10-K for the year ended December 31, 1987, File No. 1-3526, as Exhibit 10(o)(2), in SOUTHERN's Form 10-K for the year ended December 31, 1989, File No. 1-3526, as Exhibit 10(n)(2) and in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)54.) (a) 26 - Plant Robert W. Scherer Units Number One and Two Operating Agreement dated as of May 15, 1980, Amendment No. 1 dated as of December 3, 1985 and Amendment No. 2 dated as of December 31, 1990, among GEORGIA, OPC, MEAG and Dalton. (Designated in Form U-1, File No. 70-6481, as Exhibit B-4, in SOUTHERN's Form 10-K for the year ended December 31, 1987, File No. 1-3526, as Exhibit 10(o)(4) and in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)55.) (a) 27 - Plant Robert W. Scherer Purchase, Sale and Option Agreement dated as of May 15, 1980, between GEORGIA and MEAG. (Designated in Form U-1, File No. 70-6481, as Exhibit B-1.) (a) 28 - Plant Robert W. Scherer Purchase and Sale Agreement dated as of May 16, 1980, between GEORGIA and Dalton. (Designated in Form U-1, File No. 70-6481, as Exhibit B-2.) (a) 29 - Plant Robert W. Scherer Unit Number Three Purchase and Ownership Participation Agreement dated as of March 1, 1984, Amendment No. 1 dated as of July 1, 1986 and Amendment No. 2 dated as of August 1, 1988, between GEORGIA and GULF. (Designated in Form U-1, File No. 70-6573, as Exhibit B-4, in SOUTHERN's Form 10-K for the year ended December 31, 1987, as Exhibit 10(o)(2) and in SOUTHERN's Form 10-K for the year ended December 31, 1989, as Exhibit 10(n)(2).) (a) 30 - Plant Robert W. Scherer Unit Number Three Operating Agreement dated as of March 1, 1984, between GEORGIA and GULF. (Designated in Form U-1, File No. 70-6573, as Exhibit B-5.) E-12 (a) 31 - Plant Robert W. Scherer Unit No. Four Amended and Restated Purchase and Ownership Participation Agreement by and among GEORGIA, FP&L and JEA, dated as of December 31, 1990 and Amendment No. 1 dated as of June 15, 1994. (Designated in Form U-1, File No. 70-7843, as Exhibit B-1 and in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)60.) (a) 32 - Plant Robert W. Scherer Unit No. Four Operating Agreement by and among GEORGIA, FP&L and JEA, dated as of December 31, 1990 and Amendment No. 1 dated as of June 15, 1994. (Designated in Form U-1, File No. 70-7843, as Exhibit B-2 and in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)61.) (a) 33 - Amended and Restated Unit Power Sales Agreement dated February 18, 1982 and Amendment No. 1 dated May 18, 1982, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI and SCS. (Designated in MISSISSIPPI's Form 10-K for the year ended December 31, 1981, File No. 0-6849, as Exhibit 10(c)(2) and in GEORGIA's Form 10-K for the year ended December 31, 1982, File No. 1-6468, as Exhibit 10(r)(3).) (a) 34 - Amended and Restated Unit Power Sales Agreement dated May 19, 1982, Amendment No. 1 dated August 30, 1984 and Amendment No. 2 dated October 30, 1987, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI and SCS. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1982, File No. 1-6468, as Exhibit 10(s)(2), in SOUTHERN's Form 10-K for the year ended December 31, 1984, File No. 1-3526, as Exhibit 10(r) (2) and in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(s)(2).) (a) 35 - Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1988, File No. 1-5072, as Exhibit 10(d).) (a) 36 - Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1988, File No. 1-5072, as Exhibit 10(e).) (a) 37 - Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1988, File No. 1-5072, as Exhibit 10(f).) (a) 38 - Unit Power Sales Agreement dated December 8, 1990, between Tallahassee and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(x).) E-13 (a) 39 - Transition Energy Agreement dated December 31, 1990, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. (Designated in GULF's Form 10-K for the year ended December 31, 1991, File No. 0-2429, as Exhibit 10(1).) (a) 40 - Transition Energy Agreement dated December 31, 1990, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. (Designated in GULF's Form 10-K for the year ended December 31, 1991, File No. 0-2429, as Exhibit 10(m).) (a) 41 - Rocky Mountain Pumped Storage Hydroelectric Project Ownership Participation Agreement dated November 18, 1988, between OPC and GEORGIA. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1988, File No. 1-6468, as Exhibit 10(x).) (a) 42 - Rocky Mountain Pumped Storage Hydroelectric Project Operating Agreement dated November 18, 1988, between OPC and GEORGIA. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1988, File No. 1-6468, as Exhibit 10(y).) (a) 43 - Purchase and Ownership Agreement for Joint Ownership Interest in the James H. Miller, Jr. Steam Electric Generating Plant Units One and Two dated November 18, 1988, between ALABAMA and AEC. (Designated in Form U-1, File No. 70-7609, as Exhibit B-1.) (a) 44 - Operating Agreement for Joint Ownership Interest in the James H. Miller, Jr. Steam Electric Generating Plant Units One and Two dated November 18, 1988, between ALABAMA and AEC. (Designated in Form U-1, File No. 70-7609, as Exhibit B-2.) (a) 45 - Transmission Facilities Agreement dated February 25, 1982, Amendment No. 1 dated May 12, 1982 and Amendment No. 2 dated December 6, 1983, between Gulf States and MISSISSIPPI. (Designated in MISSISSIPPI's Form 10-K for the year ended December 31, 1981, File No. 0-6849, as Exhibit 10(f), in MISSISSIPPI's Form 10-K for the year ended December 31, 1982, File No. 0-6849, as Exhibit 10(f)(2) and in MISSISSIPPI's Form 10-K for the year ended December 31, 1983, File No. 0-6849, as Exhibit 10(f)(3).) * (a) 46 - Long Term Transaction Service Agreement between GEORGIA and OPC dated as of February 29, 1999. (a) 47 - Revised and Restated Coordination Services Agreement between and among GEORGIA, OPC and Georgia Systems Operations Corporation dated as of September 10, 1997. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit 10(a)48.) (a) 48 - Amended and Restated Nuclear Managing Board Agreement for Plant Hatch and Plant Vogtle among GEORGIA, OPC, MEAG and Dalton dated as of July 1, 1993. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)49.) E-14 (a) 49 - Integrated Transmission System Agreement, Power Sale and Coordination Umbrella Agreement between GEORGIA and OPC dated as of November 12, 1990. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(ff).) (a) 50 - Revised and Restated Integrated Transmission System Agreement between GEORGIA and Dalton dated as of December 7, 1990. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(gg).) (a) 51 - Revised and Restated Integrated Transmission System Agreement between GEORGIA and MEAG dated as of December 7, 1990. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(hh).) (a) 52 - Long Term Transmission Service Agreement between Entergy Power, Inc. and ALABAMA, MISSISSIPPI and SCS. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1992, File No. 1-3526, as Exhibit 10(a)53.) (a) 53 - Plant Scherer Managing Board Agreement dated as of December 31, 1990 among GEORGIA, OPC, MEAG, Dalton, GULF, FP&L and JEA. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)56.) (a) 54 - Plant McIntosh Combustion Turbine Purchase and Ownership Participation Agreement between GEORGIA and SAVANNAH dated as of December 15, 1992. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)57.) (a) 55 - Plant McIntosh Combustion Turbine Operating Agreement between GEORGIA and SAVANNAH dated as of December 15, 1992. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)58.) (a) 56 - Power Purchase Agreement dated as of December 3, 1993 between GEORGIA and FPC. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)59.) (a) 57 - Operating Agreement for the Joseph M. Farley Nuclear Plant between ALABAMA and Southern Nuclear dated as of December 23, 1991. (Designated in Form U-1, File No. 70-7530, as Exhibit B-7.) # (a) 58 - The Southern Company Productivity Improvement Plan, Amended and Restated effective January 1, 1998. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)59.) # * (a) 59 - The Southern Company Executive Productivity Improvement Plan, Amended and Restated effective January 1, 1999. E-15 (a) 60 - The Southern Company Employee Savings Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Three. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)61.) * (a) 61 - Amendment Number Four and Amendment Number Five to The Southern Company Employee Savings Plan. (a) 62 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Two. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)62.) * (a) 63 - Amendment Number Three to The Southern Company Employee Stock Ownership Plan. (a) 64 - The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 1998. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)63.) # * (a) 65 - The Deferred Compensation Plan for the Directors of The Southern Company, Amended and Restated effective February 17, 1997. # (a) 66 - The Southern Company Outside Directors Pension Plan. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)77.) # (a) 67 - The Southern Company Deferred Compensation Plan, Amended and Restated effective January 1, 1998. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)66.) # (a) 68 - The Southern Company Outside Directors Stock Plan and First Amendment thereto. (Designated in Registration No. 33-54415 as Exhibit 4(c) and in SOUTHERN's Form 10-K for the year ended December 31, 1995, File No. 1-3526, as Exhibit 10(a)79.) # (a) 69 - Outside Directors Stock Plan for Subsidiaries of The Southern Company and First Amendment thereto. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1995, File No. 1-3526, as Exhibit 10(a)80.) # * (a) 70 - The Southern Company Performance Dividend Plan, Amended and Restated effective January 1, 1999. (a) 71 - The Southern Company Pension Plan, effective as of January 1, 1997 and all amendments thereto through Amendment Number Three. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1996, File No. 1-3526, as Exhibit 10(a)83, in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit 10(a)79 and in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)71.) * (a) 72 - Amendment Number Four to The Southern Company Pension Plan. E-16 # (a) 73 - The Southern Company Performance Stock Plan, Amended and Restated effective July 19, 1999. (Designated in Registration No. 333-31808 as Exhibit 4(c).) # * (a) 74 - The Southern Company Supplemental Executive Retirement Plan, Amended and Restated effective January 1, 1999. # (a) 75 - The Southern Company Performance Sharing Plan effective January 1, 1997 and all amendments thereto through Amendment Number Six. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit 10(a)82 and in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)76.) # * (a) 76 - Amendment Number Seven to The Southern Company Performance Sharing Plan. # (a) 77 - The Southern Company Supplemental Benefit Plan, Amended and Restated effective January 1, 1998. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)77.) # * (a) 78 - Amendment Number One to The Southern Company Supplemental Benefit Plan. (a) 79 - Southern Company Change in Control Severance Plan, effective December 7, 1998. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)78.) * (a) 80 - Amendment Number One to Southern Company Change in Control Severance Plan. # (a) 81 - Southern Company Executive Change in Control Severance Plan, effective December 7, 1998. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)79.) # * (a) 82 - Amendment Number One to Southern Company Executive Change in Control Severance Plan. # (a) 83 - Deferred Compensation Agreement between SOUTHERN, GEORGIA and Henry Allen Franklin. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)80.) # * (a) 84 - Amendment Number One and Assignment to SCS of Deferred Compensation Agreement between SOUTHERN, GEORGIA and Henry Allen Franklin. # (a) 85 - Deferred Compensation Agreement between SOUTHERN, Southern Nuclear and William G. Hairston III. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)81.) # (a) 86 - Deferred Compensation Agreement between SOUTHERN, GEORGIA and Warren Y. Jobe. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)82.) # * (a) 87 - Deferred Compensation Agreement between SOUTHERN, Southern Energy Resources, Inc. and Gale E. Klappa and First Amendment and Assignment to SCS. E-17 # * (a) 88 - Deferred Compensation Agreement between SOUTHERN, Southern Energy Resources, Inc. and S. Marce Fuller. # (a) 89 - Change in Control Agreement between SOUTHERN, GULF and Travis J. Bowden. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)84.) # (a) 90 - Change in Control Agreement between SOUTHERN, SCS and A. W. Dahlberg. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)85.) # (a) 91 - Change in Control Agreement between SOUTHERN, MISSISSIPPI and Dwight H. Evans. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)87.) # (a) 92 - Change in Control Agreement between SOUTHERN, ALABAMA and Banks Harry Farris. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)88.) # * (a) 93 - Change in Control Agreement between SOUTHERN, SCS and Henry Allen Franklin. # (a) 94 - Change in Control Agreement between SOUTHERN, Southern Nuclear and William G. Hairston, III. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)90.) # (a) 95 - Change in Control Agreement between SOUTHERN, ALABAMA and Elmer B. Harris. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)91.) # (a) 96 - Change in Control Agreement between SOUTHERN, SAVANNAH and G. Edison Holland, Jr. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)92.) # (a) 97 - Change in Control Agreement between SOUTHERN, SCS and C. Alan Martin. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)93.) # (a) 98 - Change in Control Agreement between SOUTHERN, SCS and Charles Douglas McCrary. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)94.) # (a) 99 - Change in Control Agreement between SOUTHERN, GEORGIA and David M. Ratcliffe. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)95.) # (a) 100 - Change in Control Agreement between SOUTHERN, SCS and Stephen A. Wakefield. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)96.) E-18 # (a) 101 - Change in Control Agreement between SOUTHERN, SCS and W. Lawrence Westbrook. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)97.) # * (a) 102 - Change in Control Agreement between SOUTHERN, SCS and Gale E. Klappa. # * (a) 103 - Change in Control Agreement between SOUTHERN, Southern Energy Resources, Inc. and S. Marce Fuller and First Amendment thereto. # * (a) 104 - Separation Agreement For Thomas G. Boren. ALABAMA (b) 1 - Service contracts dated as of January 1, 1984, between SCS and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SEGCO and SOUTHERN and Amendment No. 1 dated as of September 6, 1985 between SCS and SOUTHERN. See Exhibit 10(a)1 herein. (b) 2 - Interchange contract dated October 28, 1988, effective January 1, 1989, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)6 herein. (b) 3 - Agreement dated as of January 27, 1959, Amendment No. 1 dated as of October 27, 1982 and Amendment No. 2 dated November 4, 1993 and effective June 1, 1994, among SEGCO, ALABAMA and GEORGIA. See Exhibit 10(a)7 herein. (b) 4 - Amended and Restated Unit Power Sales Agreement dated February 18, 1982 and Amendment No. 1 dated May 18, 1982, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI and SCS. See Exhibit 10(a)33 herein. (b) 5 - Amended and Restated Unit Power Sales Agreement dated May 19, 1982, Amendment No. 1, dated August 30, 1984 and Amendment No. 2, dated October 30, 1987, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI and SCS. See Exhibit 10(a)34 herein. (b) 6 - Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)35 herein. (b) 7 - Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)36 herein. (b) 8 - Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)37 herein. (b) 9 - Unit Power Sales Agreement dated December 8, 1990, between Tallahassee and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)38 herein. E-19 (b) 10 - Transition Energy Agreement dated December 31, 1990, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)39 herein. (b) 11 - Transition Energy Agreement dated December 31, 1990, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)40 herein. (b) 12 - Firm Power Purchase Contract between ALABAMA and AMEA. (Designated in Certificate of Notification, File No. 70-7212, as Exhibit B.) (b) 13 - 1991 Firm Power Purchase Contract between ALABAMA and AMEA. (Designated in Form U-1, File No. 70-7873, as Exhibit B-1.) (b) 14 - Purchase and Ownership Agreement for Joint Ownership Interest in the James H. Miller, Jr. Steam Electric Generating Plant Units One and Two dated November 18, 1988, between ALABAMA and AEC. See Exhibit 10(a)43 herein. (b) 15 - Operating Agreement for Joint Ownership Interest in the James H. Miller, Jr. Steam Electric Generating Plant Units One and Two dated November 18, 1988, between ALABAMA and AEC. See Exhibit 10(a)44 herein. (b) 16 - Long Term Transmission Service Agreement between Entergy Power, Inc. and ALABAMA, MISSISSIPPI and SCS. See Exhibit 10(a)52 herein. (b) 17 - Operating Agreement for the Joseph M. Farley Nuclear Plant between ALABAMA and Southern Nuclear dated as of December 23, 1991. See Exhibit 10(a)57 herein. # (b) 18 - The Southern Company Productivity Improvement Plan, Amended and Restated effective January 1, 1998. See Exhibit 10(a)58 herein. # * (b) 19 - The Southern Company Executive Productivity Improvement Plan, Amended and Restated effective January 1, 1999. See Exhibit 10(a)59 herein. (b) 20 - The Southern Company Employee Savings Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Three. See Exhibit 10(a)60 herein. * (b) 21 - Amendment Number Four and Amendment Number Five to The Southern Company Employee Savings Plan. See Exhibit 10(a)61 herein. (b) 22 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Two. See Exhibit 10(a)62 herein. * (b) 23 - Amendment Number Three to The Southern Company Employee Stock Ownership Plan. See Exhibit 10(a)63 herein. (b) 24 - The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 1998. See Exhibit 10(a)64 herein. E-20 # (b) 25 - The Southern Company Deferred Compensation Plan, Amended and Restated effective January 1, 1998. See Exhibit 10(a)67 herein. # (b) 26 - The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)66 herein. # (b) 27 - Outside Directors Stock Plan for Subsidiaries of The Southern Company and First Amendment thereto. See Exhibit 10(a)69 herein. (b) 28 - The Southern Company Pension Plan, effective as of January 1, 1997 and all amendments thereto through Amendment Number Three. See Exhibit 10(a)71 herein. * (b) 29 - Amendment Number Four to The Southern Company Pension Plan. See Exhibit 10(a)72 herein. # * (b) 30 - The Southern Company Performance Stock Plan, Amended and Restated effective July 19, 1999. See Exhibit 10(a)73 herein. # * (b) 31 - The Southern Company Supplemental Executive Retirement Plan, Amended and Restated effective January 1, 1999. See Exhibit 10(a)74 herein. # * (b) 32 - The Southern Company Performance Dividend Plan, Amended and Restated effective January 1, 1999. See Exhibit 10(a)70 herein. # (b) 33 - The Southern Company Performance Sharing Plan effective January 1, 1997 and all amendments thereto through Amendment Number Six. See Exhibit 10(a)75 herein. # * (b) 34 - Amendment Number Seven to The Southern Company Performance Sharing Plan. See Exhibit 10(a)76 herein. # (b) 35 - The Southern Company Supplemental Benefit Plan, Amended and Restated effective January 1, 1998. See Exhibit 10(a)77 herein. # * (b) 36 - Amendment Number One to The Southern Company Supplemental Benefit Plan. See Exhibit 10(a)78 herein. (b) 37 - Southern Company Change in Control Severance Plan, effective December 7, 1998. See Exhibit 10(a)79 herein. * (b) 38 - Amendment Number One to Southern Company Change in Control Severance Plan. See Exhibit 10(a)80 herein. # (b) 39 - Southern Company Executive Change in Control Severance Plan, effective December 7, 1998. See Exhibit 10(a)81 herein. # * (b) 40 - Amendment Number One to Southern Company Executive Change in Control Severance Plan. See Exhibit 10(a)82 herein. # (b) 41 - Change in Control Agreement between SOUTHERN, ALABAMA and Banks Harry Farris. See Exhibit 10(a)92 herein. E-21 # (b) 42 - Change in Control Agreement between SOUTHERN, ALABAMA and Elmer B. Harris. See Exhibit 10(a)95 herein. # (b) 43 - Supplemental Pension Agreement between ALABAMA, GULF and Travis J. Bowden. (Designated in ALABAMA's Form 10-K for the year ended December 31, 1998, File No. 1-3164, as Exhibit 10(b)40.) # * (b) 44 - Deferred Compensation Plan for Directors of Alabama Power Company, Amended and Restated as of April 25, 1997. GEORGIA (c) 1 - Service contracts dated as of January 1, 1984, between SCS and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SEGCO and SOUTHERN and Amendment No. 1 dated as of September 6, 1985, between SCS and SOUTHERN. See Exhibit 10(a)1 herein. (c) 2 - Interchange contract dated October 28, 1988, effective January 1, 1989, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)6 herein. (c) 3 - Agreement dated as of January 27, 1959, Amendment No. 1 dated as of October 27, 1982 and Amendment No. 2 dated November 4, 1993 and effective June 1, 1994, among SEGCO, ALABAMA and GEORGIA. See Exhibit 10(a)7 herein. (c) 4 - Joint Committee Agreement dated as of August 27, 1976, among GEORGIA, OPC, MEAG and Dalton. See Exhibit 10(a)8 herein. (c) 5 - Edwin I. Hatch Nuclear Plant Purchase and Ownership Participation Agreement dated as of January 6, 1975, between GEORGIA and OPC. See Exhibit 10(a)9 herein. (c) 6 - Edwin I. Hatch Nuclear Plant Operating Agreement dated as of January 6, 1975, between GEORGIA and OPC. See Exhibit 10(a)10 herein. (c) 7 - Revised and Restated Integrated Transmission System Agreement dated as of November 12, 1990, between GEORGIA and OPC. See Exhibit 10(a)11 herein. (c) 8 - Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of March 26, 1976, between GEORGIA and OPC. See Exhibit 10(a)12 herein. (c) 9 - Plant Hal Wansley Operating Agreement dated as of March 26, 1976, between GEORGIA and OPC. See Exhibit 10(a)13 herein. (c) 10 - Edwin I. Hatch Nuclear Plant Purchase and Ownership Participation Agreement dated as of August 27, 1976, between GEORGIA, MEAG and Dalton. See Exhibit 10(a)14 herein. (c) 11 - Edwin I. Hatch Nuclear Plant Operating Agreement dated as of August 27, 1976, between GEORGIA, MEAG and Dalton. See Exhibit 10(a)15 herein. E-22 (c) 12 - Alvin W. Vogtle Nuclear Units Number One and Two Purchase and Ownership Participation Agreement dated as of August 27, 1976 and Amendment No. 1 dated as of January 18, 1977, among GEORGIA, OPC, MEAG and Dalton. See Exhibit 10(a)16 herein. (c) 13 - Alvin W. Vogtle Nuclear Units Number One and Two Operating Agreement dated as of August 27, 1976, among GEORGIA, OPC, MEAG and Dalton. See Exhibit 10(a)17 herein. (c) 14 - Alvin W. Vogtle Nuclear Units Number One and Two Purchase, Amendment, Assignment and Assumption Agreement dated as of November 16, 1983, between GEORGIA and MEAG. See Exhibit 10(a)18 herein. (c) 15 - Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of August 27, 1976, between GEORGIA and MEAG. See Exhibit 10(a)19 herein. (c) 16 - Plant Hal Wansley Operating Agreement dated as of August 27, 1976, between GEORGIA and MEAG. See Exhibit 10(a)20 herein. (c) 17 - Nuclear Operating Agreement between Southern Nuclear and GEORGIA dated as of July 1, 1993. See Exhibit 10(a)21 herein. (c) 18 - Pseudo Scheduling and Services Agreement between GEORGIA and MEAG dated as of April 8, 1997. See Exhibit 10(a)22 herein. (c) 19 - Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of April 19, 1977, between GEORGIA and Dalton. See Exhibit 10(a)23 herein. (c) 20 - Plant Hal Wansley Operating Agreement dated as of April 19, 1977, between GEORGIA and Dalton. See Exhibit 10(a)24 herein. (c) 21 - Plant Robert W. Scherer Units Number One and Two Purchase and Ownership Participation Agreement dated as of May 15, 1980, Amendment No. 1 dated as of December 30, 1985, Amendment No. 2 dated as of July 1, 1986, Amendment No. 3 dated as of August 1, 1988 and Amendment No. 4 dated as of December 31, 1990, among GEORGIA, OPC, MEAG and Dalton. See Exhibit 10(a)25 herein. (c) 22 - Plant Robert W. Scherer Units Number One and Two Operating Agreement dated as of May 15, 1980, Amendment No. dated as of December 3, 1985 and Amendment No. 2 dated as of December 31, 1990, among GEORGIA, OPC, MEAG and Dalton. See Exhibit 10(a)26 herein. (c) 23 - Plant Robert W. Scherer Purchase, Sale and Option Agreement dated as of May 15, 1980, between GEORGIA and MEAG. See Exhibit 10(a)27 herein. (c) 24 - Plant Robert W. Scherer Purchase and Sale Agreement dated as of May 16, 1980, between GEORGIA and Dalton. See Exhibit 10(a)28 herein. E-23 (c) 25 - Plant Robert W. Scherer Unit Number Three Purchase and Ownership Participation Agreement dated as of March 1, 1984, Amendment No. 1 dated as of July 1, 1986 and Amendment No. 2 dated as of August 1, 1988, between GEORGIA and GULF. See Exhibit 10(a)29 herein. (c) 26 - Plant Robert W. Scherer Unit Number Three Operating Agreement dated as of March 1, 1984, between GEORGIA and GULF. See Exhibit 10(a)30 herein. (c) 27 - Plant Robert W. Scherer Unit No. Four Amended and Restated Purchase and Ownership Participation Agreement by and among GEORGIA, FP&L and JEA dated as of December 31, 1990 and Amendment No. 1 dated as of June 15, 1994. See Exhibit 10(a)31 herein. (c) 28 - Plant Robert W. Scherer Unit No. Four Operating Agreement by and among GEORGIA, FP&L and JEA dated as of December 31, 1990 and Amendment No. 1 dated as of June 15, 1994. See Exhibit 10(a)32 herein. (c) 29 - Amended and Restated Unit Power Sales Agreement dated February 18, 1982 and Amendment No. 1 dated May 18, 1982, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI and SCS. See Exhibit 10(a)33 herein. (c) 30 - Amended and Restated Unit Power Sales Agreement dated May 19, 1982, Amendment No. 1, dated August 30, 1984 and Amendment No. 2 dated October 30, 1987, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI and SCS. See Exhibit 10(a)34 herein. (c) 31 - Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)35 herein. (c) 32 - Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)36 herein. (c) 33 - Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)37 herein. (c) 34 - Unit Power Sales Agreement dated December 8, 1990, between Tallahassee and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)38 herein. (c) 35 - Power Purchase Agreement dated as of December 3, 1993 between GEORGIA and FPC. See Exhibit 10(a)56 herein. (c) 36 - Transition Energy Agreement dated December 31, 1990, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)39 herein. (c) 37 - Transition Energy Agreement dated December 31, 1990, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)40 herein. E-24 (c) 38 - Rocky Mountain Pumped Storage Hydroelectric Project Ownership Participation Agreement dated November 18, 1988, between OPC and GEORGIA. See Exhibit 10(a)41 herein. (c) 39 - Rocky Mountain Pumped Storage Hydroelectric Project Operating Agreement dated November 18, 1988, between OPC and GEORGIA. See Exhibit 10(a)42 herein. * (c) 40 - Long Term Transaction Service Agreement between GEORGIA and OPC dated as of November 12, 1990. See Exhibit 10(a)46 herein. (c) 41 - Revised and Restated Coordination Services Agreement between and among GEORGIA, OPC and Georgia Systems Operations Corporation dated as of September 10, 1997. See Exhibit 10(a)47 herein. (c) 42 - Amended and Restated Nuclear Managing Board Agreement for Plant Hatch and Plant Vogtle among GEORGIA, OPC, MEAG and Dalton dated as of July 1, 1993. See Exhibit 10(a)48 herein. (c) 43 - Integrated Transmission System Agreement, Power Sale and Coordination Umbrella Agreement between GEORGIA and OPC dated as of November 12, 1990. See Exhibit 10(a)49 herein. (c) 44 - Revised and Restated Integrated Transmission System Agreement between GEORGIA and Dalton dated as of December 7, 1990. See Exhibit 10(a)50 herein. (c) 45 - Revised and Restated Integrated Transmission System Agreement between GEORGIA and MEAG dated as of December 7, 1990. See Exhibit 10(a)51 herein. (c) 46 - Plant Scherer Managing Board Agreement dated as of December 31, 1990 among GEORGIA, OPC, MEAG, Dalton, GULF, FP&L and JEA. See Exhibit 10(a)53 herein. (c) 47 - Plant McIntosh Combustion Turbine Purchase and Ownership Participation Agreement between GEORGIA and SAVANNAH dated as of December 15, 1992. See Exhibit 10(a)54 herein. (c) 48 - Plant McIntosh Combustion Turbine Operating Agreement between GEORGIA and SAVANNAH dated as of December 15, 1992. See Exhibit 10(a)55 herein. (c) 49 - Certificate of Limited Partnership of Georgia Power Capital. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit B.) (c) 50 - Amended and Restated Agreement of Limited Partnership of Georgia Power Capital, dated as of December 1, 1994. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit C.) (c) 51 - Action of General Partner of Georgia Power Capital creating the Series A Preferred Securities. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit D.) E-25 (c) 52 - Guarantee Agreement of GEORGIA dated as of December 1, 1994, for the benefit of the holders from time to time of the Series A Preferred Securities. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit G.) # (c) 53 - The Southern Company Productivity Improvement Plan, Amended and Restated effective January 1, 1998. See Exhibit 10(a)58 herein. # * (c) 54 - The Southern Company Executive Productivity Improvement Plan, Amended and Restated effective January 1, 1999. See Exhibit 10(a)59 herein. (c) 55 - The Southern Company Employee Savings Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Three. See Exhibit 10(a)60 herein. * (c) 56 - Amendment Number Four and Amendment Number Five to The Southern Company Employee Savings Plan. See Exhibit 10(a)61 herein. (c) 57 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Two. See Exhibit 10(a)62 herein. * (c) 58 - Amendment Number Three to The Southern Company Employee Stock Ownership Plan. See Exhibit 10(a)63 herein. (c) 59 - The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 1998. See Exhibit 10(a)64 herein. # (c) 60 - The Southern Company Deferred Compensation Plan, Amended and Restated effective January 1, 1998. See Exhibit 10(a)67 herein. # (c) 61 - The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)66 herein. # (c) 62 - Outside Directors Stock Plan for Subsidiaries of The Southern Company and First Amendment thereto. See Exhibit 10(a)69 herein. (c) 63 - The Southern Company Pension Plan, effective as of January 1, 1997 and all amendments thereto through Amendment Number Three. See Exhibit 10(a)71 herein. * (c) 64 - Amendment Number Four to The Southern Company Pension Plan. See Exhibit 10(a)72 herein. # * (c) 65 - The Southern Company Performance Stock Plan, Amended and Restated effective July 19, 1999. See Exhibit 10(a)73 herein. # * (c) 66 - The Southern Company Supplemental Executive Retirement Plan, Amended and Restated effective January 1, 1999. See Exhibit 10(a)74 herein. # * (c) 67 - The Southern Company Performance Dividend Plan, Amended and Restated effective January 1, 1999. See Exhibit 10(a)70 herein. E-26 # (c) 68 - The Southern Company Performance Sharing Plan effective January 1, 1997 and all amendments thereto through Amendment Number Six. See Exhibit 10(a)75 herein. # * (c) 69 - Amendment Number Seven to The Southern Company Performance Sharing Plan. See Exhibit 10(a)76 herein. # (c) 70 - The Southern Company Supplemental Benefit Plan, Amended and Restated effective January 1, 1998. See Exhibit 10(a)77 herein. # * (c) 71 - Amendment Number One to The Southern Company Supplemental Benefit Plan. See Exhibit 10(a)78 herein. (c) 72 - Southern Company Change in Control Severance Plan, effective December 7, 1998. See Exhibit 10(a)79 herein. * (c) 73 - Amendment Number One to Southern Company Change in Control Severance Plan. See Exhibit 10(a)80 herein. # (c) 74 - Southern Company Executive Change in Control Severance Plan, effective December 7, 1998. See Exhibit 10(a)81 herein. # * (c) 75 - Amendment Number One to Southern Company Executive Change in Control Severance Plan. See Exhibit 10(a)82 herein. # (c) 76 - Deferred Compensation Agreement between SOUTHERN, GEORGIA and Henry Allen Franklin. See Exhibit 10(a)83 herein. # * (c) 77 - Amendment Number One and Assignment to SCS of Deferred Compensation Agreement between SOUTHERN, GEORGIA and Henry Allen Franklin. See Exhibit 10(a)84 herein. # (c) 78 - Deferred Compensation Agreement between SOUTHERN, GEORGIA and Warren Y. Jobe. See Exhibit 10(a)86 herein. # (c) 79 - Change in Control Agreement between SOUTHERN, GEORGIA and David M. Ratcliffe. See Exhibit 10(a)99 herein. # (c) 80 - Supplemental Pension Agreement between GEORGIA and Warren Y. Jobe. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1998, File No. 1-6468, as Exhibit 10(c)77.) # * (c) 81 - Deferred Compensation Plan For Directors of Georgia Power Company, Amended and Restated Effective November 19, 1986 and all amendments thereto through Amendment Number Three. E-27 GULF (d) 1 - Service contracts dated as of January 1, 1984, between SCS and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SEGCO and SOUTHERN and Amendment No. 1 dated as of September 6, 1985, between SCS and SOUTHERN. See Exhibit 10(a)1 herein. (d) 2 - Interchange contract dated October 28, 1988, effective January 1, 1989, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)6 herein. (d) 3 - Plant Robert W. Scherer Unit Number Three Purchase and Ownership Participation Agreement dated as of March 1, 1984, Amendment No. 1 dated as of July 1, 1986 and Amendment No. 2 dated as of August 1, 1988, between GEORGIA and GULF. See Exhibit 10(a)29 herein. (d) 4 - Plant Robert W. Scherer Unit Number Three Operating Agreement dated as of March 1, 1984, between GEORGIA and GULF. See Exhibit 10(a)30 herein. (d) 5 - Plant Scherer Managing Board Agreement dated as of December 31, 1990 among GEORGIA, OPC, MEAG, Dalton, GULF, FP&L and JEA. See Exhibit 10(a)53 herein. (d) 6 - Amended and Restated Unit Power Sales Agreement dated February 18, 1982 and Amendment No. 1 dated May 18, 1982, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI and SCS. See Exhibit 10(a)33 herein. (d) 7 - Amended and Restated Unit Power Sales Agreement dated May 19, 1982, Amendment No. 1 dated August 30, 1984 and Amendment No. 2 dated October 30, 1987, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI and SCS. See Exhibit 10(a)34 herein. (d) 8 - Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)35 herein. (d) 9 - Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)36 herein. (d) 10 - Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)37 herein. (d) 11 - Agreement between GULF and AEC, effective August 1, 1985. (Designated in GULF's Form 10-K for the year ended December 31, 1985, File No. 0-2429, as Exhibit 10(g).) (d) 12 - Unit Power Sales Agreement dated December 8, 1990, between Tallahassee and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)38 herein. E-28 (d) 13 - Transition Energy Agreement dated December 31, 1990, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)39 herein. (d) 14 - Transition Energy Agreement dated December 31, 1990, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)40 herein. # (d) 15 - The Southern Company Productivity Improvement Plan, Amended and Restated effective January 1, 1998. See Exhibit 10(a)58 herein. # * (d) 16 - The Southern Company Executive Productivity Improvement Plan, Amended and Restated effective January 1, 1999. See Exhibit 10(a)59 herein. (d) 17 - The Southern Company Employee Savings Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Three. See Exhibit 10(a)60 herein. * (d) 18 - Amendment Number Four and Amendment Number Five to The Southern Company Employee Savings Plan. See Exhibit 10(a)61 herein. (d) 19 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Two. See Exhibit 10(a)62 herein. * (d) 20 - Amendment Number Three to The Southern Company Employee Stock Ownership Plan. See Exhibit 10(a)63 herein. (d) 21 - The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 1998. See Exhibit 10(a)64 herein. # (d) 22 - The Southern Company Deferred Compensation Plan, Amended and Restated effective January 1, 1998. See Exhibit 10(a)67 herein. # (d) 23 - The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)66 herein. # (d) 24 - Outside Directors Stock Plan for Subsidiaries of The Southern Company and First Amendment thereto. See Exhibit 10(a)69 herein. (d) 25 - The Southern Company Pension Plan, effective as of January 1, 1997 and all amendments thereto through Amendment Number Three. See Exhibit 10(a)71 herein. * (d) 26 - Amendment Number Four to The Southern Company Pension Plan. See Exhibit 10(a)72 herein. # (d) 27 - The Southern Company Supplemental Benefit Plan, Amended and Restated effective January 1, 1998. See Exhibit 10(a)77 herein. # * (d) 28 - Amendment Number One to The Southern Company Supplemental Benefit Plan. See Exhibit 10(a)78 herein. E-29 (d) 29 - Southern Company Change in Control Severance Plan, effective December 7, 1998. See Exhibit 10(a)79 herein. * (d) 30 - Amendment Number One to Southern Company Change in Control Severance Plan. See Exhibit 10(a)80 herein. # (d) 31 - Southern Company Executive Change in Control Severance Plan, effective December 7, 1998. See Exhibit 10(a)81 herein. # * (d) 32 - Amendment Number One to Southern Company Executive Change in Control Severance Plan. See Exhibit 10(a)82 herein. # (d) 33 - Change in Control Agreement between SOUTHERN, GULF and Travis J. Bowden. See Exhibit 10(a)89 herein. # * (d) 34 - The Southern Company Performance Stock Plan, Amended and Restated effective July 19, 1999. See Exhibit 10(a)73 herein. # * (d) 35 - The Southern Company Supplemental Executive Retirement Plan, Amended and Restated effective January 1, 1999. See Exhibit 10(a)74 herein. # * (d) 36 - The Southern Company Performance Dividend Plan, Amended and Restated effective January 1, 1999. See Exhibit 10(a)70 herein. # (d) 37 - The Southern Company Performance Sharing Plan effective January 1, 1997 and all amendments thereto through Amendment Number Six. See Exhibit 10(a)75 herein. # * (d) 38 - Amendment Number Seven to The Southern Company Performance Sharing Plan. See Exhibit 10(a)76 herein. # (d) 39 - Supplemental Pension Agreement between SAVANNAH, GULF and G. Edison Holland, Jr. (Designated in GULF's Form 10-K for the year ended December 31, 1998, File No. 0-2429, as Exhibit 10(d)35.) # (d) 40 - Supplemental Pension Agreement between ALABAMA, GULF and Travis J. Bowden. See Exhibit 10(b)43 herein. # * (d) 41 - Deferred Compensation Plan For Directors of Gulf Power Company, Amended and Restated Effective January 1, 1987 and all amendments thereto through Amendment Number Three. MISSISSIPPI (e) 1 - Service contracts dated as of January 1, 1984, between SCS and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SEGCO and SOUTHERN and Amendment No. 1 dated as of September 6, 1985, between SCS and SOUTHERN. See Exhibit 10(a)1 herein. E-30 (e) 2 - Interchange contract dated October 28, 1988, effective January 1, 1989, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)6 herein. (e) 3 - Amended and Restated Unit Power Sales Agreement dated February 18, 1982 and Amendment No. 1 dated May 18, 1982, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI and SCS. See Exhibit 10(a)33 herein. (e) 4 - Amended and Restated Unit Power Sales Agreement dated May 19, 1982, Amendment No. 1 dated August 30, 1984, and Amendment No. 2 dated October 30, 1987, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI and SCS. See Exhibit 10(a)34 herein. (e) 5 - Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)35 herein. (e) 6 - Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)36 herein. (e) 7 - Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)37 herein. (e) 8 - Unit Power Sales Agreement dated December 8, 1990, between Tallahassee and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)38 herein. (e) 9 - Transition Energy Agreement dated December 31, 1990, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)39 herein. (e) 10 - Transition Energy Agreement dated December 31, 1990, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)40 herein. (e) 11 - Transmission Facilities Agreement dated February 25, 1982, Amendment No. 1 dated May 12, 1982 and Amendment No. 2 dated December 6, 1983, between Gulf States and MISSISSIPPI. See Exhibit 10(a)45 herein. (e) 12 - Long Term Transmission Service Agreement between Entergy Power, Inc. and ALABAMA, MISSISSIPPI and SCS. See Exhibit 10(a)52 herein. # (e) 13 - The Southern Company Productivity Improvement Plan, Amended and Restated effective January 1, 1998. See Exhibit 10(a)58 herein. # * (e) 14 - The Southern Company Executive Productivity Improvement Plan, Amended and Restated effective January 1, 1999. See Exhibit 10(a)59 herein. E-31 (e) 15 - The Southern Company Employee Savings Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Three. See Exhibit 10(a)60 herein. * (e) 16 - Amendment Number Four and Amendment Number Five to The Southern Company Employee Savings Plan. See Exhibit 10(a)61 herein. (e) 17 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Two. See Exhibit 10(a)62 herein. * (e) 18 - Amendment Number Three to The Southern Company Employee Stock Ownership Plan. See Exhibit 10(a)63 herein. (e) 19 - The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 1998. See Exhibit 10(a)64 herein. # (e) 20 - The Southern Company Deferred Compensation Plan, Amended and Restated effective January 1, 1998. See Exhibit 10(a)67 herein. # (e) 21 - The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)66 herein. # (e) 22 - Outside Directors Stock Plan for Subsidiaries of The Southern Company and First Amendment thereto. See Exhibit 10(a)69 herein. (e) 23 - The Southern Company Pension Plan, effective as of January 1, 1997 and all amendments thereto through Amendment Number Three. See Exhibit 10(a)71 herein. * (e) 24 - Amendment Number Four to The Southern Company Pension Plan. See Exhibit 10(a)72 herein. # (e) 25 - The Southern Company Supplemental Benefit Plan, Amended and Restated effective January 1, 1998. See Exhibit 10(a)77 herein. # * (e) 26 - Amendment Number One to The Southern Company Supplemental Benefit Plan. See Exhibit 10(a)78 herein. (e) 27 - Southern Company Change in Control Severance Plan, effective December 7, 1998. See Exhibit 10(a)79 herein. * (e) 28 - Amendment Number One to Southern Company Change in Control Severance Plan. See Exhibit 10(a)80 herein. # (e) 29 - Southern Company Executive Change in Control Severance Plan, effective December 7, 1998. See Exhibit 10(a)81 herein. # * (e) 30 - Amendment Number One to Southern Company Executive Change in Control Severance Plan. See Exhibit 10(a)82 herein. E-32 # (e) 31 - Change in Control Agreement between SOUTHERN, MISSISSIPPI and Dwight H. Evans. See Exhibit 10(a)91 herein. # * (e) 32 - The Southern Company Performance Stock Plan, Amended and Restated effective July 19, 1999. See Exhibit 10(a)73 herein. # * (e) 33 - The Southern Company Supplemental Executive Retirement Plan, Amended and Restated effective January 1, 1999. See Exhibit 10(a)74 herein. # * (e) 34 - The Southern Company Performance Dividend Plan, Amended and Restated effective January 1, 1999. See Exhibit 10(a)70 herein. # (e) 35 - The Southern Company Performance Sharing Plan effective January 1, 1997 and all amendments thereto through Amendment Number Six. See Exhibit 10(a)75 herein. # * (e) 36 - Amendment Number Seven to The Southern Company Performance Sharing Plan. See Exhibit 10(a)76 herein. # * (e) 37 - Deferred Compensation Plan for Directors of Mississippi Power Company, Amended and Restated Effective January 1, 2000. SAVANNAH (f) 1 - Service contract dated as of March 3, 1988, between SCS and SAVANNAH. See Exhibit 10(a)3 herein. (f) 2 - Interchange contract dated October 28, 1988, effective January 1, 1989, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)6 herein. (f) 3 - Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)35 herein. (f) 4 - Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)36 herein. (f) 5 - Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)37 herein. (f) 6 - Unit Power Sales Agreement dated December 8, 1990, between Tallahassee and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)38 herein. (f) 7 - Transition Energy Agreement dated December 31, 1990, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)39 herein. E-33 (f) 8 - Transition Energy Agreement dated December 31, 1990, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)40 herein. (f) 9 - Plant McIntosh Combustion Turbine Purchase and Ownership Participation Agreement between GEORGIA and SAVANNAH dated as of December 15, 1992. See Exhibit 10(a)54 herein. (f) 10 - Plant McIntosh Combustion Turbine Operating Agreement between GEORGIA and SAVANNAH dated December 15, 1992. See Exhibit 10(a)55 herein. # (f) 11 - The Southern Company Productivity Improvement Plan, Amended and Restated effective January 1, 1998. See Exhibit 10(a)58 herein. # * (f) 12 - The Southern Company Executive Productivity Improvement Plan, Amended and Restated effective January 1, 1999. See Exhibit 10(a)59 herein. (f) 13 - The Southern Company Employee Savings Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Three. See Exhibit 10(a)60 herein. * (f) 14 - Amendment Number Four and Amendment Number Five to The Southern Company Employee Savings Plan. See Exhibit 10(a)61 herein. (f) 15 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective January 1, 1997 and all amendments thereto through Amendment Number Two. See Exhibit 10(a)62 herein. * (f) 16 - Amendment Number Three to The Southern Company Employee Stock Ownership Plan. See Exhibit 10(a)63 herein. # (f) 17 - Supplemental Executive Retirement Plan of SAVANNAH, Amended and Restated effective January 1, 1996 and all amendments thereto through Amendment Number Two. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1995, File No. 1-5072, as Exhibit 10(f)17, in SAVANNAH's Form 10-K for the year ended December 31, 1996, File No. 1-5072, as Exhibit 10(f)20 and in SAVANNAH's Form 10-K for the year ended December 31, 1997, File No. 1-5072, as Exhibit 10(f)18.) # (f) 18 - Deferred Compensation Plan for Key Employees of SAVANNAH and all amendments thereto through Amendment Number Three. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1994, File No. 1-5072, as Exhibit 10(f)17, in SAVANNAH's Form 10-K for the year ended December 31, 1995, File No. 1-5072, as Exhibit 10(f)19, in SAVANNAH's Form 10-K for the year ended December 31, 1996, File No. 1-5072, as Exhibit 10(f)22 and in SAVANNAH's Form 10-K for the year ended December 31, 1998, File No. 1-5072, as Exhibit 10(f)17.) (f) 19 - The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 1998. See Exhibit 10(a)64 herein. E-34 # (f) 20 - The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)66 herein. # (f) 21 - Deferred Compensation Plan for Directors of SAVANNAH. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1997, File No. 1-5072, as Exhibit 10(f)23.) # (f) 22 - Outside Directors Stock Plan for Subsidiaries of The Southern Company and First Amendment thereto. See Exhibit 10(a)69 herein. (f) 23 - The Southern Company Pension Plan, effective as of January 1, 1997 and all amendments thereto through Amendment Number Three. See Exhibit 10(a)71 herein. * (f) 24 - Amendment Number Four to The Southern Company Pension Plan. See Exhibit 10(a)72 herein. # (f) 25 - The Southern Company Supplemental Benefit Plan, Amended and Restated effective January 1, 1998. See Exhibit 10(a)77 herein. # * (f) 26 - Amendment Number One to The Southern Company Supplemental Benefit Plan. See Exhibit 10(a)79 herein. (f) 27 - Southern Company Change in Control Severance Plan, effective December 7, 1998. See Exhibit 10(a)79 herein. * (f) 28 - Amendment Number One to Southern Company Change in Control Severance Plan. See Exhibit 10(a)80 herein. # (f) 29 - Southern Company Executive Change in Control Severance Plan, effective December 7, 1998. See Exhibit 10(a)81 herein. # * (f) 30 - Amendment Number One to Southern Company Executive Change in Control Severance Plan. See Exhibit 10(a)82 herein. # (f) 31 - Change in Control Agreement between SOUTHERN, SAVANNAH and G. Edison Holland, Jr. See Exhibit 10(a)96 herein. # (f) 32 - The Southern Company Deferred Compensation Plan, Amended and Restated effective January 1, 1998. See Exhibit 10(a)67 herein. # * (f) 33 - The Southern Company Performance Stock Plan, Amended and Restated effective July 19, 1999. See Exhibit 10(a)73 herein. # * (f) 34 - The Southern Company Supplemental Executive Retirement Plan, Amended and Restated effective January 1, 1999. See Exhibit 10(a)74 herein. # * (f) 35 - The Southern Company Performance Dividend Plan, Amended and Restated effective January 1, 1999. See Exhibit 10(a)70 herein. E-35 # (f) 36 - The Southern Company Performance Sharing Plan effective January 1, 1997 and all amendments thereto through Amendment Number Six. See Exhibit 10(a)75 herein. # * (f) 37 - Amendment Number Seven to The Southern Company Performance Sharing Plan. See Exhibit 10(a)76 herein. # (f) 38 - Supplemental Pension Agreement between SAVANNAH, GULF and G. Edison Holland, Jr. See Exhibit 10(d)38 herein. (21) Subsidiaries of Registrants SOUTHERN * (a) - Subsidiaries of Registrant. ALABAMA * (b) - Subsidiaries of Registrant. GEORGIA * (c) - Subsidiaries of Registrant. GULF * (d) - Subsidiaries of Registrant. MISSISSIPPI * (e) - Subsidiaries of Registrant. SAVANNAH * (f) - Subsidiaries of Registrant. (23) Consents of Experts and Counsel SOUTHERN * (a) - The consent of Arthur Andersen LLP is contained herein at page IV-5. ALABAMA * (b) - The consent of Arthur Andersen LLP is contained herein at page IV-6. GEORGIA * (c) - The consent of Arthur Andersen LLP is contained herein at page IV-7. E-36 GULF * (d) - The consent of Arthur Andersen LLP is contained herein at page IV-8. MISSISSIPPI * (e) - The consent of Arthur Andersen LLP is contained herein at page IV-9. SAVANNAH * (f) - The consent of Arthur Andersen LLP is contained herein at page IV-10. (24) Powers of Attorney and Resolutions SOUTHERN * (a) - Power of Attorney and resolution. ALABAMA * (b) - Power of Attorney and resolution. GEORGIA * (c) - Power of Attorney and resolution. GULF * (d) - Power of Attorney and resolution. MISSISSIPPI * (e) - Power of Attorney and resolution. SAVANNAH * (f) - Power of Attorney and resolution. (27) Financial Data Schedule SOUTHERN (a) - Financial Data Schedule. (Designated in Form 8-K dated February 16, 2000, File No. 1-3526, as Exhibit 27.) ALABAMA (b) - Financial Data Schedule. (Designated in Form 8-K dated February 16, 2000, File No. 1-3164, as Exhibit 27.) E-37 GEORGIA (c) - Financial Data Schedule. (Designated in Form 8-K dated February 16, 2000, File No. 1-6468, as Exhibit 27.) GULF (d) - Financial Data Schedule. (Designated in Form 8-K dated February 16, 2000, File No. 0-2429, as Exhibit 27.) MISSISSIPPI (e) - Financial Data Schedule. (Designated in Form 8-K dated February 16, 2000, File No. 0-6849, as Exhibit 27.) SAVANNAH (f) - Financial Data Schedule. (Designated in Form 8-K dated February 16, 2000, File No. 1-5072, as Exhibit 27.)
E-38 EX-10.1 2 10(A)46 Exhibit 10(a)46 LONG TERM TRANSACTION SERVICE AGREEMENT UNDER SOUTHERN COMPANIES' FEDERAL ENERGY REGULATORY COMMISSION ELECTRIC TARIFF VOLUME NO. 4 MARKET-BASED RATE TARIFF between GEORGIA POWER COMPANY and OGLETHORPE POWER CORPORATION (AN ELECTRIC MEMBERSHIP CORPORATION) Dated as of February 26, 1999 TABLE OF CONTENTS ARTICLE I: DEFINITIONS...................................................2 1.1 Certain Definitions...............................................2 1.2 Interpretation....................................................11 ARTICLE II: SALE OF ELECTRIC CAPACITY...................................11 2.1 Sale and Amount of Capacity......................................11 2.2 Price of Capacity.................................................11 ARTICLE III: SALE OF ELECTRIC ENERGY....................................12 3.1 Sale and Delivery of Energy.......................................12 3.2 Price of Energy...................................................13 ART. IV: SHORT TERM RESOURCE COMMITMENT AND ENERGY UTILIZATION..........14 4.1 Availability......................................................14 4.2 Energy Utilization Schedules......................................15 4.3 Changes to Utilization Schedules..................................15 4.4 Minimum Utilization Notice........................................16 4.5 Minimum Utilization Duration......................................17 4.6 Maximum Utilization Hours.........................................18 4.7 Energy Utilization................................................18 4.8 Recall of Short Term Resources....................................19 4.9 Delivery of and Payment for Energy................................20 4.10 Hourly Energy Rate Information Obligations.......................20 ARTICLE V: LT RESOURCE COMMITMENT AND ENERGY UTILIZATION................21 5.1 Availability......................................................21 5.2 LT Steam Resource Commitment Schedules............................22 5.3 Changes to LT Steam Resource Commitment Schedules.................22 5.4 LT Steam Resource Minimum Commitment Notice.......................23 5.5 LT Steam Resource Minimum Decommitment Notice.....................24 5.6 LT Steam Resource Minimum Downtime................................25 5.7 LT Peaking Resource Deemed Committed..............................25 5.8 Energy Utilization Schedules......................................26 5.9 Changes to Utilization Schedules..................................27 5.10 Minimum Utilization Notice.......................................28 5.11 Minimum Utilization Levels.......................................30 5.12 Maximum Utilization Levels.......................................31 5.13 LT Steam Resource Ramping........................................31 5.14 Energy Utilization...............................................32 5.15 Reduction of Load Carrying Capability............................33 5.16 Delivery of and Payment for Energy...............................36 5.17 Emergency Decommitment...........................................36 5.18 RCSA Treatment...................................................36 ARTICLE VI: BILLING AND COLLECTIONS.....................................36 6.1 Capacity Billing and Payment......................................37 6.2 Energy Billing and Payment........................................37 6.3 Billing Disputes and Final Accounting.............................38 6.4 Availability of Records...........................................41 6.5 Implementation Costs..............................................41 6.6 Failure to Make Payments..........................................42 6.7 Limited Withholding of Payments...................................43 ARTICLE VII: CERTAIN CAPACITY AND ENERGY SALE MATTERS...................44 7.1 Service Rendered..................................................44 7.2 Resale............................................................44 7.3 Character of Transactions.........................................45 7.4 Constancy of Supply...............................................45 7.5 Market Rate Tariff................................................46 7.6 Termination of the BPSA...........................................47 7.7 FERC Modification of Formulary Rates Under the BPSA...............48 ARTICLE VIII: TERM OF AGREEMENT.........................................48 8.1 Term..............................................................48 8.2 Conditions For Effectiveness......................................49 8.3 EMCs' Approval of any LT Resource as a Non-Recourse Resource......50 8.4 FERC Changes; Rights to Terminate.................................51 8.5 Purchases After Expiration, Termination or Reduction..............52 ARTICLE IX: MISCELLANEOUS PROVISIONS....................................53 9.1 Approvals.........................................................53 9.2 Assignment........................................................53 9.3 Georgia Power's Agent.............................................54 9.4 No Partnership....................................................54 9.5 Successors and Assigns............................................54 9.6 No Third Party Benefit............................................54 9.7 No Consequential Damages..........................................54 9.8 No Affiliate Liability............................................55 9.9 Disclaimer of Warranty............................................55 9.10 Time of Essence; No Waiver.......................................55 9.11 Amendments.......................................................56 9.12 Notice...........................................................56 9.13 Counterparts.....................................................57 9.14 Articles and Section Headings....................................57 9.15 Including........................................................57 9.16 Governing Law....................................................57 9.17 Necessary Authorization..........................................58 ARTICLE X: EVENT OF DEFAULT AND TERMINATION.............................58 10.1. Event of Default................................................58 10.2 Rights Under Agreement...........................................60 10.3 Termination Upon Default.........................................61 EXHIBIT A Member Systems: Oglethorpe Power Corporation SCHEDULE A SHORT TERM RESOURCE SCHEDULE B LONG TERM PEAKING RESOURCE SCHEDULE C LONG TERM STEAM RESOURCE LONG TERM TRANSACTION SERVICE AGREEMENT UNDER SOUTHERN COMPANIES' FEDERAL ENERGY REGULATORY COMMISSION ELECTRIC TARIFF VOLUME NO. 4 MARKET-BASED RATE TARIFF This Agreement is entered into this 26th day of February, 1999, by and between GEORGIA POWER COMPANY, a corporation organized and existing under the laws of the State of Georgia ("Georgia Power" and/or "Seller"); and OGLETHORPE POWER CORPORATION (AN ELECTRIC MEMBERSHIP CORPORATION), organized and existing under the laws of the State of Georgia ("Oglethorpe Power" and/or "Purchaser"). In consideration of the mutual covenants and agreements herein, Georgia Power and Oglethorpe Power (collectively the "Parties") hereby agree as follows: W I T N E S S E T H: WHEREAS, Georgia Power is engaged in the sale of wholesale electric power and has received authorization from the Federal Energy Regulatory Commission to provide services at market-based rates in accordance with Southern Companies' Electric Tariff Volume No. 4 Market-Based Rate Tariff (the "Tariff"); WHEREAS, Oglethorpe Power is an electric utility, rural electric cooperative, municipality, power authority, or agency, or other entity engaged in the purchase of power at wholesale; WHEREAS, Oglethorpe Power is not affiliated with Georgia Power or any of the operating company affiliates of Georgia Power; WHEREAS, the Parties desire to set forth the terms and conditions upon which the sale of electric power and related services may be conducted between the Parties; and WHEREAS, Oglethorpe Power intends that the capacity and energy to be purchased by it from Georgia Power hereunder shall replace the capacity and energy that Oglethorpe Power is currently purchasing from Georgia Power under the Block Power Sale Agreement between Georgia Power and Oglethorpe Power dated as of November 12, 1990 ("BPSA"), NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein set forth, and other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, Georgia Power and Oglethorpe Power, each intending to be legally bound, hereby agree as follows: ARTICLE I DEFINITIONS .........1.1......Certain Definitions. In addition to the initially capitalized terms and phrases defined in the preamble of this Agreement, the following initially capitalized terms and phrases as and when used in this Agreement shall have the respective meanings set forth below: (1) "Affiliate" - means, for any specified corporation, any other entity directly or indirectly controlling or controlled by or under direct or indirect common control with such specified corporation. For purposes of this definition, "control" when used with respect to any entity means the power to direct the management and policies of such entity, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. (2) "Availability Factor" - means, at any given point in time, for any LT Resource, the value stated in Part 5 of each respective LT Schedule. (3) "Change in Law" - means a material change in, or material change in the interpretation of, or the enactment, promulgation or issuance of, any constitution, character, act, statute, regulation, ordinance, order, ruling or rule, or material change in the specified standards or objective criteria contained in a permit, license or other approval, which standards or criteria must be met in order for a Unit to generate energy, or other legislative or administrative action of any Governmental Authority of competent jurisdiction, or a final decree, judgment or order of a court of competent jurisdiction, including temporary restraining orders, or litigation, which occurs subsequent to January 15, 1999. (4) "Day" - means a calendar day, commencing at one (1) minute prior to 12:01 a.m. (Operating Time) of each such calendar day and ending at one (1) minute after 11:59 p.m. (Operating Time) of such calendar day. (5) "Electric Membership Corporations" or "EMCs" - means any one or more of those electric membership corporations identified in Exhibit "A" attached hereto and incorporated herein by this reference (for so long as and to the extent that such EMC or its successor remains a member of Oglethorpe Power). (6) "FERC" - means the Federal Energy Regulatory Commission or any Governmental Authority succeeding to the powers and functions thereof under the Federal Power Act. (7) "Federal Power Act" - means the Federal Power Act, 16 U.S.C.A.ss.ss. 791a-828c, as the same may hereafter be amended from time to time. (8) "Georgia Territorial Resource Requirements" - means, at any given time, the total energy requirements of the ITS (determined as the sum of generation and power flows in on tie lines less power flows out on tie lines) minus "OPC Territorial Load" (as such term is defined and used in the RCSA). (9) "Governmental Authority" - means any local, state, regional or federal administrative, legal, judicial or executive agency, commission, department or other such entity. (10) "Hour" - means one (1) of the twenty-four (24) clock-hours of a Day. "Hourly" - has a meaning correlative to that of Hour. (11) "Hourly Energy Rate" - means, for the Short Term Resource for each Hour during the Term, the amount, in dollars per megawatt-hour ($/MWH), calculated by Georgia Power for the Short Term Resource for such Hour as provided in Part 4 of Schedule A attached hereto. (12) "IIC" - means that certain document, The Southern Company System Intercompany Interchange Contract dated October 31, 1988, among Georgia Power and certain of its Affiliates, accepted in FERC Docket No. ER89-48-000, as the same has been and may hereafter be amended, or any successor contract among Georgia Power and its Affiliates for coordinated operations. (13) "ITS" - means the "Integrated Transmission System" as such term is defined in the Revised ITSA. (14) "Interest Rate" - means the rate per annum equal to the lesser of: (i) the highest interest rate allowed by law, in accordance with O.C.G.A. ss. 7-4-2(a)(1); or (ii) two (2) percent plus the prime rate, as stated in the Wall Street Journal on the date payment is due. (15) "Joint Committee" - means the Joint Committee for Planning and Operations established under that certain Joint Committee Agreement among Georgia Power, Oglethorpe Electric Membership Corporation (Oglethorpe Power's predecessor) and certain other entities, dates as of August 27, 1976, as amended. (16) "Level A" - means the generator voltage side of each step-up or station service transformer of each generation facility of Georgia Power or other entity that supplies power directly into the ITS. (17) "Level A to B-1 Loss Factors" - means factors intended to reflect energy loss from Level A to Level B-1 for generation, as adopted by the Joint Committee. (18) "Level B-1" - means the transmission voltage side of each step-up transformer of each generation facility of Georgia Power or other entity that supplies power directly into the ITS, or any points of interconnection where power flows into the ITS. (19) "Load Carrying Capability" - means, for each LT Resource at any given time during the Term, subject to adjustment in accordance with Section 5.15, the product, expressed in whole megawatts (MW), of: (i) the Resource Capacity of such LT Resource at such time, in megawatts (MW); times (ii) the Availability Factor of such LT Resource at such time. (20) "LT Peaking Resource" - means the long term peaking resource described in Schedule B attached hereto. (21) "LT Resources" - means both the LT Peaking Resource and the LT Steam Resource. (22) "LT Schedule" - means one of Schedules B or C attached hereto. (23) "LT Steam Resource" - means the long term steam resource described in Schedule C attached hereto. (24) "Minimum Operating Level" - means, for the LT Steam Resource at any given time during the Term, the product, expressed in whole megawatts (MW), of: (i) the Resource Capacity at such time, in megawatts (MW); times (ii) Forty one-hundredths (0.40). "Minimum Operating Level" - means, for each LT Peaking Resource at any given time during the Term, zero (-0-) megawatts (MW). (25) "Month" - means a calendar month, commencing at one (1) minute prior to 12:01 a.m. (Operating Time) on one of January 1, February 1, March 1, April 1, May 1, June 1, July 1, August 1, September 1, October 1, November 1 and December 1 and ending at one (1) minute after 11:59 p.m. (Operating Time) of the succeeding January 31, February 28 or 29 (during a leap year), March 31, April 30, May 31, June 30, July 31, August 31, September 30, October 31, November 30 or December 31. "Monthly" - has a meaning correlative to that of Month. (26) "Monthly Capacity Charge" - means, for a given Resource, the Monthly amount owed by Oglethorpe Power to Georgia Power for the capacity of such Schedule, in dollars per Month ($/Mo), as the same is calculated by Georgia Power for such Resource for each Month during the Term as provided in Sections 2.2(b) and (c). (27) "Monthly Capacity Payment" - means the Monthly payment owed by Oglethorpe Power to Georgia Power for the capacity purchased by Oglethorpe Power hereunder, in dollars per Month ($/Mo), as the same is calculated by Georgia Power for each Month during the Term as provided in Section 2.2(a). (28) "Monthly Capacity Rate" - means, for each LT Resource for each Month of a given Year, the amount, in dollars per kilowatt-month ($/KW-Mo), as set forth in Part 3 of the Schedule associated with such LT Resource. (29) "Monthly Energy Charge" - means, for a given Resource, the Monthly amount owed by Oglethorpe Power to Georgia Power for energy scheduled from such Resource, in dollars per Month ($/Mo), as the same is calculated by Georgia Power for such Resource for each Month during the Term as provided in Sections 3.2(b) and (c). (30) "Monthly Energy Payment" - means the Monthly payment owed by Oglethorpe Power to Georgia Power for energy scheduled by Oglethorpe Power hereunder, in dollars per Month ($/Mo), as the same is calculated by Georgia Power for each Month during the Term as provided in Section 3.2(a). (31) "Monthly Energy Rate" - means, for a given LT Resource for each Month during the Term, the amount, in dollars per megawatt-hour ($/MWH), calculated by Georgia Power for such Resource for such Month as provided in Part 4 of the Schedule associated with such LT Resource. (32) "Operating Time" - means the time standard used to dispatch, schedule and control the control area of which Georgia Power is a part, currently central prevailing time. Oglethorpe Power shall be noticed of any changes in the time standard used for Operating Time. (33) "Prudent Utility Practices" - means, at a particular time, any of the practices, methods and acts engaged in or approved by a significant portion of the electric utility industry prior to 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 the lowest 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 and the requirements of this Agreement. (34) "Quarter Hour" - means any one of the 15 minute increments starting on each Hour, at 15 minutes past each Hour, at 30 minutes past each Hour and at 45 minutes past each Hour. (35) "Resource" - means any one (1) of the Short Term Resources or the LT Resources. The Resources under this Agreement shall be deemed "OPC Resources" (as such term is defined and used in the RCSA). (36) "Resource Capacity" - means the amount of capacity, in megawatts (MW), associated with such Resource as specified in the notices given by Oglethorpe Power pursuant to Part 2 of each respective Schedule plus the Remainder, if any, as specified in Part 2 of Schedule B or C. (37) "Revised Coordination Services Agreement" or "RCSA" - means that certain Revised and Restated Coordination Services Agreement between and among Georgia Power, Oglethorpe Power and GSOC dated as of September 10, 1997, as may be amended. (38) "Revised ITSA" - means that certain Revised and Restated Integrated Transmission System Agreement between Georgia Power and Oglethorpe Power dated as of November 12, 1990, and each of the similar agreements between Georgia Power and the Municipal Electric Authority of Georgia and between Georgia Power and the City of Dalton, Georgia, as may be amended. (39) "RUS" - means the Rural Utilities Service, an agency of the United States Department of Agriculture, or any Governmental Authority succeeding to the powers and functions thereof. (40) "Schedule" - means one (1) of the schedules, designated Schedule A, B or C for sale of capacity and associated energy attached to this Agreement and incorporated herein by reference. (41) "Short Term Resource" - means one (1) of the short term resources described in Schedule A attached hereto. (42) "Southern Control Area" - means the electric service area encompassed by tie lines, including, but not limited to, the pseudo tie lines (as defined by NERC's "Terms Used in the Policies"), between the operating company affiliates of The Southern Company (Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Savannah Electric and Power Company) and other utilities. (43) "Southern Dispatch" - means the ability of Southern Company Services, Inc. (or other Affiliate of Georgia Power) to schedule and control, directly or indirectly, manually or automatically, the output of a generation facility in the Southern Control Area in order to increase or decrease the electricity delivered from such generation facility into the electric system with which it is interconnected. (44) "Term" - means the term of this Agreement specified in Section 8.1. (45) "Umbrella Agreement" - means that certain ITSA, Power Sale and Coordination Umbrella Agreemententered into between Georgia Power and Oglethorpe Power as of November 12, 1990. (46) "Unit" - means any one (1) of the generation facilities identified in the LT Schedules. (47) "Unit Power Sales ("UPS")" - means sales pursuant to the following specific agreements: (1) Unit Power Sales Agreement between Florida Power Corporation and Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, Savannah Electric and Power Company and Southern Company Services, Inc. dated as of July 19, 1988; (2) Unit Power Sales Agreement between Florida Power & Light Company and Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, Savannah Electric and Power Company and Southern Company Services, Inc. dated as of July 20, 1988; (3) Unit Power Sales Agreement between Jacksonville Electric Authority and Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, Savannah Electric and Power Company and Southern Company Services, Inc. dated as of August 17, 1988; and (4) Unit Power Sales Agreement between City of Tallahassee and Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, Savannah Electric and Power Company and Southern Company Services, Inc. dated as of December 8, 1990. (48) "Week" - means each period of seven (7) Days, commencing at one (1) minute prior to 12:01 a.m. (Operating Time) of each Monday and ending at one (1) minute after 11:59 p.m. (Operating Time) of each succeeding Sunday. (49) "Year" - means a calendar year, commencing at one (1) minute prior to 12:01 a.m. (Operating Time) of each January 1 and ending at one (1) minute after 11:59 p.m. (Operating Time) of each succeeding December 31. 1.2 Interpretation. In this Agreement and the Schedules hereto, unless the context otherwise requires: (a) words generally importing the singular shall include the plural and vice versa. (b) the term "entity" includes corporations, limited liability companies, partnerships, associations and governmental authorities. ARTICLE II SALE OF ELECTRIC CAPACITY 2.1......Sale and Amount of Capacity. Georgia Power agrees to sell to Oglethorpe Power, and Oglethorpe Power agrees to purchase from Georgia Power, during each Year of the Term (or portion thereof that is within the Term), an amount of capacity equal to that specified in Schedules A, B and C. 2.2......Price of Capacity. (a) Oglethorpe Power shall pay Georgia Power for each Month of the Term a Monthly Capacity Payment, in dollars per Month ($/Mo), that is equal to the summation of the Monthly Capacity Charge of each Resource for such Month. (b) For each Short Term Resource, the Monthly Capacity Charge, in dollars per Month ($/Mo), for any given Month is stated in Part 3 of Schedule A. (c) For each LT Resource, the Monthly Capacity Charge, in dollars per Month ($/Mo), for any given Month is equal to the product of: (1) the Resource Capacity, in megawatts (MW), of such LT Resource during the immediately previous Month; times (2) the Monthly Capacity Rate for such LT Resource for such previous Month, in dollars per kilowatt-month ($/KW-Mo); times (3) one thousand (1,000). ARTICLE III SALE OF ELECTRIC ENERGY 3.1......Sale and Delivery of Energy. (a) Georgia Power agrees to sell to Oglethorpe Power, and Oglethorpe Power agrees to purchase from Georgia Power, all energy scheduled by Oglethorpe Power pursuant to this Agreement. (b) Subject to Section 6.6, Oglethorpe Power may commit and schedule energy utilization of each Resource, in amounts determined from time to time in Oglethorpe Power's discretion, in accordance with the provisions of Articles IV and V. Any final commitment or energy utilization schedule made by Oglethorpe Power pursuant to this Agreement shall constitute an obligation to accept and purchase energy utilization of the Resources as so scheduled (or as deemed to have been so scheduled under the provisions of Articles IV and V), and Oglethorpe Power shall be obligated to pay for such energy utilization at the prices determined pursuant to Section 3.2. (c) Georgia Power agrees to deliver energy scheduled by Oglethorpe Power hereunder, and Oglethorpe Power shall accept such energy, at Level B-1, as and when scheduled by Oglethorpe Power; provided, however, that Georgia Power shall not be required to deliver any such scheduled energy, if the schedule does not comply with the provisions of Articles IV and V or if such nondelivery is permissible under Section 6.6. Georgia Power may serve Oglethorpe Power's schedules with energy from any resources available to Georgia Power, in Georgia Power's sole discretion. 3.2......Price of Energy. (a) Oglethorpe Power shall pay Georgia Power during each Month of the Term a Monthly Energy Payment, in dollars per Month ($/Mo), that is equal to the summation of the Monthly Energy Charge of each Resource for such Month. (b) For each Short Term Resource, the Monthly Energy Charge, in dollars per Month ($/Mo), for any given Month is equal to the summation, over all Hours of the previous Month, of the product of: (1) the amount of energy in megawatt-hours (MWH) deemed to have been utilized by Oglethorpe Power (under Section 4.7) from the Short Term Resource during each Hour of the previous Month; times (2) the Hourly Energy Rate, in dollars per megawatt-hour ($/MWH), for the Short Term Resource for such Hour. (c) For each LT Resource, the Monthly Energy Charge, in dollars per Month ($/Mo), for any given Month is equal to the product of: (1) the summation of the amount of energy, in megawatt-hours per Month (MWH/Mo), deemed to have been utilized by Oglethorpe Power (under Section 5.14) from such LT Resource during each Hour of the previous Month; times (2) the Monthly Energy Rate, in dollars per megawatt-hour ($/MWH), for such LT Resource for such previous Month. (d) Georgia Power shall provide to Oglethorpe Power the Monthly Energy Rate as calculated by Georgia Power as provided in Part 4 of the LT Schedules for each LT Resource associated with a LT Schedule, that is in effect for such Month, for each Month, by the third (3rd) business Day prior to the last Day of the immediately previous Month. ARTICLE IV SHORT TERM RESOURCE COMMITMENT AND ENERGY UTILIZATION 4.1 Availability. (a) Each of Oglethorpe Power's Short Term Resources shall be deemed to be available during each Hour of each Day of each Week during the Term at the respective then current Resource Capacity of such Short Term Resource, as long as Schedule A is effective under this Agreement. The deemed availability of a given Short Term Resource shall change automatically from time to time during the Term to reflect any recall of the Short Term Resources pursuant to Section 4.8. (b) Commencing upon the effective date of Schedule A's termination under this Agreement, Oglethorpe Power may no longer at any time schedule any energy utilization from the Short Term Resources. 4.2 Energy Utilization Schedules. Oglethorpe Power shall provide Georgia Power or its agent on or before 9:30 a.m. (Operating Time) of each Day, a schedule of Oglethorpe Power's anticipated utilization for each Hour during the immediately following Day from each Short Term Resource, subject to the provisions of this Section 4.2 and Sections 4.4, 4.5 and 4.6 concerning minimum utilization notice, minimum utilization duration, and maximum utilization Hours. If Oglethorpe Power provides more than one (1) schedule for its anticipated utilization of the Short Term Resources for the immediately following Day, the schedule last received by Georgia Power or its agent on or before 9:30 a.m. (Operating Time) shall be deemed the effective schedule and all previous schedules submitted for such Day shall be deemed ineffective. Georgia Power shall use reasonable best efforts to notify Oglethorpe Power that such utilization schedule has been deemed ineffective as soon as practicable following such event. 4.3 Changes to Utilization Schedules. (a) If Oglethorpe Power has submitted a valid utilization schedule for one or more Short Term Resources pursuant to Section 4.2 for a given Day, Oglethorpe Power may make changes to its schedule of utilization from the Short Term Resources for such given Day from time to time during such Day, in Oglethorpe Power's discretion, subject to the provisions of this Section 4.3 and of Sections 4.4, 4.5 and 4.6 concerning minimum utilization notice, minimum utilization duration, and maximum utilization Hours. (b) Oglethorpe Power shall use good faith efforts to notify Georgia Power or its agent of such changes as soon as practicable after Oglethorpe Power decides to make any such changes. Such notices shall contain information regarding which Short Term Resource Oglethorpe Power wishes to add to or delete from its utilization schedule for the Short Term Resources during each Hour affected by such changes. Except as required in Section 4.3(c), if Oglethorpe Power notifies Georgia Power of the intent to add or delete more than one (1) Short Term Resource in any given Hour, such notice shall be deemed ineffective. Georgia Power shall use reasonable best efforts to notify Oglethorpe Power that such utilization schedule has been deemed ineffective as soon as practicable following such event. (c) Oglethorpe Power shall be required to make such changes to its energy utilization schedules from time to time during a Day to reflect any recalls made by Georgia Power or its agent, pursuant to Section 4.8, of the Short Term Resources. Oglethorpe Power shall make changes as and when directed by Georgia Power or its agent. Oglethorpe Power shall be deemed to have reduced its energy utilization schedule from such a Short Term Resource, automatically as and when, and to such level of energy as Georgia Power or its agent deems appropriate under the circumstances and Section 4.8 (including without limitation zero (-0-)), whether or not Oglethorpe Power has made such changes as aforesaid. Any changes to Oglethorpe Power's utilization schedules made or deemed to have been made pursuant to this Section 4.3(c) shall be treated as "energy scheduled . . . but not delivered" pursuant to Section 4.8(c). 4.4 Minimum Utilization Notice. (a) Oglethorpe Power must give Georgia Power or its agent at least twenty (20) minutes' prior notice that Oglethorpe Power wishes to utilize energy from a Short Term Resource during an Hour in order to actually utilize energy from such Short Term Resource during such Hour. (b) Once Oglethorpe Power has given Georgia Power or its agent notice pursuant to Section 4.2 or 4.3 that Oglethorpe Power wishes to utilize energy from a given Short Term Resource in a given Hour, Oglethorpe Power may delete such Short Term Resource from its utilization schedule for such Hour only until twenty (20) minutes prior to such Hour. (c) Oglethorpe Power's schedule of energy utilization from all Short Term Resources during a given Hour shall become final at twenty (20) minutes prior to such Hour and shall not thereafter be subject to change by Oglethorpe Power. (d) If Oglethorpe Power gives Georgia Power or its agent notice pursuant to Section 4.2 or 4.3 that Oglethorpe Power wishes to schedule energy utilization from a given Short Term Resource upon less than twenty (20) minutes' prior notice, then such energy utilization notice shall be deemed ineffective as to such Short Term Resource for such Hour (even if Oglethorpe Power complied with the provisions of Sections 4.5 and 4.6 concerning minimum utilization duration and maximum utilization Hours). Georgia Power shall use reasonable best efforts to notify Oglethorpe Power that such utilization schedule has been deemed ineffective as soon as practicable following such event. 4.5 Minimum Utilization Duration. If any Short Term Resource is utilized during a given Day, then Oglethorpe Power must always schedule energy utilization from each such Short Term Resource at no less than six (6) consecutive Hours. If Oglethorpe Power gives Georgia Power or its agent notice pursuant to Sections 4.2 or 4.3 that Oglethorpe Power wishes to schedule any Short Term Resource such that such Short Term Resource is being utilized less than six (6) consecutive Hours, then Oglethorpe Power shall nevertheless be deemed to have scheduled energy utilization from such Short Term Resource for a period of six (6) consecutive Hours starting with the first Hour scheduled for such Short Term Resource in said notice. Georgia Power shall use reasonable best efforts to notify Oglethorpe Power that such utilization schedule has been deemed changed as soon as practicable following such event. 4.6 Maximum Utilization Hours. Oglethorpe Power may not schedule energy utilization from the Short Term Resources in excess of 2500 Hours during the Term of this Agreement. For purposes of determining such 2500 Hours of maximum energy utilization, if Oglethorpe Power schedules one (1) or more Short Term Resource in a given Hour, such Hour shall count as one (1) Hour of energy utilization. If Oglethorpe Power gives Georgia Power or its agent notice pursuant to Sections 4.2 or 4.3 that Oglethorpe Power wishes to schedule any Short Term Resource such that the Short Term Resources are being utilized in excess of 2500 Hours during the Term of this Agreement, such notice shall be ineffective. Georgia Power shall use reasonable best efforts to notify Oglethorpe Power that such utilization schedule has been deemed ineffective as soon as practicable following such event. 4.7 Energy Utilization. For purposes of calculating both the Monthly Energy Charge for each of the Short Term Resources and the "Actual Hourly Resource Utilization" (as such term is defined and used in the RCSA) associated with each of the Short Term Resources, Oglethorpe Power shall be deemed to have utilized during each Hour all energy either: (1) shown on Oglethorpe Power's final energy utilization schedule (under Section 4.4(c)) during each such Hour for such Short Term Resource, except as such energy utilization schedule may have been deemed ineffective under Section 4.2, 4.3(b), 4.4(d) or 4.6. (2) deemed to have been scheduled by Oglethorpe Power during each such Hour from such Short Term Resource under Section 4.3(c) or 4.5. 4.8 Recall of Short Term Resources. (a) If Georgia Power or its agent determines in its sole discretion that it is necessary or appropriate to interrupt (i) Georgia Power retail interruptible load (retail electric service currently provided pursuant to Tariffs IS-Standard-1 and IS-SBG-1 on file with the Georgia Public Service Commission), or (ii) firm sale obligations executed prior to this Agreement, then the Short Term Resources may, in Georgia Power's sole discretion, be interrupted upon thirty (30) minutes' prior notice. Such notice shall specify the event(s) used to determine the recall. (b) Oglethorpe Power agrees that, in such event, it will immediately change (or allow the change of by Georgia Power or its agent) its energy utilization from the Short Term Resources, as provided in Section 4.3. In addition, in such event, Oglethorpe Power agrees that it will take any and all actions necessary or appropriate to accomplish the foregoing including, without limitation, shedding load served by the Short Term Resources. Oglethorpe Power may recommence serving load shed by Oglethorpe Power pursuant to this Section 4.8 when Georgia Power or its agent advises Oglethorpe Power that it is appropriate to do so in light of system security needs. (c) Georgia Power agrees that, if the Short Term Resources are reduced pursuant to this Section 4.8 such that the Monthly ratio of actual energy delivered during such Month, in megawatt-hours (MWH), divided by the sum of the actual energy delivered during such Month plus the energy scheduled during such Month but not delivered due to interruption pursuant to this Section 4.8, excluding increases in scheduled utilization pursuant to Section 4.3 in an Hour in which the Southern Control Area has declared a System Alert Level 1-A or higher (as determined in accordance with the Southern Sub-Region Security Coordinator Agreement), expressed in megawatt-hours (MWH), is less than ninety-five one-hundredths (0.95), then Georgia Power shall give Oglethorpe Power a credit in the following Monthly invoice in an amount for the Short Term Resources that is determined in accordance with Part 5 of Rate Schedule A. 4.9 Delivery of and Payment for Energy. Georgia Power's and Oglethorpe Power's respective rights and obligations concerning the delivery of and payment for final energy utilization scheduled by Oglethorpe Power from the Short Term Resources during any given Hour of the Term shall be as set forth in Article III. 4.10 Hourly Energy Rate Information Obligations. (a) By 5:00 p.m. (Operating Time) of each Day in which Oglethorpe Power has submitted a valid schedule for utilization of energy from any of the Short Term Resources pursuant to Sections 4.2 through 4.6, Georgia Power will provide, to Oglethorpe Power, estimates of the expected Hourly Energy Rates for each Hour of the following Day together with an assessment of the probability of a recall pursuant to Section 4.8 during the following Day. At least thirty (30) minutes prior to each Hour of such following Day, Georgia Power will provide, to Oglethorpe Power, the Hourly Energy Rates effective for such Hour, provided such Hour is not subject to interruption pursuant to Section 4.8. (b) Oglethorpe Power agrees to treat such Hourly Energy Rates and estimates as confidential data consistent with the provisions of Article XV of the RCSA. Specifically, Oglethorpe Power shall not disclose such Hourly Energy Rates or estimates to any other person, agent or entity, including, but not limited to, LG&E Energy Marketing, Morgan Stanley Capital Group, Inc. or any other power marketer, provided, however, Oglethorpe Power may disclose actual Hourly Energy Rates associated with the final energy utilization to the EMCs to the extent necessary for billing and audit purposes after receipt of the invoice rendered pursuant to Section 6.2. Oglethorpe Power will discuss with Georgia Power the form and substance of such Hourly Energy Rates information that Oglethorpe Power intends to disclose to the EMCs prior to such disclosure; provided, however, Oglethorpe Power has no obligation to discuss disclosure of such information when such disclosure occurs during an audit by an EMC of a bill rendered by Oglethorpe Power to such EMC. ARTICLE V LT RESOURCE COMMITMENT AND ENERGY UTILIZATION 5.1 Availability. (a) Each of Oglethorpe Power's LT Resources shall be deemed to be available during each Hour of each Day of each Week during the Term at the respective then current Load Carrying Capability of such LT Resource, as long as the respective LT Schedule is effective under this Agreement. The deemed availability of a given LT Resource shall change automatically from time to time during the Term to reflect any changes in the Load Carrying Capability of any of the LT Resources under Section 5.15. (b) Commencing upon the effective date of Schedule B's termination under this Agreement, the LT Peaking Resource shall no longer be deemed committed and Oglethorpe Power may no longer at any time schedule any energy utilization from the LT Peaking Resource. 5.2 LT Steam Resource Commitment Schedules. Oglethorpe Power shall provide Georgia Power or its agent on or before 1:30 p.m. (Operating Time) of the Friday prior to the commencement of each Week during the Term, a schedule for each Hour of each Day of the immediately following Week indicating Oglethorpe Power's expected commitment for the LT Steam Resource. 5.3 Changes to LT Steam Resource Commitment Schedules. (a) Oglethorpe Power may make changes to its commitment schedule of the LT Steam Resource for a given Week from time to time during such Week, in Oglethorpe Power's discretion, subject to the provisions of this Section 5.3 and of Sections 5.4, 5.5 and 5.6 concerning minimum notice periods for commitment and decommitment and minimum downtime. (b) Oglethorpe Power shall use good faith efforts to notify Georgia Power or its agent of such changes as soon as practicable after Oglethorpe Power decides to make any such changes. (c) Notwithstanding Section 5.3(b), Oglethorpe Power shall provide Georgia Power or its agent on or before 1:30 p.m. (Operating Time) of each Day during the Term, notice of any such changes to Oglethorpe Power's then current commitment schedule of the LT Steam Resource for the immediately following one (1) Day. Notice of any such changes provided by Oglethorpe Power pursuant to this Section 5.3(c) shall be deemed to satisfy the requirements of Section 5.3(b). If Oglethorpe Power provides more than one (1) schedule for its anticipated commitment of the LT Steam Resource for the immediately following one (1) Day, the schedule last received by Georgia Power or its agent on or before 1:30 p.m. (Operating Time) shall be deemed the effective schedule and all previous schedules submitted for such Day shall be deemed ineffective. 5.4 LT Steam Resource Minimum Commitment Notice. (a) Oglethorpe Power must give Georgia Power or its agent at least twelve (12) Hours' prior notice that it wishes to commit the LT Steam Resource in order to actually commit such LT Steam Resource. (b) Once Oglethorpe Power has given Georgia Power or its agent notice pursuant to Section 5.2 or 5.3 that Oglethorpe Power wishes to commit the LT Steam Resource, Oglethorpe Power may delete the LT Steam Resource from its then current commitment schedule only until twelve (12) Hours prior to the first (1st) Hour during which Oglethorpe Power has notified Georgia Power that Oglethorpe Power wishes the LT Steam Resource to be committed. If Oglethorpe Power does not delete the LT Steam Resource from its then current commitment schedule (by notice provided pursuant to Section 5.2 or 5.3) prior to the commencement of the twelfth (12th) Hour preceding such first (1st) Hour of commitment, then Oglethorpe Power shall be deemed to have committed the LT Steam Resource, commencing with such first (1st) Hour, and may thereafter decommit the LT Steam Resource only pursuant to and as allowed by Sections 5.2, 5.3, 5.5 and 5.17. (c) If Oglethorpe Power gives Georgia Power or its agent notice pursuant to Section 5.2 or 5.3 that Oglethorpe Power wishes to commit the LT Steam Resource upon less than twelve (12) Hours' prior notice, then such commitment notice shall be ineffective as to the LT Steam Resource (even if Oglethorpe Power complied with the provisions of Section 5.6 concerning minimum downtime). Georgia Power shall use reasonable best efforts to notify Oglethorpe Power that such commitment schedule has been deemed ineffective as soon as practicable following such event. (d) Notwithstanding Sections 5.4(a) and 5.4(b), a commitment of the LT Steam Resource shall not be effective unless Oglethorpe Power also complies with the provisions of Section 5.6 concerning minimum downtime. 5.5 LT Steam Resource Minimum Decommitment Notice. (a) Unless permitted pursuant to Section 5.17, Oglethorpe Power must give Georgia Power or its agent at least four (4) Hours' prior notice that Oglethorpe Power wishes to decommit the LT Steam Resource in order to actually decommit the LT Steam Resource. (b) Once Oglethorpe Power has given Georgia Power or its agent notice pursuant to Section 5.2 or 5.3 that Oglethorpe Power wishes to decommit the LT Steam Resource, Oglethorpe Power may retain the LT Steam Resource on its then current commitment schedule only until four (4) Hours prior to the first (1st) Hour during which Oglethorpe Power has noticed Georgia Power that Oglethorpe Power wishes the LT Steam Resource to be decommitted. If Oglethorpe Power does not retain the LT Steam Resource on its then current commitment schedule (by notice provided pursuant to Section 5.2 or 5.3) prior to the fourth (4th) Hour preceding such first (1st) Hour of decommitment, then Oglethorpe Power shall be deemed to have decommitted the LT Steam Resource, commencing with such first (1st) Hour, and may thereafter again commit the LT Steam Resource only pursuant to and as allowed by Sections 5.2, 5.3, 5.4 and 5.6. (c) If Oglethorpe Power gives Georgia Power notice pursuant to Section 5.2 or 5.3 that Oglethorpe Power wishes to decommit the LT Steam Resource upon less than four (4) Hours' prior notice, then such decommitment notice shall be ineffective as to the LT Steam Resource. Georgia Power shall use reasonable best efforts to notify Oglethorpe Power that such commitment schedule has been deemed ineffective as soon as practicable following such event. 5.6 LT Steam Resource Minimum Downtime. (a) Oglethorpe Power may not commit the LT Steam Resource until at least twenty-four (24) Hours following the first (1st) effective Hour of the LT Steam Resource's most recent decommitment. (b) If Oglethorpe Power notifies Georgia Power or its agent pursuant to Section 5.2 or 5.3 that Oglethorpe Power wishes to commit the LT Steam Resource following the expiration of fewer than twenty-four (24) Hours, then such commitment notice shall be ineffective as to the LT Steam Resource (even if Oglethorpe Power complied with the provisions of Section 5.4 concerning minimum commitment notice). Georgia Power shall use reasonable best efforts to notify Oglethorpe Power that such commitment schedule has been deemed ineffective as soon as practicable following such event. 5.7 LT Peaking Resource Deemed Committed. The LT Peaking Resource shall be deemed committed at all times during the Term, as long as Schedule B has not terminated pursuant to this Agreement. Sections 5.2 through 5.6 shall not apply to the LT Peaking Resource. 5.8 Energy Utilization Schedules. (a) Oglethorpe Power shall provide Georgia Power or its agent on or before 1:30 p.m. (Operating Time) of each Day, a schedule of Oglethorpe Power's anticipated energy utilization during the immediately following Day from the committed LT Resources. If Oglethorpe Power provides more than one (1) schedule for its anticipated utilization of the LT Steam Resource for the immediately following one (1) Day, the schedule last received by Georgia Power or its agent on or before 1:30 p.m. (Operating Time) shall be deemed the effective schedule and all previous schedules submitted for such Day shall be deemed ineffective. (b) The energy utilization schedules provided by Oglethorpe Power for each Day pursuant to Section 5.8(a) shall contain information regarding the amount of energy, in megawatt-hours per Hour (MWH/H), that Oglethorpe Power expects to utilize from each of the committed LT Resources during each Quarter Hour of such Day. (c) Each of Oglethorpe Power's energy utilization schedules shall be consistent on an Hour by Hour basis with Oglethorpe Power's then current commitment schedule of the LT Steam Resource for such Hour. Oglethorpe Power may not include the LT Steam Resource in an energy utilization schedule for a given Hour of a given Day, if the LT Steam Resource has not been properly committed by Oglethorpe Power for such Hour pursuant to Sections 5.2 through 5.6. (d) If Oglethorpe Power gives Georgia Power or its agent notice pursuant to this Section 5.8 that Oglethorpe Power wishes to schedule energy utilization from the LT Steam Resource for a given Hour, when the LT Steam Resource has not been properly committed by Oglethorpe Power for such Hour pursuant to Sections 5.2 through 5.6, then such energy utilization notice shall be ineffective as to the LT Steam Resource for such Hour (even if Oglethorpe Power complied with the provisions of Sections 5.10, 5.11, 5.12 and 5.13 concerning minimum utilization notice, minimum utilization levels, maximum utilization levels and ramping). Georgia Power shall use reasonable best efforts to notify Oglethorpe Power that such utilization schedule has been deemed ineffective as soon as practicable following such event. 5.9 Changes to Utilization Schedules. (a) Oglethorpe Power may make changes to its schedule of energy utilization from the committed LT Resources for a given Day from time to time during such Day, in Oglethorpe Power's discretion, subject to the provisions of this Section 5.9 and of Sections 5.10, 5.11, 5.12 and 5.13 concerning minimum utilization notice, minimum utilization levels, maximum utilization levels and ramping. (b) Oglethorpe Power shall use good faith efforts to notify Georgia Power or its agent of such changes as soon as practicable after Oglethorpe Power decides to make any such changes. Such notices shall contain information regarding the increases or decreases in the amount of energy, in megawatt-hours per Hour (MWH/H), that Oglethorpe Power expects to utilize from each of the committed LT Resources during each Quarter Hour affected by such changes. (c) Oglethorpe Power shall be required to make such changes to its energy utilization schedules from time to time during a Day to reflect any changes made by Georgia Power or its agent, pursuant to Section 5.15, to the Load Carrying Capability of a LT Resource. Oglethorpe Power shall make such changes as and when directed by Georgia Power or its agent. Oglethorpe Power shall be deemed to have reduced its energy utilization schedule from such a LT Resource, automatically as and when, and to such level of energy as Georgia Power or its agent deems appropriate under the circumstances and Section 5.15 (including without limitation zero (-0-)), whether or not Oglethorpe Power has made such changes as aforesaid. (d) Oglethorpe Power's energy utilization schedules, as changed (or as deemed to have been changed) by Oglethorpe Power from time to time pursuant to this Section 5.9, shall always continue to be consistent on an Hour by Hour basis with Oglethorpe Power's then current commitment schedule of the LT Steam Resource. Oglethorpe Power may not pursuant to this Section 5.9 add the LT Steam Resource to any energy utilization schedule for a given Hour of a given Day, if the LT Steam Resource has not been properly committed by Oglethorpe Power for such Hour pursuant to Sections 5.2 through 5.6. (e) If Oglethorpe Power gives Georgia Power or its agent notice pursuant to this Section 5.9 that Oglethorpe Power wishes to schedule energy utilization from the LT Steam Resource for a given Hour, when the LT Steam Resource has not been properly committed by Oglethorpe Power for such Hour pursuant to Sections 5.2 through 5.6, then such energy utilization notice shall be ineffective as to the LT Steam Resource for such Hour (even if Oglethorpe Power complied with the provisions of Sections 5.10, 5.11, 5.12 and 5.13 concerning minimum utilization notice, minimum utilization levels, maximum utilization levels and ramping). Georgia Power shall use reasonable best efforts to notify Oglethorpe Power that such utilization schedule has been deemed ineffective as soon as practicable following such event. 5.10 Minimum Utilization Notice. (a) Oglethorpe Power must give Georgia Power or its agent at least one (1) Quarter Hour's prior notice that Oglethorpe Power wishes to utilize energy from a LT Resource during a Quarter Hour in order to actually utilize energy from such LT Resource during such Quarter Hour. (b) Once Oglethorpe Power has given Georgia Power or its agent notice pursuant to Section 5.8 or 5.9 that Oglethorpe Power wishes to utilize energy from a given committed LT Resource in a given Quarter Hour at a given level of energy, Oglethorpe Power may increase or decrease the level of energy at which such LT Resource is to be utilized during such Quarter Hour only until one (1) Quarter Hour prior to such Quarter Hour. (c) Oglethorpe Power's schedule of energy utilization from all committed LT Resources during a given Quarter Hour shall become final at the commencement of the immediately preceding Quarter Hour and shall not thereafter be subject to increase or decrease by Oglethorpe Power. (d) If Oglethorpe Power gives Georgia Power or its agent notice pursuant to Section 5.8 or 5.9 that Oglethorpe Power wishes to schedule energy utilization from a given LT Resource upon less than one (1) Quarter Hour's prior notice, then such energy utilization notice shall be ineffective as to such LT Resource for such Quarter Hour (even if Oglethorpe Power complied with the provisions of Sections 5.11, 5.12 and 5.13 concerning minimum utilization levels, maximum utilization levels and ramping). Georgia Power shall use reasonable best efforts to notify Oglethorpe Power that such utilization schedule has been deemed ineffective as soon as practicable following such event. (e) If Oglethorpe Power gives Georgia Power or its agent notice pursuant to Section 5.8 or 5.9 that Oglethorpe Power wishes to schedule energy utilization from the LT Peaking Resource in a given Quarter Hour (Y) that is not equal to the energy utilization scheduled in the immediately previous Quarter Hour (X), then for the immediately following Quarter Hour (Z), Oglethorpe Power must schedule the identical utilization as scheduled for the given Quarter Hour (Y). If in such following Quarter Hour (Z) Oglethorpe Power schedules energy utilization from the LT Peaking Resource that is not identical to that scheduled for the given Quarter Hour (Y), then Oglethorpe Power shall nevertheless be deemed to have scheduled energy utilization from the LT Peaking Resource in such following Quarter Hour (Z) at such level of energy equal to the given Quarter Hour's (Y's) utilization schedule. Georgia Power shall use reasonable best efforts to notify Oglethorpe Power that such utilization has been deemed scheduled as soon as practicable following such event. 5.11 Minimum Utilization Levels. (a) If the LT Steam Resource is committed during a given Hour, then Oglethorpe Power must always schedule energy utilization from the LT Steam Resource at no less than its then current Minimum Operating Level. If the LT Steam Resource is committed during an Hour, but Oglethorpe Power does not schedule energy utilization from the LT Steam Resource during each Quarter Hour or schedules energy utilization from the LT Steam Resource at less than its then current Minimum Operating Level, then Oglethorpe Power shall nevertheless be deemed to have scheduled energy utilization from the LT Steam Resource at its then current Minimum Operating Level. Georgia Power shall use reasonable best efforts to notify Oglethorpe Power that such utilization has been deemed scheduled as soon as practicable following such event. (b) This Section 5.11 shall not apply to the LT Peaking Resource. 5.12 Maximum Utilization Levels. Oglethorpe Power may not schedule energy utilization from any committed LT Resource during any Quarter Hour at any level of energy in excess of the then current Load Carrying Capability of such LT Resource. If Oglethorpe Power schedules energy utilization from a given LT Resource during a Quarter Hour at a level of energy that is in excess of the then current Load Carrying Capability of such LT Resource, then Oglethorpe Power shall nevertheless be deemed to have scheduled energy utilization from such LT Resource at such level of energy equal to the then current Load Carrying Capability of such LT Resource. Georgia Power shall use reasonable best efforts to notify Oglethorpe Power that such utilization has been deemed scheduled as soon as practicable following such event. 5.13 LT Steam Resource Ramping. (a) During the first (1st) Hour after the commencement of a commitment of a LT Steam Resource pursuant to and as allowed by Sections 5.2, 5.3, 5.4 and 5.6, Oglethorpe Power must schedule energy utilization from the LT Steam Resource at a level of energy that is equal to the then current Minimum Operating Level of the LT Steam Resource. If Oglethorpe Power schedules energy utilization from the LT Steam Resource during such an Hour at a level of energy greater than or less than such level of energy, then Oglethorpe Power shall nevertheless be deemed to have scheduled energy utilization from the LT Steam Resource at such level of energy for such Hour. Georgia Power shall use reasonable best efforts to notify Oglethorpe Power that such utilization has been deemed scheduled as soon as practicable following such event. (b) During the first (1st) Hour after the commencement of a decommitment of the LT Steam Resource pursuant to and as allowed by Sections 5.2, 5.3 and 5.5, Oglethorpe Power must schedule energy utilization from the LT Steam Resource at a level of energy that is equal to the then current Minimum Operating Level of the LT Steam Resource. If Oglethorpe Power schedules energy utilization from the LT Steam Resource during such an Hour at a level of energy less than or greater than such level of energy, then Oglethorpe Power shall nevertheless be deemed to have scheduled energy utilization from the LT Steam Resource at such level of energy for such Hour. Georgia Power shall use reasonable best efforts to notify Oglethorpe Power that such utilization has been deemed scheduled as soon as practicable following such event. (c) During the second (2nd) Hour after the commencement of a decommitment of the LT Steam Resource pursuant to and as allowed by Sections 5.2, 5.3 and 5.5, and thereafter unless and until the LT Steam Resource is again committed pursuant to and as allowed by Sections 5.2, 5.3, 5.4 and 5.6, Oglethorpe Power may not schedule energy utilization from the LT Steam Resource at any level of energy. If Oglethorpe Power schedules energy utilization from the LT Steam Resource during any such Hour or Hours, then Oglethorpe Power shall nevertheless be deemed not to have scheduled any energy utilization from the LT Steam Resource at all for any or all of such Hours. Georgia Power shall use reasonable best efforts to notify Oglethorpe Power that such utilization has been deemed scheduled as soon as practicable following such event. (d) This Section 5.13 shall not apply to the LT Peaking Resource. 5.14 Energy Utilization. For purposes of calculating both the Monthly Energy Charge for each of the LT Resources and the "Actual Hourly Resource Utilization" associated with each of the LT Resources (as such term is defined and used in the RCSA), Oglethorpe Power shall be deemed to have utilized during each Hour the average of all energy either: (1) shown on Oglethorpe Power's final energy utilization schedule (under Section 5.10(c)) during each Quarter Hour of such Hour for such LT Resource, except as such energy utilization schedule may have been deemed ineffective under Section 5.8(a), 5.8(d), 5.9(e) or 5.10(d); or (2) deemed to have been scheduled by Oglethorpe Power during each Quarter Hour of such Hour from such LT Resource under Section 5.9(c), 5.10(e), 5.11(a), 5.12, 5.13(a), 5.13(b) or 5.13(c). 5.15 Reduction of Load Carrying Capability. (a) If Georgia Power or its agent determines in its sole discretion that it is necessary or appropriate for the Georgia system to shed firm territorial requirements load, determined consistent with NERC guidelines, then the Load Carrying Capability of one (1) or more of the LT Resources that are committed at the time of such load shedding shall automatically be reduced by the amounts computed by Georgia Power or its agent as provided in Sections 5.15(b) and 5.15(c) until such time as Georgia Power advises Oglethorpe Power that Oglethorpe Power can recommence serving load as provided in Section 5.15(d). (b) The reduction ratio to be used in computing Oglethorpe Power's reduction amount shall be equal to the quotient of: (1) the summation of the then current Load Carrying Capability of each of the LT Resources that are committed at the time of such load shedding; divided by (2) the sum of: (i) Georgia Territorial Resource Requirements at such time (not including its obligations to serve Oglethorpe Power under this Agreement); plus (ii) the summation determined under Section 5.15(b)(1). (c) Oglethorpe Power's aggregate reduction amount, in megawatts (MW), shall be equal to the product of: (1) the aggregate amount of load that Georgia Power or its agent determines in its discretion is necessary or appropriate for the Georgia system to shed; times (2) the reduction ratio computed by Georgia Power or its agent pursuant to Section 5.15(b). The Load Carrying Capability of the one (1), of the LT Resources that are committed at the time of such load shedding, which has the highest then current Monthly Energy Rate, shall then automatically be reduced by the amount of such reduction amount until the Load Carrying Capability of such LT Resource is equal to the then current Minimum Operating Level of such LT Resource. If a portion of such reduction amount remains unapplied, then the Load Carrying Capability of the other LT Resource shall be automatically reduced by Georgia Power or its agent, until all of the reduction amount has been applied. The Load Carrying Capability of such LT Resources will be reduced below each such LT Resource's respective Minimum Operating Level, in a manner corollary to the foregoing, if a portion of such reduction amount remains unapplied after each of such LT Resource's Load Carrying Capability has been reduced to such LT Resource's Minimum Operating Level. (d) Oglethorpe Power agrees that, in such event, it will immediately change (or allow the change of by Georgia Power or its agent) its energy utilization from the LT Resources, as provided in Section 5.9. In addition, in such event, Oglethorpe Power agrees that it will take any and all actions necessary or appropriate to accomplish the foregoing, including, but not limited to, shedding load served by the LT Resources. Oglethorpe Power may recommence serving load shed by Oglethorpe Power pursuant to this Section 5.15 when Georgia Power or its agent advises Oglethorpe Power that it is appropriate to do so in light of system security needs. (e) Georgia Power agrees that, if the Load Carrying Capability of any one or more LT Resources is reduced pursuant to this Section 5.15, then Georgia Power shall give Oglethorpe Power a credit in the following Monthly invoice in an amount for each such LT Resource that is equal to the product of: (1) Oglethorpe Power's aggregate reduction amount, in megawatts (MW), as determined pursuant to Section 5.15(c); times (2) the quotient of: (i) the Monthly Capacity Rate(s) for each of the LT Resources whose Load Carrying Capability was reduced pursuant to Section 5.15(c) (applied by Georgia Power in portions as necessary to accommodate the provisions of Section 5.15(c)), for the Month in which such load shedding occurs, in dollars per kilowatt-month ($/KW-Mo); divided by (ii) the number of Hours in such Month; times (3) the number of Hours in the period over which such load shedding occurred; times (4) one thousand (1,000). 5.16 Delivery of and Payment for Energy. Georgia Power's and Oglethorpe Power's respective rights and obligations concerning the delivery of and payment for energy utilization scheduled by Oglethorpe Power from the LT Resources during any given Hour of the Term shall be as set forth in Article III. 5.17 Emergency Decommitment. Notwithstanding the provisions of Section 5.5, if all "OPC Off-System Resources" (as such term is defined and used in the RCSA) have been interrupted pursuant to Section 8.1 of the RCSA and Oglethorpe Power continues to have surplus energy as defined in Article XII of the RCSA, Oglethorpe Power may decommit the LT Steam Resource on one (1) Quarter Hour's prior notice to Georgia Power, effective at the start of any subsequent Quarter Hour. 5.18 RCSA Treatment. (a) The LT Steam Resource shall be deemed "Qualifying Resources - Spinning" (as such term is defined and used in Sections 11.5 and 11.6 of the RCSA). (b) Fifteen (15) percent of the LT Peaking Resource shall be deemed "Qualifying Resources - Supplemental" (as such term is defined and used in Section 11.6 of the RCSA). (c) The "Difference" utilized in the calculation of the "Back-Up Capacity Charge" (as such terms are defined and used in Section 12.3 of the RCSA) shall include the difference between (i) the sum of the Actual Hourly Resource Utilization of all LT Resources, less (ii) the sum of the then current Load Carrying Capability of all LT Resources. ARTICLE VI BILLING AND COLLECTIONS 6.1 Capacity Billing and Payment. (a) As promptly as practicable after the commencement of each Month during the Term, Georgia Power shall send Oglethorpe Power an invoice stating the Monthly Capacity Payment for such Month. (b) All such Monthly Capacity Payments shall be due and payable on or before the tenth (10th) Day after Oglethorpe Power's receipt of such invoice. If such tenth (10th) Day after Oglethorpe Power's receipt is not a banking Day, then payment shall be due on the next succeeding banking Day. Oglethorpe Power shall make payment to Georgia Power in accordance with such invoices on or before the date due in immediately available funds through wire transfer of funds or other means acceptable to Georgia Power. If Oglethorpe Power does not make a Monthly Capacity Payment on or before such tenth (10th) Day, then interest shall be added to the overdue payment, from the date such overdue payment was due until such overdue payment together with interest is paid, which interest shall accrue in simple interest terms per annum at the Interest Rate. (c) The procedure set forth in Sections 6.1(a) and 6.1(b) for Oglethorpe Power's payment to Georgia Power of Monthly Capacity Payments is subject to periodic temporary modification for phase-in of an increase or decrease in the Monthly Capacity Charges, if and as provided for in Part 6 of the Schedules in the event that a Monthly Capacity Charge should become subject to an adjustment as provided for in said Part 6 of said Schedule. 6.2 Energy Billing and Payment. (a) As promptly as practicable after the commencement of each Month during the Term, Georgia Power shall send Oglethorpe Power an invoice stating the Monthly Energy Payment for such Month, together with a statement of any other amounts then due by Oglethorpe Power to Georgia Power pursuant to the provisions of this Agreement. (b) All invoices of Monthly Energy Payments shall be due and payable on or before the tenth (10th) Day after Oglethorpe Power's receipt of such invoice. If such tenth (10th) Day after Oglethorpe Power's receipt is not a banking Day, then payment shall be due on the next succeeding banking Day. Oglethorpe Power shall make payment to Georgia Power in accordance with such invoices on or before the date due in immediately available funds through wire transfer of funds or other means acceptable to Georgia Power. If Oglethorpe Power does not make a Monthly Energy Payment on or before such tenth (10th) Day, then interest shall be added to the overdue payment, from the date such overdue payment was due until such overdue payment together with interest is paid, which interest shall accrue in simple interest terms per annum at the Interest Rate. (c) With each Monthly energy invoice Georgia Power will provide Oglethorpe Power a Monthly statement of the Monthly Energy Rates and Hourly Energy Rates upon which the Monthly Energy Payment was based. Georgia Power may combine its Monthly capacity and energy invoices into a single invoice, in Georgia Power's discretion. (d) The procedure set forth in Sections 6.2(a) and 6.2(b) for Oglethorpe Power's payment to Georgia Power of Monthly Energy Payments is subject to periodic temporary modification for phase-in of an increase or decrease in the Monthly Energy Rates, if and as provided for in Part 6 of the LT Schedules in the event that a Monthly Energy Rate should become subject to an adjustment as provided for in said Part 6 of said LT Schedule. 6.3 Billing Disputes and Final Accounting. (a) If Oglethorpe Power questions or contests the amount of any payment claimed by Georgia Power to be due pursuant to this Agreement, Oglethorpe Power may make such payment under protest and thereafter shall be reimbursed by Georgia Power for any amount in error after the settlement of such question or contest, in accordance with this Section 6.3; provided, however, that no disagreement or dispute of any kind between Oglethorpe Power and Georgia Power concerning any matter, including, without limitation, the amount of any payment due from Oglethorpe Power or the correctness of any charge made by Georgia Power to Oglethorpe Power, shall permit Oglethorpe Power to delay or withhold any payment pursuant to this Agreement except as specifically otherwise provided for in Section 6.7. (b) In the event that Oglethorpe Power, by timely notice to Georgia Power, questions or contests the correctness of any such charge or credit, Georgia Power shall promptly review the questioned charge or credit and shall notify Oglethorpe Power, within sixty (60) Days following receipt by Georgia Power of such notice from Oglethorpe Power, of the amount of any error and the amount of any payment or reimbursement that Oglethorpe Power is required to make or is entitled to receive in respect of such alleged error. Not later than the fifth (5th) banking Day after receipt by Oglethorpe Power of such notice from Georgia Power as to the amount of any payment that Oglethorpe Power is required to make, Oglethorpe Power shall make payment to Georgia Power in immediately available funds. If Georgia Power is required to make any reimbursement to Oglethorpe Power, Georgia Power shall notify Oglethorpe Power of the amount of such reimbursement and the need to send an invoice to Georgia Power for such reimbursement and make such reimbursement not later than the fifth (5th) banking Day after Georgia Power receives an invoice from Oglethorpe Power in the amount of such required reimbursement. Payments and reimbursements made by either Oglethorpe Power or Georgia Power under this Section 6.3(b) shall include interest from the later of the date the original payment was received or the date the original payment was due until the date such payment or reimbursement together with interest is made, which interest shall accrue in simple interest terms per annum at the Interest Rate. Oglethorpe Power shall have until the one hundred eightieth (180th) Day after receipt of an invoice to question or contest the correctness of any charge or credit made to Oglethorpe Power during such Month pursuant to Section 6.1 or 6.2, after which time the correctness of all such charges and credits shall be conclusively presumed. (c) If Oglethorpe Power disputes Georgia Power' resolution under Section 6.3(b) of any question or contest by Oglethorpe Power of the correctness of any charge or credit made to Oglethorpe Power pursuant to Section 6.1 or 6.2, then at Oglethorpe Power's request Georgia Power and Oglethorpe Power agree to use their reasonable best efforts to achieve a mutually acceptable solution to such dispute. In the event that either Georgia Power or Oglethorpe Power believes that any such efforts by Georgia Power and Oglethorpe Power have been or will be unsuccessful, then it may submit such dispute to, for resolution by, the Joint Committee. If the Joint Committee fails to resolve such dispute by the third (3rd) regularly scheduled meeting following the meeting at which Georgia Power or Oglethorpe Power first submitted such dispute to the Joint Committee, then either Oglethorpe Power or Georgia Power may submit such dispute to, for resolution by, the respective Chief Executive Officers of Oglethorpe Power and Georgia Power. If the Chief Executive Officers fail to resolve such dispute within a reasonable period of time after it is submitted to them, then either Oglethorpe Power or Georgia Power may resort to any remedy, at law or in equity, that may be available therefor. If either Georgia Power or Oglethorpe Power submits such dispute to the Joint Committee, then neither of them shall thereafter have any further obligation to use its reasonable best efforts to achieve a mutually acceptable solution as aforesaid. (d) Notwithstanding the foregoing provisions of this Section 6.3, if Oglethorpe Power is then in default in respect of any payments required to be made under this Agreement, Georgia Power may withhold such reimbursement. (e) Georgia Power will provide Oglethorpe Power with such information as is reasonably required by Oglethorpe Power in order to account for payments made pursuant to this Section 6.3 on Oglethorpe Power's books. 6.4 Availability of Records. Georgia Power will for each Month of the Term, at all times prior to the end of such one hundred eighty (180) Day period set forth in Section 6.3(b), make available to Oglethorpe Power, subject to the confidentiality provisions of Article XV of the RCSA, and Oglethorpe Power may audit such books and records of Georgia Power as are necessary for Oglethorpe Power to verify the basis for and amounts of adjustments to Short Term Resource energy utilization made pursuant to Section 4.8 and to LT Resources' Load Carrying Capability pursuant to Section 5.15, and to calculate the Monthly Capacity Payments and Monthly Energy Payments and thereby to verify the accuracy of the amounts billed to Oglethorpe Power pursuant to Sections 6.1 and 6.2. No payment made pursuant to the provisions of this Article VI shall constitute a waiver of any right of Oglethorpe Power under Section 6.3 to question or contest the correctness of any charge or credit by Georgia Power or to dispute Georgia Power's resolution of any such question or contest. 6.5 Implementation Costs. Oglethorpe Power hereby agrees to reimburse Georgia Power for all costs incurred by Georgia Power or its agent (except attorney's fees) in connection with implementing this Agreement or the rates and procedures provided for herein. Oglethorpe Power shall pay Georgia Power the amount of such costs within ten (10) Days after Georgia Power delivers an invoice therefor to Oglethorpe Power. The provisions of 6.2(b), 6.3, 6.4 and 6.6 shall apply to the payment and verification of such invoice. Georgia Power agrees that Georgia Power may not duplicate its recovery of any costs both under this Section 6.5 and under Section 16.1 of the RCSA. 6.6 Failure to Make Payments. (a) If Oglethorpe Power fails to pay when due the full amounts of any payment(s) required by Sections 6.1, 6.2, 6.3 or 6.5 then: (1) Oglethorpe Power shall have no right to any capacity or energy hereunder, or to exercise any of its rights under this Agreement; and (2) if the RCSA is then in effect, the LT Schedules shall be deemed not to be "Qualifying Resources - Spinning" or "Qualifying Resources - Supplemental" and the "Difference" utilized in the calculation of the "Back-Up Capacity Charge" shall exclude all LT Schedules (as such terms are defined and used in the RCSA); from the date such overdue payment(s) were due until Oglethorpe Power has paid the full amounts of all such overdue payments to Georgia Power (including, without limitation, interest) as required by said Sections 6.1, 6.2, 6.3 and 6.5. (b) Georgia Power agrees that, if Oglethorpe Power pays to Georgia Power such overdue payment(s) during the five (5) Day period allowed for curing a failure to make payment provided for in Section 10.1(a) (including, without limitation, interest) and undertakes to recommence making its other payments to Georgia Power as and when due hereunder, Georgia Power will recommence supplying capacity and energy to Oglethorpe Power hereunder no later than the end of the five (5) Day period provided for in Section 10.1(a). (c) In addition to the rights granted in Sections 6.3, 6.6(a), and Article X, Georgia Power may take any action, at law or in equity, to enforce this Agreement and to recover any and all unrecovered damages and expenses and other losses, costs and liabilities (including, without limitation, reasonable attorneys' fees and expenses) incurred or suffered by Georgia Power as a result of or in connection with any default in payment by Oglethorpe Power under this Agreement. 6.7 Limited Withholding of Payments. (a) If Oglethorpe Power questions or contests the amount of any payment claimed by Georgia Power in any Month to be due pursuant to this Agreement, which amount is more than twice as large as the highest amount previously claimed by Georgia Power to be due pursuant to this Agreement in any other Month of the Term, then Oglethorpe Power may withhold payment of the lesser of: (1) the disputed portion of such amount; or (2) that portion of such amount which is in excess of twice such highest Monthly amount previously claimed by Georgia Power to be due pursuant to this Agreement. (b) If Oglethorpe Power acquires the right under Section 6.7(a) to withhold any portion of a payment claimed by Georgia Power to be due pursuant to this Agreement and chooses to exercise such right, then Oglethorpe Power shall immediately notify Georgia Power that it is questioning or contesting the correctness of such amount and shall also nevertheless tender to Georgia Power on a timely basis under Sections 6.1 and 6.2 that portion of such amount which Oglethorpe Power is not permitted to withhold under Section 6.7(a). Georgia Power and Oglethorpe Power shall then resolve such dispute in accordance with the procedure provided in Sections 6.3(b) and 6.3(c). If Oglethorpe Power is required pursuant to the resolution of such dispute to pay any portion of the withheld amount to Georgia Power, then interest shall be added to the portion so to be paid, from the date such payment was due until such payment together with interest is paid, which interest shall accrue in simple interest terms per annum at the Interest Rate. ARTICLE VII CERTAIN CAPACITY AND ENERGY SALE MATTERS 7.1 Service Rendered. Georgia Power shall provide and Oglethorpe Power shall pay for capacity and energy pursuant to the Tariff, the terms of this Agreement and the Schedules attached hereto. To the extent the terms and conditions of the Tariff are inconsistent with those set forth in this Agreement or in the Schedules, the provisions of this Agreement and Schedules shall control. 7.2 Resale. Oglethorpe Power shall have the right to resell any part or all of the Resource Capacity or any or all of the energy scheduled by Oglethorpe Power hereunder, to any person or entity, subject to the terms and conditions of this Agreement. Oglethorpe Power hereby indemnifies and holds Georgia Power and its agent harmless from and against any and all losses, costs, liabilities, damages and expenses (including, without limitation, attorneys' fees and expenses) of any kind incurred or suffered by Georgia Power or its agent pursuant to, as a result of or in connection with any such resale of capacity, energy or both, except for losses, costs, liabilities, damages and expenses (including, without limitation, attorneys' fees and expenses) incurred or suffered by Georgia Power or its agent as a direct result of any action of Georgia Power that is not Prudent Utility Practices or of Georgia Power's or its agents' willful misconduct. This Section 7.2 does not give Oglethorpe Power any rights to assign or delegate this Agreement or any of its rights or obligations hereunder, which Oglethorpe Power acknowledges that it may do only as allowed by Section 9.2. 7.3 Character of Transactions. The sale by Georgia Power to Oglethorpe Power of capacity and associated energy under this Agreement does not constitute either: (1) a sale, lease, transfer or conveyance of an ownership interest in or to any generation facilities or resources, including without limitation the Units; or (2) a dedication of ownership or an entitlement to the capacity or output of any generation facilities or resources, including without limitation the Units. Furthermore, Oglethorpe Power acknowledges and agrees that Georgia Power or its agent shall have the sole authority, which Georgia Power or its agent may exercise in its discretion, to manage, control, operate and maintain all of the Units. (Georgia Power acknowledges, however, that this Section 7.3 is not intended and shall not be construed to reduce Oglethorpe Power's rights to capacity and energy under Article II, III, IV or V.) 7.4 Constancy of Supply. (a) Georgia Power does not guarantee or warrant that Georgia Power will supply a constant or uninterrupted supply of capacity or energy under this Agreement. Oglethorpe Power hereby agrees that Georgia Power is not required to make capacity available to Oglethorpe Power under this Agreement at all times during the Term or to deliver under this Agreement a constant or uninterrupted supply of energy. (b) For actions taken pursuant to Sections 4.8 and 5.15, Georgia Power shall not be in breach of this Agreement by reason of, and shall have no liability whatsoever to Oglethorpe Power for, any failure to make capacity available hereunder, or for any failure to deliver or any interruption in the delivery of energy hereunder or for any deficiency in the quality of service hereunder. (c) For any other actions taken pursuant to this Agreement, Georgia Power shall not be in breach of this Agreement by reason of, and shall have no liability whatsoever to Oglethorpe Power for, any failure to make capacity available hereunder, or for any failure to deliver or any interruption in the delivery of energy hereunder or for any deficiency in the quality of service hereunder; provided, however, the foregoing exculpatory clause of this Section 7.4(c) shall not apply to any such failure that is the direct result of any action of Georgia Power that (i) is not Prudent Utility Practices, (ii) is of Georgia Power's or its agent's willful misconduct, or (iii) is done for purely economic reasons. 7.5 Market Rate Tariff. (a) It is the expressed intent of the Parties that this Agreement and the attached Schedules be accepted by the FERC as a sale pursuant to the Tariff without any modifications of its charges, terms and conditions and without additional filing requirements. If, at any time, the FERC does not allow this Agreement to function pursuant to the Tariff or requires any cost of service support for any charges hereunder, Oglethorpe Power agrees to actively support and pursue acceptance by the FERC of all charges and terms as stated in this Agreement. If, at any time, the FERC orders any changes to any charges or terms hereunder or any refunds, including, but not limited to, interest or penalties, other than penalties resulting from actions by Georgia Power or its agent that are not Prudent Utility Practices or that constitute willful misconduct, Oglethorpe Power agrees that Georgia Power shall have the right to file one or more unilateral changes to the charges and terms hereunder to recover the revenues, as closely as practicable, intended by this Agreement in its original form. (b) Oglethorpe Power agrees to actively support any and all such changes and to cooperate with and assist Georgia Power in securing acceptance by the FERC of any and all such changes, in as expeditious a manner as is practicable, to the extent such changes do not result in higher charges to Oglethorpe Power than the charges intended by this Agreement in its original form. The obligations pursuant to this Section 7.5 shall survive termination of this Agreement and any of the Schedules. (c) Georgia Power and Oglethorpe Power each agrees that, except as expressly permitted under Sections 7.5, 7.6, 7.7, 8.4, 8.5, and 9.1 of the Agreement, or to effectuate a change as permitted in Part 6 of each of the Schedules, it shall not seek to modify this Agreement or any related Schedule under Sections 205 or 206 of the Federal Power Act or any other provision of law, except with the consent of both Parties or as required to comply with an order of a Governmental Authority with jurisdiction over this Agreement. 7.6 Termination of the BPSA. (a) It is the expressed intent of the Parties that the BPSA be terminated effective with the commencement of service pursuant to Section 8.1 of this Agreement. The Parties shall take all steps reasonably necessary to terminate the BPSA including, but not limited to, the FERC's acknowledgment thereof, without the necessity for any filings or other justifications for any charges rendered under the BPSA. (b) The Parties expressly agree that termination of the BPSA pursuant to this Section 7.6 shall constitute expiration of the BPSA pursuant to its own terms as contemplated under the Umbrella Agreement, Section 3.4. 7.7 FERC Modification of Formulary Rates Under the BPSA. If, at any time, the FERC orders any changes to any charges rendered under the BPSA or any refunds, including, but not limited to, interest or penalties, other than penalties resulting from actions by Georgia Power or its agent that are not Prudent Utility Practices or that constitute willful misconduct, Oglethorpe Power agrees that Georgia Power shall have the right to file one or more unilateral changes to the charges and terms hereunder to recover the revenues, as closely as practicable, intended by the BPSA in its original form. Furthermore, Oglethorpe Power agrees to actively support any and all such changes and to cooperate with and assist Georgia Power in securing acceptance by the FERC of any and all such changes, in as expeditious a manner as is practicable, to the extent such changes do not result in higher charges to Oglethorpe Power than the charges intended by the BPSA in its original form. This obligation shall survive termination of this Agreement and any of the Schedules. ARTICLE VIII TERM OF AGREEMENT 8.1 Term. The term of this Agreement shall begin on the date first written above and shall continue inclusive through one (1) minute after 11:59 p.m. (Operating Time) on March 31, 2006. Service under this Agreement shall commence, subject to the conditions included in Section 8.2, at one (1) minute prior to 12:01 a.m. (Operating Time) on April 1, 1999. Oglethorpe Power shall have the option of terminating this Agreement, prior to commencement of service under this Agreement, by written notice delivered to Georgia Power by close of business on March 26, 1999, provided, however, that Oglethorpe Power must provide evidence, acceptable in form and substance to Georgia Power, that the EMCs have not subscribed to at least fifty megawatts (50MW), in aggregate, of the LT Resources. The provisions of Article VI shall survive termination of this Agreement to the extent necessary to render final bills and permit auditing and resolution of disputes, if any, with respect to such final bills in accordance with the provisions of Article VI. 8.2 Conditions for Effectiveness. The respective obligations hereunder of Georgia Power to sell capacity and energy to Oglethorpe Power, and of Oglethorpe Power to purchase capacity and energy from Georgia Power, are conditioned upon: (1) The receipt by Georgia Power of acceptance by the FERC of this Agreement, without modification, as a service agreement pursuant to the Tariff. (2) The receipt by Georgia Power of acceptance by the FERC of termination of the BPSA, without modification, effective with the commencement of service pursuant to this Agreement. (3) If a Governmental Authority other than FERC properly asserts jurisdiction regarding approval of this Agreement, the receipt of any required approvals of this Agreement, without modification by such Governmental Authority. (4) For the LT Resources, the receipt by Oglethorpe Power of approval by at least seventy-five percent (75%) of its board of directors and approval by at least seventy-five percent (75%) of its EMCs of this Agreement. Georgia Power and Oglethorpe Power shall cooperate with each other, as the other may reasonably request, in connection with the procurement of such acceptance from the FERC and any required approvals of any Governmental Authorities. 8.3 EMCs' Approval of any LT Resource as a Non-Recourse Resource. (a) If condition (4) of Section 8.2 is not met for any of the LT Resources, but the EMCs approve said LT Resource(s) as a Non-Recourse Resource (as such term is defined in Section 8.3(c) herein), the Parties agree to amend this Agreement, as necessary, to obtain approval of such Non-Recourse Resource by Oglethorpe Power and its approving members on or before June 30, 1999. Oglethorpe Power and its approving members shall execute separate definitive agreements for the resale of capacity and energy purchased by Oglethorpe Power under the amended Agreement as a Non-Recourse Resource and further, in the case of those approving members who are borrowers from the RUS, obtain approval by the RUS of such members' agreements with Oglethorpe Power on or before June 30, 1999. If any LT Resource is approved as a Non-Recourse Resource, the amended Agreement shall include a provision that there is no recourse for Oglethorpe Power's monetary obligations under the amended Agreement with respect to such Non-Recourse Resource, directly or indirectly, to the general credit of Oglethorpe Power or to any property, revenues or agreements of Oglethorpe Power, other than the revenues received by Oglethorpe Power under its separate contracts with its members who have subscribed for the resale of energy and capacity from the Non-Recourse Resource. If any LT Resource is approved as a Non-Recourse Resource, then, with respect to that Non-Recourse Resource only, the approving members shall execute additional agreements, as reasonably required, directly with Georgia Power for their respective purchases, or shall guarantee Oglethorpe Power's obligations, and shall provide such credit assurance as Georgia Power may reasonably require. One or more of such approving members may contract directly with Georgia Power concerning such Non-Recourse Resource similar to the LT Resource described in this Agreement on such terms as the parties may mutually agree. (b) In the event that either of the LT Resources is approved as a Non-Recourse Resource, the effective date for commencement of service with respect to such Non-Recourse Resource shall be July 1, 1999, and the term for such Non-Recourse Resource shall be reduced by 3 Months, (i.e., the termination dates will be unchanged). Furthermore, if the LT Peaking Resource is a Non-Recourse Resource, its Monthly Capacity Rate for the period July 1, 1999, through March 31, 2000, shall be three and twenty-five one-hundredths dollars per kilowatt-month ($3.25/kW-Mo), and if the LT Steam Resource is a Non-Recourse Resource, its Monthly Capacity Rate for the period July 1, 1999, through March 31, 2000, shall be four and fifty one-hundredths dollars per kilowatt-month ($4.50/kW-Mo). (c) "Non-Recourse Resource" means an agreement for the purchase of capacity and energy which is: approved by less than seventy-five percent (75%) of Oglethorpe Power's board of directors, approved by less than seventy-five percent (75%) of Oglethorpe Power's members, fully subscribed by the subset of Oglethorpe Power's members who are approving members, and supported only by the credit of and revenues from sales to such approving members, with no recourse to the general credit or other property of Oglethorpe Power and its members. 8.4 FERC Changes; Rights to Terminate. Either Georgia Power or Oglethorpe Power may terminate this Agreement, in its respective sole discretion, following the issuance of a final unappealed order by the FERC or any other final action by any Governmental Authority properly asserting jurisdiction over this Agreement either rejecting this Agreement or accepting this Agreement in a modified form (so that this Agreement is not in substantially the agreed-upon and filed form). Georgia Power or Oglethorpe Power may elect to exercise such right to terminate only within the thirty (30) Day period following the expiration of all periods within which an appeal of such an Order could be filed by any person or entity. If Georgia Power or Oglethorpe Power elects to exercise such right to terminate, then the electing party shall deliver a written notice of such election to the other within the aforementioned period, and this Agreement will be deemed to have been terminated effective upon the date of the other's receipt of such written notice. 8.5 Purchases After Expiration, Termination or Reduction. Oglethorpe Power agrees that this Agreement (and the capacity and energy rates provided for herein and in the Schedules hereto) will expire at each end of the Term and that this Agreement (and the capacity and energy rates provided for herein and in the Schedules hereto) shall terminate effective as of the date determined in accordance with Section 8.4 or 10.3, if such Section becomes operative and is exercised by either Georgia Power or Oglethorpe Power. Oglethorpe Power further agrees that it will not seek to purchase any capacity or associated energy or to schedule any transactions under this Agreement after the date of expiration or termination determined as aforesaid. ARTICLE IX MISCELLANEOUS PROVISIONS 9.1 Approvals. Oglethorpe Power and Georgia Power agree to use their best efforts to apply for promptly and to pursue diligently any required approvals from Governmental Authorities for the consummation of the transactions contemplated hereby or for the giving of effect to the expiration of this Agreement or any termination of this Agreement on the date determined in accordance with Section 8.5 (which obligation of Oglethorpe Power shall be in addition to its undertakings under Section 8.5). This provision is not intended to subject this Agreement to the jurisdiction of any Governmental Authority that does not have such jurisdiction over this Agreement at the time of execution of this Agreement. 9.2 Assignment. (a) Neither Oglethorpe Power nor Georgia Power may sell, assign or otherwise transfer any or all of this Agreement or its respective rights, or delegate any or all of its respective obligations, under this Agreement, at any time, without the prior written consent of the other in each instance; provided, however, that neither Georgia Power nor Oglethorpe Power may unreasonably withhold its consent to any conveyance by the other of a security interest in this Agreement as security for bonds or other obligations issued or to be issued; provided, further, that Georgia Power may assign this Agreement and its respective rights, and delegate its respective obligations, under this Agreement to a generation Affiliate succeeding to substantially all of Georgia Power's interests in the Units, without the consent of Oglethorpe Power. (b) Notwithstanding Section 9.2(a), actions identified herein as being accomplished by Georgia Power may be accomplished either by Georgia Power or by its agent. 9.3 Georgia Power's Agent. Wherever this Agreement requires Oglethorpe Power to provide information, schedules, notice or the like to, or to take direction from, Georgia Power or its agent, Oglethorpe Power shall provide information, schedules, notice or the like to, or take direction from, whichever of Georgia Power, its agent or both that Georgia Power may direct from time to time. 9.4 No Partnership. Oglethorpe Power and Georgia Power do no intend for this Agreement to, and this Agreement shall not, create any joint venture, partnership, association taxable as a corporation, or other entity for the conduct of any business for profit. 9.5 Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon any respective successors and assigns of Oglethorpe Power and Georgia Power. 9.6 No Third Party Benefit. Nothing in this Agreement shall be construed to create any duty, obligation or liability of Georgia Power to any person or entity not a party to this Agreement. 9.7 No Consequential Damages. Notwithstanding any other provision of this Agreement, neither Georgia Power nor Oglethorpe Power shall be liable to the other for indirect, incidental or consequential damages (including without limitation replacement capacity or energy) under, arising out of, due to or in connection with its performance or nonperformance of this Agreement or any of its obligations herein, whether based on contract, tort (including without limitation negligence), strict liability, warranty or otherwise. 9.8 No Affiliate Liability. Notwithstanding any other provision of this Agreement, no Affiliate of Georgia Power (including without limitation any Affiliate of Georgia Power acting as Georgia Power's agent where Georgia Power's agent is given certain authorities hereunder) shall have any liability whatsoever for any party's performance, nonperformance or delay in performance under this Agreement unless such Affiliate of Georgia Power has been assigned this Agreement as a generation Affiliate succeeding to substantially all of Georgia Power's interests in the Units in accordance with Section 9.2(a). 9.9 Disclaimer of Warranty. GEORGIA POWER, ON BEHALF OF ITSELF, EACH OF ITS AFFILIATES AND EACH OF THEIR RESPECTIVE EMPLOYEES, OFFICERS, DIRECTORS, AGENTS, SUCCESSORS AND ASSIGNS, HEREBY DISCLAIMS ANY AND ALL EXPRESS, IMPLIED OR STATUTORY WARRANTIES CONCERNING EITHER OR BOTH THE CAPACITY OR ENERGY TO BE SOLD BY GEORGIA POWER HEREUNDER OR CONCERNING ANY INFORMATION FURNISHED BY OR FOR ANY ONE OR MORE OF THEM, INCLUDING WITHOUT LIMITATION ANY AND ALL WARRANTIES AS TO MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AVAILABILITY, ACCURACY, QUALITY, QUANTITY OR OTHERWISE. 9.10 Time of Essence; No Waiver. (a) Time is of the essence of this Agreement. (b) Neither Georgia Power's nor Oglethorpe Power's failure to enforce any provision or provisions of this Agreement shall in any way be construed as a waiver of any such provision or provisions as to any future violation thereof, nor prevent it from enforcing each and every other provision of this Agreement at such time or at any time thereafter. The waiver by either Georgia Power or Oglethorpe Power of any right or remedy shall not constitute a waiver of its right to assert said right or remedy, at any time thereafter, or any other rights or remedies available to it at the time of or any time after such waiver. 9.11 Amendments. This Agreement may be amended by and only by a written instrument duly executed by each of Oglethorpe Power and Georgia Power, which has received all approvals of Governmental Authorities or competent jurisdiction necessary for the effectiveness thereof. 9.12 Notice. (a) Any notice, request, consent or other communication permitted or required by this Agreement other than the operations-related notices described in Section 9.12(b) shall be in writing and shall be deemed given on the Day hand-delivered to the officer identified below, or the third (3rd) Day after the same is deposited as certified mail, prepaid, with the United States Postal Service, and if given to Georgia Power shall be addressed to: Georgia Power Company c/o Southern Company Services, Inc. 270 Peachtree Street, N.E. Atlanta, Georgia 30303 Attention: Vice President-Southern Wholesale Energy and if given to Oglethorpe Power shall be addressed to: Oglethorpe Power Corporation 2100 East Exchange Place P.O. Box 1349 Tucker, Georgia 30085-1349 Attention: Vice President-Power Marketing unless Georgia Power or Oglethorpe Power shall have designated a different officer or address for itself by notice to the other. (b) Any operations-related notice, request, consent or other communication permitted or required by this Agreement in Articles IV and V will be by direct electronic transfer between the Parties or their respective designees, to the maximum extent practicable, and, if otherwise necessary, may be by telephone, facsimile, or any other electronic medium all mutually acceptable to the Parties. The Parties agree to provide to each other, on or before April 1, 1999, written notice identifying the appropriate electronic transfer address and other such electronic media information, including the preferred means for acknowledging receipt of notice. Operations-related notices shall be deemed given at the time received by the receiving Party. 9.13 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 9.14 Articles and Section Headings. The descriptive headings of the various Articles, Sections and Parts of this Agreement and the Schedules hereto have been inserted for convenience of reference only and shall in no way modify or restrict any of the terms or provisions hereof. 9.15 Including. Wherever the term "including" is used in this Agreement and the Schedules hereto, such term shall not be construed as limiting the generality of any statement, clause, phrase or term. 9.16 Governing Law. The validity, interpretation and performance of this Agreement and each of its provisions shall be governed by the laws of the State of Georgia (without giving effect to the principles of conflict of laws). 9.17 Necessary Authorization. Subject to the conditions listed in Section 8.2, each Party represents that it has the necessary corporate and legal authority to enter into this Agreement and to perform each and every duty and obligation imposed herein, including those set forth under the Schedules, and that this Agreement, when executed by the duly authorized representative of each Party, represents a valid, binding and enforceable legal obligation of such Party and that the consummation of the transactions contemplated herein will not violate any organizational documents, agreements or any applicable laws. Each individual affixing a signature to this Agreement represents and warrants that he or she has been duly authorized to execute this Agreement on behalf of the Party he or she represents, and that by signing the Agreement, a valid, binding and enforceable legal obligation of said Party has been created. ARTICLE X EVENT OF DEFAULT AND TERMINATION 10.1 Event of Default. "Event of Default" means the occurrence of any of the following events with respect to a Party (the "Defaulting Party", the other Party being the "Non-Defaulting Party"): (a) the Defaulting Party fails to make any payment which it is obligated to make pursuant to this Agreement to the Non-Defaulting Party; provided, however, the Non-Defaulting Party shall give the Defaulting Party written notice of such payment deficiency and at least five (5) Days from the date of such written notice to make the required payment before declaring the payment deficiency an Event of Default; (b) any representation or warranty of the Defaulting Party pursuant to this Agreement shall prove to have been false or misleading in any material respect when made or deemed made unless (i) the fact, circumstances or condition that is the subject of such representation or warranty is made true within twenty (20) Days after notice thereof has been given to the Defaulting Party and (ii) such cure removes any adverse effect on the Non-Defaulting Party of such fact, circumstance or condition being otherwise than as first represented; (c) the Defaulting Party; (i) makes a general assignment or arrangement for the benefit of its creditors; (ii) (A) files a petition or otherwise commences, authorizes, or acquiesces in the commencement of a proceeding or cause under any bankruptcy or similar law for the protection of creditors or (B) has such petition filed or proceeding commenced against it and, in the case of a petition filed or proceeding commenced against it, such petition or proceeding results in a judgment of insolvency or bankruptcy or the entry of any order for relief or the making of an order for the winding-up or liquidation of such entity, or is not dismissed, discharged, stayed or restrained within five (5) business Days of the filing or commencement thereof; (iii) otherwise becomes bankrupt or insolvent; (iv) fails or is unable or admits in writing its inability generally to pay its debts as they become due; (v) is dissolved (other than pursuant to a consolidation, acquisition, amalgamation or merger); (vi) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, acquisition, amalgamation or merger); (vii) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for all or substantially all of its assets; (viii) has a secured party take possession of all or substantially all of its assets, or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all of its assets and subject secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within thirty (30) Days thereafter; (ix) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (c) (i) to (viii) (inclusive); or (x) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts. (d) the Defaulting Party fails to perform or observe any material obligation of such Party under this Agreement, which such failure materially and adversely affects the ability of such Party to perform its obligations under this Agreement, and such failure continues for sixty (60) Days after written notice of such default is given by the other Party; 10.2 Rights Under Agreement. Except as otherwise provided herein, each Party reserves to itself all rights, counterclaims, and other defenses which it is or may be entitled to arising from or out of the Agreement. 10.3 Termination Upon Default. Upon the occurrence of an Event of Default, the Non-Defaulting Party shall have the right to terminate this Agreement upon written notice to the Defaulting Party in addition to any other right or remedy the Non-Defaulting Party may have under this Agreement or at law, except as otherwise limited by this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.] IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed and delivered by their respective duly authorized officers as of the date first above written. "Georgia Power" GEORGIA POWER COMPANY By: Name: Fred D. Williams Title: Senior Vice President "Oglethorpe Power" OGLETHORPE POWER CORPORATION (AN ELECTRIC MEMBERSHIP CORPORATION) By: Name: Jerry J. Saacks Title: Chief Operating Officer [SIGNATURE PAGE: LONG TERM TRANSACTION SERVICE AGREEMENT between GEORGIA POWER COMPANY and OGLETHORPE POWER CORPORATION Dated as of February 26, 1999] EXHIBIT A Member Systems: Oglethorpe Power Corporation Altamaha Electric Membership Corporation Amicalola Electric Membership Corporation Canoochee Electric Membership Corporation Carroll Electric Membership Corporation The Central Georgia Electric Membership Corporation Coastal Electric Membership Corporation Cobb Electric Membership Corporation Colquitt Electric Membership Corporation Coweta-Fayette Electric Membership Corporation Excelsior Electric Membership Corporation Flint Electric Membership Corporation Grady Electric Membership Corporation GreyStone Power Corporation, An Electric Membership Corporation Habersham Electric Membership Corporation Hart Electric Membership Corporation Irwin Electric Membership Corporation Jackson Electric Membership Corporation Jefferson Energy Cooperative, An Electric Membership Corporation Lamar Electric Membership Corporation Little Ocmulgee Electric Membership Corporation Middle Georgia Electric Membership Corporation Mitchell Electric Membership Corporation Ocmulgee Electric Membership Corporation Oconee Electric Membership Corporation Okefenoke Rural Electric Membership Corporation Pataula Electric Membership Corporation Planters Electric Membership Corporation Rayle Electric Membership Corporation The Satilla Rural Electric Membership Corporation Sawnee Electric Membership Corporation Slash Pine Electric Membership Corporation Snapping Shoals Electric Membership Corporation Sumter Electric Membership Corporation Three Notch Electric Membership Corporation Tri-County Electric Membership Corporation Troup Electric Membership Corporation Upson County Electric Membership Corporation Walton Electric Membership Corporation Washington Electric Membership Corporation SCHEDULE A SHORT TERM RESOURCE 1. General and Definitions. ----------------------- This Schedule A is attached to and incorporated into that certain Long Term Transaction Service Agreement Under Southern Companies' Federal Energy Regulatory Commission Electric Tariff Volume No. 4 Market-Based Rate Tariff between Georgia Power Company and Oglethorpe Power Corporation (An Electric Membership Corporation) dated as of February 26, 1999 ("the Agreement"). Georgia Power and Oglethorpe Power have agreed in the Agreement that Oglethorpe Power will pay for the capacity and energy associated with the Short Term Resources on a Monthly basis utilizing the rates and methodologies determined in accordance with this Schedule A. All initially capitalized terms and phrases used in this Schedule A, but not expressly defined herein, shall have the respective meanings ascribed to them in the Agreement. 2. Capacity and Term. ----------------- Georgia Power offers to sell to Oglethorpe Power, subject to the terms of the Agreement, capacity and associated energy, from one (1) or more of five (5) fifty megawatt (50 MW) Short Term Resources, designated "ST-1", "ST-2", ST-3", "ST-4" and "ST-5", for the period commencing one (1) minute prior to 12:01 a.m. (Operating Time) on June 1, 1999 and continuing through one (1) minute after 11:59 p.m.(Operating Time) on May 31, 2000. Oglethorpe Power shall specify how many of the Short Term Resources it commits to purchase for the above specified period in a written notice to be delivered to Georgia Power on or before March 26, 1999. Such notice shall be incorporated herein by this reference. This Schedule A shall terminate at one (1) minute after 11:59 p.m. (Operating Time) on May 31, 2000. 3. Monthly Capacity Charge. ----------------------- For each Short Term Resource purchased by Oglethorpe Power pursuant to the notice incorporated above, Oglethorpe Power shall pay a Monthly Capacity Charge, in dollars per Month ($/Mo), in accordance with the following schedule: June 1999 -- $362,500 July - September 1999 -- $662,500 October 1999 - May 2000 -- $75,000 4. Hourly Energy Rate. ------------------ (a) The Hourly Energy Rate for energy purchases associated with the Short Term Resources shall be the product, expressed in dollars per megawatt-hour rounded to the nearest one-hundredth ($0.00/MWH) of (i) one and one-tenth (1.1) and (ii) Southern Marginal Cost, where Southern Marginal Cost is defined as the incremental energy cost of Southern Dispatch after serving all Southern Control Area obligations and actual Unit Power Sales' base, alternate, supplemental and replacement schedules but prior to serving any other sales outside the Southern Control Area, which costs shall include fuel expense, variable operating and maintenance expense, fuel handling expense, emissions allowance value, and other appropriate energy-related costs, including, but not limited to, energy purchases, as permitted by the IIC and as determined prior to the applicable Hour. The Hourly Energy Rate for energy utilization from "Excess Short Term Resources" (as determined below) shall be increased by the difference, if such difference is greater than zero (0), expressed in dollars per megawatt-hour rounded to the nearest one-hundredth ($0.00), (1) the higher of (i) one and one tenth (1.1) times the highest Hourly (excluding multi-hour transactions) off-system transaction price disclosed by Georgia Power, if any, in effect for such Hour (either a purchase or a sale) or (ii) "System Marginal Cost" (as such term is defined and used in the RCSA) for such Hour plus ten dollars per megawatt-hour ($10/MWH), minus (2) the sum, (i) the current Monthly Capacity Charge, in dollars per Month ($/Mo) for the Short Term Resources divided by the product of fifty megawatts (50 MW), the number of weekdays in such Month and sixteen (16) Hours per Day, plus (ii) one and one tenth (1.1) times the Southern Marginal Cost for such Hour. Any off-system transaction price disclosed by Georgia Power shall be treated consistently with the confidentiality provisions of Article XV of the RCSA. (b) If the net of the "OPC Off-System Transactions," sales plus exports minus purchases minus imports (as such term is defined and used in the RCSA), is less than fifty megawatts (50 MW) during the Hour containing the greatest "OPC Territorial Load" (as such term is defined and used in the RCSA) during a given Day, then no Short Term Resources are deemed to be Excess Short Term Resources during such Day. If the number of Short Term Resources scheduled during the Hour containing the greatest OPC Territorial Load during a given Day is less than the net OPC Off-System Transactions during such Hour, expressed in megawatt-hours (MWH), divided by, fifty megawatts (50 MW), with any resulting fraction being truncated to an integer value, then all of the Short Term Resources are deemed to be Excess Short Term Resources during such Day. Otherwise, the number of Short Term Resources that are not deemed to be Excess Short Term Resources during a given Day equals (i) the number of Short Term Resources scheduled during the Hour containing the greatest OPC Territorial Load, minus (ii) the net OPC Off-System Transactions during such Hour, expressed in megawatt-hours (MWH), divided by, fifty megawatts (50 MW), with any resulting fraction being truncated to an integer value. In any given Hour, Short Term Resources that are not Excess Short Term Resources shall be deemed scheduled first. 5. Performance Guarantee. --------------------- If the provisions of Section 4.8(c) of the Agreement are applicable for a given Month and the calculation detailed therein results in a value less than ninety-five one-hundredths (0.95), the credit due Oglethorpe Power in the following Monthly invoice shall be calculated as the product of (i) the difference between ninety-five one-hundredths (0.95) and the value calculated pursuant to Section 4.8(c) of the Agreement expressed to three (3) decimal places, times (ii) the sum of the kilowatt (kW) capacity associated with the Short Term Resources purchased by Oglethorpe Power pursuant to the notice incorporated above, times (iii) if such Month is June, July, August or September, thirteen and twenty-five one-hundredths dollars per kilowatt ($13.25/kW), otherwise, one and fifty one-hundredths dollars per kilowatt ($1.50/kW). 6. Change in Law. ------------- The Parties acknowledge that a Change in Law, including, but not limited to, environmental laws and regulations and energy taxes applicable to wholesale sales, but specifically excluding any other taxes, may significantly change (increase or decrease) Georgia Power's costs in providing the service described above. In the event of such a Change in Law, either Party may give notice to the other Party that Georgia Power's costs have changed significantly and may initiate negotiations to modify this Schedule to reflect such changes in costs. If the Parties have not negotiated and agreed upon an amendment to this Schedule within 90 Days, either Party shall have the right to initiate a dispute resolution process as follows: (i) Georgia Power shall make a good faith calculation of the effect of such change and adjust the billing accordingly, (ii) Oglethorpe may pay under protest, (iii) a mutually agreeable individual ("Accountant") shall calculate the appropriate adjustment to reflect the change in cost, and billings will be adjusted accordingly, and (iv) the Parties shall split Accountant's fee for rendering such service. If the Parties cannot reach agreement on a mutually agreeable individual, then the head of the utilities practice group at Arthur Andersen will be used. SCHEDULE B LONG TERM PEAKING RESOURCE 1. General and Definitions. ----------------------- This Schedule B is attached to and incorporated into that certain Long Term Transaction Service Agreement Under Southern Companies' Federal Energy Regulatory Commission Electric Tariff Volume No. 4 Market-Based Rate Tariff between Georgia Power Company and Oglethorpe Power Corporation (An Electric Membership Corporation) dated as of February 26, 1999 ("the Agreement"). Georgia Power and Oglethorpe Power have agreed in the Agreement that Oglethorpe Power will pay for the capacity and energy associated with the LT Peaking Resource on a Monthly basis utilizing the rates and methodologies determined in accordance with this Schedule B. All initially capitalized terms and phrases used in this Schedule B, but not expressly defined herein, shall have the respective meanings ascribed to them in the Agreement. 2. Capacity and Term. ----------------- Georgia Power offers to sell to Oglethorpe Power, subject to the terms of the Agreement, capacity and associated energy, from one (1) two hundred fifty megawatt (250 MW) LT Peaking Resource. Oglethorpe Power shall specify how many megawatts (MW), in increments of fifty megawatts (50 MW), of the LT Peaking Resource it commits to purchase for the period commencing one (1) minute prior to 12:01 a.m. (Operating Time) on April 1, 1999 and continuing through one (1) minute after 11:59 p.m. (Operating Time) on March 31, 2003 in a written notice to be delivered to Georgia Power on or before March 26, 1999. Such notice shall be incorporated herein by this reference. Oglethorpe Power shall purchase the "Remainder", determined by the difference, if any, between two hundred fifty megawatts (250 MW) and the quantity specified in the above incorporated notice, for the period commencing one (1) minute prior to 12:01 a.m. (Operating Time) on April 1, 1999 and continuing through one (1) minute after 11:59 p.m. (Operating Time) on August 31, 2000 and Oglethorpe Power shall purchase one-half the Remainder for the period commencing one (1) minute prior to 12:01 a.m. (Operating Time) on September 1, 2000 and continuing through one (1) minute after 11:59 p.m. (Operating Time) on August 31, 2001. This Schedule B shall terminate at one (1) minute after 11:59 p.m. (Operating Time) on March 31, 2003. 3. Monthly Capacity Rate. --------------------- The Monthly Capacity Rate, expressed in hundredths of dollars per kilowatt-month ($0.00/kW-Mo), for the combined LT Peaking Resource shall be determined each Month as: (1) the sum of: (a) the product of: (i) the then current megawatts (MW) associated with the Remainder (ii) for each Month in 1999, four dollars per kilowatt-month ($4.00/kW-Mo) for each Month in 2000, four and twenty-five one-hundredths dollars per kilowatt-month ($4.25/kW-Mo) for each Month in 2001, four and fifty one-hundredths dollars per kilowatt-month ($4.50/kW-Mo) (b) the product of: (i) the megawatts (MW) purchased by Oglethorpe Power pursuant to the notice incorporated above (ii) the rate determined below (2) divided by the sum of: (a) the then current megawatts (MW) associated with the Remainder (b) the megawatts (MW) purchased by Oglethorpe Power pursuant to the notice incorporated above. The rate for the megawatts (MW) purchased by Oglethorpe Power pursuant to the notice incorporated above for the Months of April 1999 through March 2000 shall be three and forty-four one-hundredths dollars per kilowatt-month ($3.44/kW-Mo). The rate, expressed in hundredths of dollars per kilowatt-month ($0.00/kW-Mo), for such capacity for each succeeding April through March period shall be determined as (i) three and fifty-five one-hundredths dollars per kilowatt-month ($3.55/kW-Mo), multiplied by (ii) the Gross Domestic Product Implicit Price Deflator, relative to a 1992 base year, as reported in the Survey of Current Business published by the Bureau of Economic Analysis United States Department of Commerce, Washington, D. C. ("GDPIPD") for the first quarter of the then current calendar Year as last reported prior to April 30 of such Year, divided by (iii) 113.070, the GDPIPD for the last quarter of 1998. If the GDPIPD methodology is revised or ceases to be reported, the Parties agree to adopt a comparable escalator through the process detailed in Part 6 of this Schedule B. 4. Monthly Energy Rate. ------------------- The Monthly Energy Rate, expressed in hundredths of dollars per megawatt-hour ($0.00/MWH), for the LT Peaking Resource shall be determined each Month as the sum, over each of the Units identified in the following table, of the product of: (1) each Unit's energy rate for such Month, expressed in hundredths of dollars per megawatt-hour ($0.00/MWH), determined as the sum of: (a) the product of: (i) the average heat rate for each Unit, expressed in millions of British Thermal Units per megawatt-hour (MMBTU/MWH), derived from "Informational Schedule No. 2 (Energy Costs by Sources)" of the IIC in effect for such Month (ii) the replacement fuel cost for each Unit for such Month, in dollars per million British Thermal Units ($/MMBTU), determined as (i) the prevailing then current spot market quotes for oil purchases or (ii) the prevailing then current spot market quotes for gas purchases; as calculated by Georgia Power or its agent, and as possibly adjusted by Georgia Power or its agent, in its discretion, for either or both market volatility and transportation and delivery costs (Georgia Power's and its agent's current practice as of the date of the Agreement is to calculate these estimates of replacement oil and gas prices on a Monthly basis, but Georgia Power may change the exact period to be used in such calculations in Georgia Power's or its agent's reasonable discretion) (b) the variable operations and maintenance expense rate for each Unit, expressed in dollars per megawatt-hour ($/MWH), as shown in "Informational Schedule No. 2 (Energy Costs by Sources)" of the IIC in effect for such Month (c) the fuel handling expense rate for each Unit, expressed in dollars per megawatt-hour ($/MWH), as shown in "Informational Schedule No. 2 (Energy Costs by Sources)" of the IIC in effect for such Month (d) other energy related costs for each Unit, expressed in dollars per megawatt-hour ($/MWH), properly determined in accordance with FERC/NERC procedures (2) the factor for such Unit from the following table - --------------------------------------- ---------------------------------- Unit Factor - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- Arkwright 5A 0.014288 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- Atkinson 5A 0.034264 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- Atkinson 5B 0.034264 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- Bowen 6 0.034264 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- Gaston A 0.008640 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- McDonough 3A 0.034264 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- McDonough 3B 0.034264 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- McManus 3A 0.045576 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- McManus 3B 0.045576 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- McManus 3C 0.045576 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- McManus 4A 0.046640 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- McManus 4B 0.046640 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- McManus 4C 0.046640 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- McManus 4D 0.046640 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- McManus 4E 0.046640 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- McManus 4F 0.046640 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- Mitchell 4A 0.034304 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- Mitchell 4B 0.034304 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- Mitchell 4C 0.034304 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- Wilson 5A 0.047712 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- Wilson 5B 0.047712 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- Wilson 5C 0.047712 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- Wilson 5D 0.047712 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- Wilson 5E 0.047712 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- Wilson 5F 0.047712 - --------------------------------------- ---------------------------------- (3) one (1) divided by the Level A to B-1 Loss Factor for such Unit. 5. Availability Factor. ------------------- The Availability Factor, expressed in hundredths (0.00), for the combined LT Peaking Resource shall be determined each Month as: (1) the sum of: (a) the product of: (i) the then current megawatts (MW) associated with the Remainder (ii) 0.86 (b) the product of: (i) the megawatts (MW) purchased by Oglethorpe Power pursuant to the notice incorporated above (ii) 0.92 (2) divided by the sum of: (a) the then current megawatts (MW) associated with the Remainder (b) the megawatts (MW) purchased by Oglethorpe Power pursuant to the notice incorporated above. 6. Change in Law. ------------- The Parties acknowledge that a Change in Law, including, but not limited to, environmental laws and regulations and energy taxes applicable to wholesale sales, but specifically excluding any other taxes, may significantly change (increase or decrease) Georgia Power's costs in providing the service described above. In the event of such a Change in Law, either Party may give notice to the other Party that Georgia Power's costs have changed significantly and may initiate negotiations to modify this Schedule to reflect such changes in costs. If the Parties have not negotiated and agreed upon an amendment to this Schedule within 90 Days, either Party shall have the right to initiate a dispute resolution process as follows: (i) Georgia Power shall make a good faith calculation of the effect of such change and adjust the billing accordingly, (ii) Oglethorpe may pay under protest, (iii) a mutually agreeable individual ("Accountant") shall calculate the appropriate adjustment to reflect the change in cost, and billings will be adjusted accordingly, and (iv) the Parties shall split Accountant's fee for rendering such service. If the Parties cannot reach agreement on a mutually agreeable individual, then the head of the utilities practice group at Arthur Andersen will be used. SCHEDULE C LONG TERM STEAM RESOURCE 1. General and Definitions. ----------------------- This Schedule C is attached to and incorporated into that certain Long Term Transaction Service Agreement Under Southern Companies' Federal Energy Regulatory Commission Electric Tariff Volume No. 4 Market-Based Rate Tariff between Georgia Power Company and Oglethorpe Power Corporation (An Electric Membership Corporation) dated as of February 26, 1999 ("the Agreement"). Georgia Power and Oglethorpe Power have agreed in the Agreement that Oglethorpe Power will pay for the capacity and energy associated with the LT Steam Resource on a Monthly basis utilizing the rates and methodologies determined in accordance with this Schedule C. All initially capitalized terms and phrases used in this Schedule C, but not expressly defined herein, shall have the respective meanings ascribed to them in the Agreement. 2. Capacity and Term. ----------------- Georgia Power offers to sell to Oglethorpe Power, subject to the terms of the Agreement, capacity and associated energy, from one (1) two hundred fifty megawatt (250 MW) LT Steam Resource. Oglethorpe Power shall specify how many megawatts (MW), in increments of fifty megawatts (50 MW), of the LT Steam Resource it commits to purchase for the period commencing one (1) minute prior to 12:01 a.m. (Operating Time) on April 1, 1999 and continuing through one (1) minute after 11:59 p.m. (Operating Time) on March 31, 2006 in a written notice to be delivered to Georgia Power on or before March 26, 1999. Such notice shall be incorporated herein by this reference. Oglethorpe Power shall purchase the "Remainder", determined by the difference, if any, between two hundred fifty megawatts (250 MW) and the quantity specified in the above incorporated notice, for the period commencing one (1) minute prior to 12:01 a.m. (Operating Time) on April 1, 1999 and continuing through one (1) minute after 11:59 p.m. (Operating Time) on August 31, 1999. This Schedule C shall terminate at one (1) minute after 11:59 p.m. (Operating Time) on March 31, 2006. 3. Monthly Capacity Rate. --------------------- The Monthly Capacity Rate, expressed in hundredths of dollars per kilowatt-month ($0.00/kW-Mo), for the combined LT Steam Resource shall be determined each Month as: (1) the sum of: (a) the product of: (i) the then current megawatts (MW) associated with the Remainder (ii) for each Month in 1999, eight and twenty-five one-hundredths dollars per kilowatt-month ($8.25/kW-Mo) (b) the product of: (i) the megawatts (MW) purchased by Oglethorpe Power pursuant to the notice incorporated above (ii) the rate determined below (2) divided by the sum of: (a) the then current megawatts (MW) associated with the Remainder (b) the megawatts (MW) purchased by Oglethorpe Power pursuant to the notice incorporated above. The rate for the megawatts (MW) purchased by Oglethorpe Power pursuant to the notice incorporated above for the Months of April 1999 through March 2000 shall be five and forty-four one-hundredths dollars per kilowatt-month ($5.44/kW-Mo). The rate, expressed in hundredths of dollars per kilowatt-month ($0.00/kW-Mo), for such capacity for each succeeding April through March period shall be determined as (i) six dollars per kilowatt-month ($6.00/kW-Mo), multiplied by (ii) the Gross Domestic Product Implicit Price Deflator, relative to a 1992 base year, as reported in the Survey of Current Business published by the Bureau of Economic Analysis United States Department of Commerce, Washington, D. C. ("GDPIPD") for the first quarter of the then current calendar Year as last reported prior to April 30 of such Year, divided by (iii) 113.070, the GDPIPD for the last quarter of 1998. If the GDPIPD methodology is revised or ceases to be reported, the Parties agree to adopt a comparable escalator through the process detailed in Part 6 of this Schedule C. 4. Monthly Energy Rate. ------------------- The Monthly Energy Rate, expressed in hundredths of dollars per megawatt-hour ($0.00/MWH), for the LT Steam Resource shall be determined each Month as the sum, over each of the Units identified in the following table, of the product of: (1) each Unit's energy rate for such Month, expressed in hundredths of dollars per megawatt-hour ($0.00/MWH), determined as the sum of: (a) the product of: (i) the average heat rate for each Unit, expressed in millions of British Thermal Units per megawatt-hour (MMBTU/MWH), derived from "Informational Schedule No. 2 (Energy Costs by Sources)" of the IIC in effect for such Month (ii) the sum of: -- the blended replacement fuel cost for each Unit for such Month, in dollars per million British Thermal Units ($/MMBTU), determined as (i) the actual delivered fuel cost for such Unit for the immediately previous approximately thirty (30) Day period, and (ii) the projected delivered fuel cost for such Unit for the current approximately thirty (30) Day period; as calculated by Georgia Power or its agent, and as possibly adjusted by Georgia Power or its agent, in its discretion, for the time value of money (Georgia Power's and its agent's current practice as of the date of the Agreement is to calculate such actual and projected delivered fuel costs on a Monthly basis, but Georgia Power may change the exact approximately thirty (30) Day time period to be used in such calculations in Georgia Power's or its agent's reasonable discretion) -- the emissions allowance cost for each Unit for such Month, in dollars per million British Thermal Units ($/MMBTU), determined as (i) the per unit sulfur content of the fuel used to determine the blended replacement fuel cost above, times (ii) two (2), the conversion by weight of sulfur to sulfur dioxide, divided by (iii) the heat content, expressed in millions of British Thermal Units per ton (MMBTU/ton), of the fuel used to determine the blended replacement fuel cost above, times (iv) the value assigned to emissions allowances, in dollars per ton ($/ton), for such Month in accordance with the IIC (b) the variable operations and maintenance expense rate for each Unit, expressed in dollars per megawatt-hour ($/MWH), as shown in "Informational Schedule No. 2 (Energy Costs by Sources)" of the IIC in effect for such Month (c) the fuel handling expense rate for each Unit, expressed in dollars per megawatt-hour ($/MWH), as shown in "Informational Schedule No. 2 (Energy Costs by Sources)" of the IIC in effect for such Month (d) other energy related costs for each Unit, expressed in dollars per megawatt-hour ($/MWH), properly determined in accordance with FERC/NERC procedures (2) the factor for such Unit from the following table - --------------------------------------- ---------------------------------- Unit Factor - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- Branch 1 0.083404 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- Branch 3 0.373292 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- Branch 4 0.374552 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- Hammond 1 0.083508 - --------------------------------------- ---------------------------------- - --------------------------------------- ---------------------------------- Hammond 3 0.085244 - --------------------------------------- ---------------------------------- (3) one (1) divided by the Level A to B-1 Loss Factor for such Unit. 5. Availability Factor. ------------------- The Availability Factor, expressed in hundredths (0.00), for the combined LT Steam Resource shall be determined each Month as: (1) the sum of: (a) the product of: (i) the then current megawatts (MW) associated with the Remainder (ii) 0.86 (b) the product of: (i) the megawatts (MW) purchased by Oglethorpe Power pursuant to the notice incorporated above (ii) for the Months of June, July and August, 0.92 for all other Months, 0.84 (2) divided by the sum of: (a) the then current megawatts (MW) associated with the Remainder (b) the megawatts (MW) purchased by Oglethorpe Power pursuant to the notice incorporated above. 6. Change in Law. ------------- The Parties acknowledge that a Change in Law, including, but not limited to, environmental laws and regulations and energy taxes applicable to wholesale sales, but specifically excluding any other taxes, may significantly change (increase or decrease) Georgia Power's costs in providing the service described above. In the event of such a Change in Law, either Party may give notice to the other Party that Georgia Power's costs have changed significantly and may initiate negotiations to modify this Schedule to reflect such changes in costs. If the Parties have not negotiated and agreed upon an amendment to this Schedule within 90 Days, either Party shall have the right to initiate a dispute resolution process as follows: (i) Georgia Power shall make a good faith calculation of the effect of such change and adjust the billing accordingly, (ii) Oglethorpe may pay under protest, (iii) a mutually agreeable individual ("Accountant") shall calculate the appropriate adjustment to reflect the change in cost, and billings will be adjusted accordingly, and (iv) the Parties shall split Accountant's fee for rendering such service. If the Parties cannot reach agreement on a mutually agreeable individual, then the head of the utilities practice group at Arthur Andersen will be used. EX-10.2 3 10(A)59 Exhibit 10(a)59 SOUTHERN COMPANY EXECUTIVE PRODUCTIVITY IMPROVEMENT PLAN AMENDED AND RESTATED TROUTMAN SANDERS LLP NationsBank Plaza 600 Peachtree Street, N.E., Suite 5200 Atlanta, Georgia 30308 (404) 885-3000 Effective January 1, 1999 SOUTHERN COMPANY EXECUTIVE PRODUCTIVITY IMPROVEMENT PLAN Purposes The purposes of the Southern Company Executive Productivity Improvement Plan (the "Plan") are to provide a financial incentive which will focus the efforts of certain executives on areas that will have a direct and significant influence on corporate performance and to provide the potential for levels of compensation that will enhance the Employing Companies' abilities to attract, retain and motivate such executives. In order to achieve these objectives, the Plan will be based upon corporate performance. This Amendment and Restatement shall be effective as of January 1, 1999. ARTICLE I Definitions For purposes of the Plan, the following terms shall have the following meanings unless a different meaning is plainly required by the context: 1.1 "Annual Salary" shall mean base salary or wages paid to a Participant before deductions for taxes, social security, etc., including all amounts contributed by an Employing Company to The Southern Electric System Flexible Benefits Plan or The Southern Company Flexible Benefits Plan on behalf of a Participant, amounts contributed by any Employing Company to The Southern Company Employee Savings Plan as Elective Employer Contributions, as said term is defined in Section 4.1 therein, pursuant to the Participant's exercise of his deferral option made in accordance with Section 401(k) of the Internal Revenue Code, and amounts contributed to the Southern Company Deferred Compensation Plan, but excluding all awards under the Southern Company Performance Pay Plan and the Southern Company Executive Productivity Improvement Plan, overtime pay, shift differential and substitution pay. For Computation Periods beginning on or before January 1, 1998, Annual Salary shall be the Participant's Annual Salary as of the first day of the Computation Period. For Computation Periods beginning January 1, 1999 and thereafter, Annual Salary shall be the weighted average Annual Salary determined as of the last day of each of the four years within the Computation Period. 1.2 Average ROE" shall mean the mathematical result obtained by (a) calculating the return on equity for each year in the Computation Period, (b) adding the return on equity calculations for all years in the Computation Period; and (c) dividing the total by the number of years in the Computation Period. 1.3 "Award" shall mean the Award Opportunity or Award Units multiplied by the Performance Unit Value determined under Sections 3.2 and 3.4 of the Plan. 1.4 "Award Opportunity" shall mean the award opportunity determined under Section 3.1 of the Plan. 1.5 "Award Unit" shall mean the unit opportunity determined under Section 3.3 of the Plan. 1.6 "Beneficial Ownership" shall mean beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act. 1.7 "Board of Directors" shall mean the Board of Directors of Southern Company Services, Inc. 1.8 "Business Combination" shall mean a reorganization, merger or consolidation or sale of Southern Company or a sale of all or substantially all of Southern Company's assets. 1.9 "Chief Executive Officer" shall mean the individual designated as such by the Board of Directors of an Employing Company and of Southern Company. 1.10 "Committee" or "Compensation Committee" shall mean the Compensation Committee of the Board of Directors of Southern Company or the Employing Company. 1.11 "Common Stock" shall mean the common stock of Southern Company. 1.12 "Computation Period" shall mean a four-year period commencing on the first day of the initial year of participation and thereafter it shall mean a four-year period commencing the first day of January each year made up of the ROE Computation Period and the TSR Computation Period, if any, respectively. 1.13 "Consummation" shall mean the completion of the final act necessary to complete a transaction as a matter of law, including, but not limited to, any required approvals by the corporation's shareholders and board of directors, the transfer of legal and beneficial title to securities or assets and the final approval of the transaction by any applicable domestic or foreign governments or agencies. 1.14 "Control" shall mean, in the case of a corporation, Beneficial Ownership of more than 50% of the combined voting power of the corporation's Voting Securities, or in the case of any other entity, Beneficial Ownership of more than 50% of such entity's voting equity interests. 1.15 "Employing Company" shall mean Southern Company Services, Inc., or any other affiliate or subsidiary (direct or indirect) of Southern Company, which the Board of Directors may from time to time determine to bring under the Plan and which shall adopt the Plan, and any successor of any of them. 1.16 "Executive Employee" shall mean any person who is currently employed by an Employing Company who is a "covered employee" as that term is defined in Section 162(m) of the Internal Revenue Code (the "Code") who is designated as an Executive Employee by the Compensation Committee and such other persons employed by an Employing Company as the Compensation Committee in its discretion shall designate. 1.17 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 1.18 "Grade Level" shall mean the evaluation assigned under the job evaluation system. For Computation Periods beginning on or before January 1, 1998, Grade Level shall be the Participant's Grade Level as of the first day of the Computation Period. For Computation Periods beginning January 1, 1999 and thereafter, Grade Level shall be the weighted average Grade Level determined as of the last day of each of the four years within the Computation Period. 1.19 "Grade Level Value" shall mean the assigned dollar value within the Annual Salary range for a Grade Level in a Computation Period, upon which awards are based. 1.20 "Group" shall have the meaning set forth in Section 14(d) of the Exchange Act. 1.21 "Incumbent Board" shall mean those individuals who constitute the Southern Board as of the Effective Date plus any individual who shall become a director subsequent to such date whose election or nomination for election by Southern Company's shareholders was approved by a vote of at least 75% of the directors then comprising the Incumbent Board. Notwithstanding the foregoing, no individual who shall become a director of the Southern Board subsequent to the Effective Date whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Regulations promulgated under the Exchange Act) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Southern Board shall be a member of the Incumbent Board. 1.22 "Non-Adopting Employer" shall mean any subsidiary or affiliate of Southern Company which is not an Employing Company. 1.23 "Participant" shall mean an Executive Employee who satisfies the criteria referred to in Article II at the beginning of a Computation Period. 1.24 "Payment Date" shall mean the date the check evidencing the Award is endorsed by an authorized person of an Employing Company. 1.25 "Percentage of Total Award" shall have the meaning ascribed in Exhibits B and E hereof. 1.26 "Plan" shall mean the Southern Company Executive Productivity Improvement Plan, as described herein or as may be amended from time to time. 1.27 "Plan Termination" shall mean the termination of the Plan by Southern Company or an Employing Company following a Southern Change in Control unless an equitable arrangement (embodied in an ongoing substitute or replacement plan) has been made with respect to the Plan in connection with the Southern Change in Control. For purposes of this Plan, an ongoing substitute or alternative plan shall be considered an "equitable arrangement" if a nationally recognized compensation consulting firm chosen by the Committee opines in writing that, on aggregate, the post-Southern Change in Control plan is an equitable substitute or replacement of the pre-Southern Change in Control Plan, and that such substitute or alternative plan provides substantially similar target opportunities and a substantially similar level of performance difficulty. 1.28 "Prior Plan" shall mean the Plan as amended and restated effective January 1, 1995. 1.29 "Southern Board" shall mean the board of directors of Southern Company. 1.30 "Southern Change in Control" shall mean any of the following: (a) The acquisition by any Person of Beneficial Ownership of 20% or more of Southern Company's Voting Securities; provided, however, that for purposes of this subsection (a), the following acquisitions of Southern Company's Voting Securities shall not constitute a Change in Control: (i) any acquisition directly from Southern Company; (ii) any acquisition by Southern Company; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Southern Company or any corporation Controlled by Southern Company; (iv) any acquisition by a qualified pension plan or publicly held mutual fund; (v) any acquisition by an Employee or Group composed exclusively of Employees; or (vi) any Business Combination which would not otherwise constitute a Change in Control because of the application of clauses (i), (ii) and (iii) of Section 1.30(c); (b) A change in the composition of the Southern Board whereby individuals who constitute the Incumbent Board cease for any reason to constitute at least a majority of the Southern Board; or (c) Consummation of a Business Combination, unless, following such Business Combination, all of the following three conditions are met: (i) all or substantially all of the individuals and entities who held Beneficial Ownership, respectively, of Southern Company's Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, 65% or more of the combined voting power of the Voting Securities of the corporation surviving or resulting from such Business Combination, (including, without limitation, a corporation which as a result of such transaction holds Beneficial Ownership of all or substantially all of Southern Company's Voting Securities or all or substantially all of Southern Company's assets) (such surviving or resulting corporation to be referred to as "Surviving Company"), in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Southern Company's Voting Securities; (ii) no Person (excluding any corporation resulting from such Business Combination, any qualified pension plan, publicly held mutual fund, Group composed exclusively of Employees or employee benefit plan (or related trust) of Southern Company, its subsidiaries or Surviving Company) holds Beneficial Ownership, directly or indirectly, of 20% or more of the combined voting power of the then outstanding Voting Securities of Surviving Company except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors of Surviving Company were members of the Incumbent Board at the earlier of the date of execution of the initial agreement, or of the action of the Southern Board, providing for such Business Combination. 1.31 "Southern Company" shall mean The Southern Company. 1.32 "Southern Termination" shall mean the following: (a) The consummation of a reorganization, merger or consolidation of Southern Company under circumstances where either (i) Southern Company is not the surviving corporation or (ii) Southern Company's Voting Securities are no longer publicly traded; (b) The sale or other disposition of all or substantially all of Southern Company's assets; or (c) The acquisition by any Person of Beneficial Ownership of all of Southern Company's Voting Securities such that Southern Company's Voting Securities are no longer publicly traded; in each case under circumstances where the Surviving Company of the company acquiring Southern Company's assets or Voting Securities dies not adopt an "equitable arrangement" (as defined in Section 1.27 hereof) in the form of a replacement plan. 1.33 "Subsidiary Change in Control" shall mean the following: (a) The Consummation of an acquisition by any Person of Beneficial Ownership of 50% or more of the combined voting power of the then outstanding Voting Securities of an Employing Company; provided, however, that for purposes of this Section 1.33, any acquisition by an Employee, or Group composed entirely of Employees, any qualified pension plan, any publicly held mutual fund or any employee benefit plan (or related trust) sponsored or maintained by Southern Company or any corporation Controlled by Southern Company shall not constitute a Change in Control; (b) Consummation of a reorganization, merger or consolidation of an Employing Company (an "Employing Company Business Combination"), in each case, unless, following such Employing Company Business Combination, Southern Company Controls the corporation surviving or resulting from such Employing Company Business Combination; or (c) Consummation of the sale or other disposition of all or substantially all of the assets of an Employing Company to an entity which Southern Company does not Control. 1.34 "Subsidiary Employee" shall mean an Executive Employee of an Employing Company which has undergone a Subsidiary Change in Control. 1.35 "ROE Computation Period" shall have the meaning ascribed in Section 3.1 hereof 1.36 "ROE Peer Group Companies" shall mean the companies set forth on Exhibit C attached hereto and as may be revised from time to time by the Committee to reflect mergers, acquisitions, reorganizations, etc. of such companies. 1.37 "Termination for Cause" or "Cause" shall mean the termination of a Participant's employment by an Employing Company under any of the following circumstances: (a) The Participant willfully neglects or refuses to discharge his or her duties to the Employing Company as an employee or refuses to comply with any lawful and reasonable instructions given to him or her by the Employing Company without reasonable excuse; (b) The Participant is guilty of gross misconduct. For purposes of this Plan, the following acts shall constitute gross misconduct: (i) any act involving fraud or dishonesty or breach of appropriate regulations of competent authorities; (ii) the carrying out of any activity or the making of any statement which would prejudice or impair the good name and standing of the Company or any Employing Company or would bring the Company or any Employing Company into contempt, ridicule or would reasonably shock or offend any community in which the Company or any Employing Company is located; (iii) attendance at work in a state of intoxication or otherwise being found in possession at his or her workplace of any prohibited drug or substance, possession of which would amount to a criminal offense; (iv) assault or other act of violence against any employee or other person during the course of the Participant's employment; and (v) conviction of any felony or misdemeanor involving moral turpitude. 1.38 "Total Shareholder Return" or "TSW' shall mean the total amount an investor would receive by investing $100 per quarter in Common Stock or in TSR Peer Group Common Stock, as the case may be, as determined by measuring the total dividends which would have been paid on such Common Stock or TSR Peer Group Common Stock by reinvesting such dividends on a quarterly basis in additional shares of Common Stock or TSR Peer Group Common Stock, as the case may be, and the total gain or loss on such Common Stock or Peer Group Common Stock as if such stock had been sold at the closing price on the last day of the respective Computation Period. 1.39 "TSR Computation Period" shall have the meaning ascribed in Section 3.3 hereof. 1.40 "TSR Peer Group Common Stock" shall mean the common stock of the Peer Group, Companies. 1.41 "TSR Peer Group Companies" shall mean those Companies designated by Goldman Sachs in its "Selected Electric Utility Industry Report" as the approximately 80 Utility Peer Group Companies as published quarterly and as composed from time to time. In the event that Goldman Sachs no longer publishes the 80 Utility Peer Group Companies, the Committee shall choose such other and similar list of national peer group companies as published by a similarly nationally recognized firm. 1.42 "Value of Performance Unit" shall have the meaning ascribed in Exhibits B and E attached hereto. 1.43 "Voting Securities" shall mean the outstanding voting securities of a corporation entitling the holder thereof to vote generally in the election of such corporation's directors. Where the context requires, words in the masculine gender shall include the feminine and neuter genders, words in the singular shall include the plural, and words in the plural shall include the singular. ARTICLE II Participants 2.1 Participation. Participation in the Plan shall be limited to Executive Employees of the Employing Companies. 2.2 Reduction in Grade Level. Any Participant who ceases to be an Executive Employee prior to the close of a Computation Period shall receive an Award for the Computation Period ending on December 31st of the year in which such Participant ceased to be an Executive Employee and shall forfeit any Award for any other Computation Periods that have not closed as of the date the Participant ceases to be an Executive Employee. 2.3 Termination of Employment. If a Participant's employment is terminated by reason of death, disability or retirement, such Participant or his or her estate shall be eligible to receive an Award for the Computation Period ending in the year of such death, disability or retirement unless such death, disability or retirement shall have occurred on January 1 in which case the Participant or his or her estate shall only be entitled to an Award for the Computation Period ending December 31 of the previous year. Any Participant who terminates employment for any other reason shall receive only any unpaid Award for a completed Computation Period and shall not be eligible to receive an Award for the Computation Period ending in the year of such termination of employment. 2.4 Transfer to Non-Adopting Employer. Notwithstanding the provisions of Section 2.3 above, in the case of an individual transferring from an Employing Company to a Non-Adopting Employer any Award paid for any Computation Period not yet closed as of the date of a Participant's transfer shall be paid to the Participant by the Employing Company from which the Participant is transferring on the following basis: (i) 100% of the Award for the Computation Period ending in the year of transfer; (ii) 75% of the Award for the Computation Period ending in the first year following the year of transfer; (iii) 50% of the Award for the Computation Period ending in the second year following the year of transfer; and (iv) 25% of the Award for the Computation Period ending in the third year following the year of transfer. Such transferring Participant shall receive no award for any Computation Period which has not begun on the date of the Participant's transfer or if such Participant shall no longer be in an eligible Grade Level after such transfer. Any Awards payable under this Section 2.4 shall be based on the Grade Level at the time of transfer. 2.5 Transfer from Non-Adopting Employer. In the case of an individual transferring from a Non-Adopting Employer to an Employing Company whose Grade Level and length of service at the Non-Adopting Employer would have caused the Employee to have been a Participant in the Plan if the Non-Adopting Employer were an Employing Company and whose Grade Level after the transfer would enable the Employee to participate in the Plan, such individual shall be deemed to have been employed by an Employing Company while employed with the Non-Adopting Employer and shall, for any Computation Period ending after such transfer, be deemed a Participant in the Plan as if the Non-Adopting Employer was an Employing Company. Any Awards payable under this Section 2.5 shall be based on the Grade Levels at the Employing Company. 2.6 Termination for Cause. Notwithstanding any other provision of this Plan, a Participant whose employment is Terminated for Cause shall forfeit any and all unpaid Awards under this Plan. 2.7 Promotion. The administration of Awards for Participants who are promoted or transferred from one Grade Level included in the Plan to another Grade Level included in the Plan shall be based on the Participant's Grade Level Value on the last day of the Computation Period for which an Award is being granted. For the Computation Periods ending December 31, 1995, December 31, 1996, December 31, 1997 and December 31, 1998 a Participant's Grade Level Value for determining Awards shall be the Participant's Grade Level Value on January 1, 1995. 2.8 Maximum Award. Notwithstanding any other provision of this Plan, the maximum Award for any Computation Period payable to any Participant shall be two million dollars ($2,000,000). 2.9 1995 Participants. Any individual who initially becomes a Participant in the Plan as of January 1, 1995 shall be considered to have been participating in the Plan as of January 1, 1993 for purposes of determining benefits payable for any Computation Period that began or begins on or after January 1, 1993 and such Participant will therefore be eligible for an Award equal to seventy-five percent (75%) of the Award Opportunity for the Computation Period ending December 31, 1995. 2.10 Post-1995 Participants. In the case of an individual who becomes a Participant subsequent to January 1, 1995, said Participant will participate in each Computation Period which ends not less than two (2) years after becoming a Participant. ARTICLE III Corporate Financial Performance Award 3.1 ROE Computation Period. For Computation Period years beginning before January 1, 1997 (the "ROE Computation Period"), the Award Opportunity for each Participant shall be based upon either his Grade Level Value (as determined based on his Grade Level at the beginning of such period) or, in the Committee's discretion, upon his Annual Salary at the beginning of such period and in either case shall range from fifteen percent (15%) to sixty-five percent (65%) of such Grade Level Value or Annual Salary, as applicable. The Award Opportunity for each Grade Level or Annual Salary shall be determined in accordance with the chart set forth in Exhibit A hereof. 3.2 ROE Ranking. Each Award Opportunity granted in the ROE Computation Period shall be multiplied by the Value of Performance Unit factor and the Percentage of Total Award factor set forth in Exhibit B hereof, which is based on Southern Company's Average ROE ranking during the ROE Computation Period as compared to the Average ROE ranking of the ROE Peer Group Companies to determine a Participant's Award. The return on common equity of the ROE Peer Group Companies shall be determined annually by an independent certified public accountant based on generally accepted accounting principles and shall be properly adjusted and annualized by such accountant so that each ROE Peer Group Company return on common equity may be accurately compared to that of Southern Company. 3.3 TSR Computation Period. For Computation Period years beginning on or after January 1, 1997 (the "TSR Computation Period"), the Award Units for each Participant shall be based upon either his Grade Level Value or, in the Committee's discretion, upon his Annual Salary and, in either case shall range from fifteen percent (15%) to sixty-five percent (65%) of such Grade Level Value or Annual Salary, as applicable. The Award Units for each Grade Level or Annual Salary shall be determined in accordance with the charts set forth in Exhibit D hereof 3.4 TSR Ranking. Each Award Unit granted in the TSR Computation Period shall be multiplied by the Value of Performance Unit factor and the Percentage of Total Award factor set forth in Exhibit E hereof which is based on Total Shareholder Return of Southern Company as compared to the Total Shareholder Return for the TSR Peer Group Companies. The Total Shareholder Return of Southern Company and the TSR Peer Group Companies shall be determined annually by an independent certified public accountant and shall be properly adjusted and amortized by such accountant so that each TSR Peer Group Company's total shareholder return may be accurately compared to that of Southern Company. 3.5 Insufficient Earnings. Notwithstanding the above provisions, an Award will not be granted for any Computation Period ending with the calendar year in which the current earnings of Southern Company are less than the amount necessary to fund the dividends on its Common Stock at the rate such dividends were paid for the immediately preceding calendar year. 3.6 Extraordinary Income. In the exercise of negative discretion, the Compensation Committee may calculate the Award for one or more Computation Period(s) without regard to any extraordinary income item (but not loss) otherwise recorded by Southern Company or any Employing Company, provided such determination that an item of income is extraordinary is made by the Committee prior to the close of the Computation Period. 3.7 Payment. The Awards to the Participants will be paid in cash as soon as is practicable after all evaluations are completed. An Award payment may not be deferred under this Plan. In the event an Award was deferred under the Prior Plan, such deferral shall be governed by the terms of the Prior Plan. ARTICLE IV Change in Control 4.1 Southern Change in Control. Notwithstanding any other provision of this Plan to the contrary, in the event of a Plan Termination within the two (2) year period following a Southern Change in Control, each Participant who is an Executive Employee on the date of the Plan Termination shall be entitled to receive within thirty (30) days of the Plan Termination, cash in an amount equal to his Award Opportunity or Award Units, as the case may be, for the Computation Period in which the Plan Termination shall have occurred, at a target Value of Performance Unit of $ 1.00, prorated for each Computation Period by the number of months which have passed since the beginning of the Computation Period until the date of the Plan Termination. 4.2 Subsidiary Change in Control. Notwithstanding any other provision of this Plan to the contrary, in the event of a Subsidiary Change in Control, each Subsidiary Employee on the date of such Change in Control whose employment is not transferred upon such Subsidiary Change in Control to another Employing Company shall be entitled to receive within thirty (30) days of the Subsidiary Change in Control, cash in an amount equal to his Award Opportunity, or Award Units, as the case may be, for the Computation Period in which the Subsidiary Change in Control shall have occurred, at a target Value of Performance Unit of $1.00, prorated for each Computation Period by the number of months which have passed since the beginning of the Computation Period until the date of the Subsidiary Change in Control. 4.3 Southern Termination. Notwithstanding any other provision of this Plan to the contrary, in the event of a Southern Termination, if the Plan or an equitable replacement thereto (as described in Section 1.27 hereof) remains effective on December 31st of the Plan Year in which the Southern Change in Control shall have occurred, the Plan or Replacement Plan shall operate with respect to the Performance Period then ended in accordance with its terms, but in no event shall the Value of Performance Unit under the Plan or similar factor under a replacement plan for such Performance Period be less than $1.00 or target performance, respectively. ARTICLE V Miscellaneous Provisions 5.1 No Assignment. Neither the Participant, his beneficiary, nor his personal representative shall have any rights to commute, sell, assign, transfer or otherwise convey the right to receive any payments hereunder, which payments and the rights thereto are expressly declared to be nonassignable and nontransferable. Any attempt to assign or transfer the right to payments of this Plan shall be void and have no effect. 5.2 No Reserve. The Employing Company shall not reserve or otherwise set aside funds for the payments of Awards deferred in accordance with the Prior Plan. 5.3 Plan Amendment. Except for the provisions of Article IV hereof, which may not be amended, modified or terminated following a Southern Change in Control, Subsidiary Change in Control or a Southern Termination, the Plan may be amended, modified, or terminated by the Board of Directors in its sole discretion at any time and from time to time; provided, however, that no such amendment, modification, or termination shall impair any rights to payments which have been deferred under the Prior Plan prior to such amendment, modification, or termination. 5.4 Additional Benefits. It is expressly understood and agreed that the Awards made in accordance with the Plan are in addition to any other benefits or compensation to which a Participant may be entitled or for which he may be eligible, whether funded or unfunded, by reason of his employment with the Employing Company. 5.5 Withholding. There shall be deducted from the payment of each Award under the Plan the amount of any tax required by any governmental authority to be withheld and paid over by the Employing Company to such governmental authority for the account of the person entitled to such distribution. 5.6 Effect On Other Benefits. Any Awards paid to a Participant while employed by an Employing Company shall not be considered in the calculation of the Participant's benefits under any other employee welfare or pension benefit plan maintained by an Employing Company, unless otherwise specifically provided therein. 5.7 Governing Law. This Plan, and all its rights under it, shall be governed by and construed in accordance with the laws of the State of Georgia. 5.8 Pooling Accounting. Notwithstanding anything to the contrary herein, if, but for any provision of this Plan, a Change in Control transaction would otherwise be accounted for as a pooling-of-interests under APB No. 16 ("Pooling Accounting") (after giving effect to any and all other facts and circumstances affecting whether such Change in Control transaction would use Pooling Accounting,), such provision or provisions of this Plan which would otherwise cause the Change in Control transaction to be ineligible for Pooling Accounting shall be void and ineffective in such a manner and to the extent that by eliminating such provision or provisions of this Plan, Pooling Accounting would be required for such Change in Control transaction. IN WITNESS WHEREOF, Southern Company Services, Inc., through its duly authorized officers, hereby amends and restates the Southern Company Executive Productivity Improvement Plan this ____ day of ______________, 1999 to be effective January 1, 1999. SOUTHERN COMPANY SERVICES, INC. By: Christopher C. Womack Senior Vice President, Human Resources Attest: By: Tommy Chisholm Secretary [CORPORATE SEAL] SOUTHERN COMPANY EXECUTIVE PRODUCTIVITY IMPROVEMENT PLAN EXHIBIT A Award Opportunity Grade Level Value Award Opportunity Percentage of Grade Level Value or Annual Salary President/CEO 50/65% 15 50% 14 45% 13 40% 12 35% 11 30% 10 25% 9 25% 8 20% 7 15% SOUTHERN COMPANY EXECUTIVE PRODUCTIVITY IMPROVEMENT PLAN EXHIBIT B AWARD PERCENTAGE SCHEDULE Position Ranking Value of Performance Unit 12-14 15-17 18 - 20 $ Companies Companies Companies - ---------------- --------- --------- --------- $2.00 Top Top Top 1.80 1.0 1.0 1.0 1.60 2.0 2.0 2.0 1.40 2.5 3.0 3.0 1.20 3.0 4.0 4.0 1.00 4.0 4.5 5.0 .90 4.5 5.0 6.0 .80 5.0 6.0 7.0 .70 6.0 7.0 8.0 .60 6.5 8.0 9.0 .50 7.0 8.5 10.0 0 Below 7.0 Below 8.5 Below 10 Percentage Of Total Award Factor Computation Period Ending Factor December 31, 1997 75% December 31, 1998 50% December 31, 1999 25% Thereafter 0% SOUTHERN COMPANY EXECUTIVE PRODUCTIVITY IMPROVEMENT PLAN EXHIBIT C ROE Peer Group Companies Allegheny Energy, Inc. Alliant Energy Corporation Ameren Corporation American Electric Power Company Baltimore Gas & Electric Company BEC Energy Carolina Power & Light Company Central & South West Corporation CILCORP. Inc. Cinergy Corporation Cleco Corporation Conectiv CIV CMS Energy Corporation Commonwealth Energy System Consolidated Edison, Inc. Dominion Resources, Inc. DPL, Inc. DQE, Inc. DTE Energy Company Duke Energy Corporation Eastern Utilities Associates Edison International Energy East Corporation Entergy Corporation FirstEnergy Corporation Florida Progress Corporation FPL Group, Inc. GPU, Inc. Hawaiian Electric Industries, Inc. Houston Industries, Inc. IDACORP, Inc. Illinova Corporation Interstate Energy Corporation IPALCO Enterprises, Inc. Washington Water Power Co. Western Resources, Inc. WPS Resources Corp. Kansas City Power & Light Company Keyspan Energy Corporation LG&E Energy Corporation MDU Resources MidAmerican Energy Holdings Co. Minnesota Power Company Montana Power Company Nevada Power Co. New Century Energies, Inc. New England Electric System Niagara Mohawk Power Corp. NIPSCO Industries, Inc. Northeast Utilities Co. Northern States Power Co. OGE Energy Corp. Orange & Rockland Utilities, Inc. PG&E Corp. PacifiCorp PECO Energy Co. Pinnacle West Capital Corp. Potomac Electric Power Co. PP&L Resources, Inc. Public Service Co. of New Mexico Public Service Enterprise Group, Inc. Puget Sound Energy, Inc. Rochester Gas & Electric Corp. SCANA Corp. Sierra Pacific Resources SIGCORP, Inc. TECO Energy, Inc. Texas Utilities Company Unicom Corp. Unisource Energy Corp. United Illuminating Company UtiliCorp. United, Inc. Wisconsin Energy Corp. SOUTHERN COMPANY EXECUTIVE PRODUCTIVITY IMPROVEMENT PLAN EXHIBIT D Award Units Grade Level Value Award Units Percentage of Grade Level Value or Annual Salary President/CEO 50/65% 15 50% 14 45% 13 40% 12 35% 11 30% 10 25% 9 25% 8 20% 7 15% SOUTHERN COMPANY EXECUTIVE PRODUCTIVITY IMPROVEMENT PLAN EXHIBIT E Performance Unit Factor* Value of Unit Percentile of Southern TSR vs. -- Investor Utility $ 2.00 90th and above $ 1.50 70th $ 1.00 50th $ .50 30th $ .00 Below 30th *The Value of Unit for performance levels falling between the percentiles listed above shall be interpolated on a straight line basis for any given calendar year. Percentage Of Total Award Factor Computation Period Ending Factor December 31, 1997 25% December 31, 1998 50% December 31, 1999 75% Thereafter 100% EX-10.3 4 10(A)61 Exhibit 10(a)61 FOURTH AMENDMENT TO THE SOUTHERN COMPANY EMPLOYEE SAVINGS PLAN WHEREAS, the Employee Savings Plan Committee ("Committee") heretofore adopted the amendment and restatement of The Southern Company Employee Savings Plan ("Plan"), effective as of January 1, 1997; and WHEREAS, the Committee desires to amend the Plan to provide for the participation in the Plan by certain former employees of Orange and Rockland Utilities, Inc. and Pacific Gas and Electric, Inc. who become employed by Southern Energy Resources, Inc.; and WHEREAS, the Committee desires to amend the Plan to allow for the trust-to-trust transfer of account balances from the Orange and Rockland Utilities, Inc. Management Employees' Savings Plan; and WHEREAS, the Committee desires to clarify Plan language concerning the delegation of authority to appoint investment managers; and WHEREAS, the Committee desires to amend the definition of "Eligible Rollover Distribution" to comply with recent changes in the law; and WHEREAS, the Committee is authorized pursuant to Section 15.1 of the Plan to amend the Plan at any time, provided that the amendment does not involve a substantial increase in cost to any Employing Company or is necessary or desirable to comply with the laws and regulations applicable to the Plan. NOW, THEREFORE, the Committee hereby amends the Plan as follows, to be effective as provided herein: I. Effective as of the date hereof, Article III shall be amended by adding a new Section 3.8 thereto as follows and by redesignating existing Section 3.8 as Section 3.10: 3.8 Former Orange and Rockland Utilities, Inc. Employees. Notwithstanding any other provision of the Plan to the contrary, with respect to a former employee of Orange and Rockland Utilities, Inc. ("O&R") who is employed by Southern Energy Resources, Inc. and is set forth on a schedule of employees acknowledged by the Committee, such employee shall be given credit for service with O&R for eligibility purposes and may elect to become a Participant as of any Enrollment Date commencing on or after the date such employee meets the eligibility requirements under Section 3.1 of the Plan. II. Effective as of the date hereof, Article III shall be amended by adding a new Section 3.9 thereto as follows: 3.9 Former Pacific Gas and Electric, Inc. Employees. Notwithstanding any other provision of the Plan to the contrary, with respect to a former employee of Pacific Gas and Electric, Inc. ("PG&E") who is employed by Southern Energy Resources, Inc. and is set forth on a schedule of employees acknowledged by the Committee, such employee shall be given credit for service with PG&E for eligibility purposes and may elect to become a Participant as of any Enrollment Date commencing on or after the date such employee meets the eligibility requirements under Section 3.1 of the Plan. III. Effective as of the date hereof, a new Article XIX shall be added as follows: ARTICLE XIX SPECIAL REQUIREMENTS FOR ACCOUNT BALANCES ATTRIBUTABLE TO ACCRUED BENEFITS TRANSFERRED FROM THE ORANGE AND ROCKLAND UTILITIES, INC. MANAGEMENT EMPLOYEES' SAVINGS PLAN (THE "O&R PLAN") 19.1 Acceptance of Trust-to-Trust Transfer. The Plan may accept a trust-to-trust transfer of an account from the O&R Plan for each Participant who was a participant in the O&R Plan immediately prior to the date of the acquisition of Orange and Rockland Utilities, Inc. ("O&R") ("Effective Date"), who becomes employed by Southern Energy Resources, Inc. immediately thereafter, and who elects on a form acceptable to the Committee to make such a transfer. Such account shall be known as the Participant's "O&R Transferred Account" and shall be subject to the requirements of this Article XIX. 19.2 Treatment of O&R Transferred Account. The O&R Transferred Account shall not be maintained as a separate bookkeeping account but, instead, shall be treated as follows: (a) Voluntary Participant Contributions. The portion of the Transferred Account attributable to Employee After-Tax Contributions, as that term is defined under the O&R Plan, shall be treated as Voluntary Participant Contributions under this Plan. (b) Elective Employer Contributions. The portion of the Transferred Account attributable to (1) Pre-Tax Contributions, as that term is defined under the O&R Plan; and (2) Transferred Employer PAYSOP Contributions, as that term is defined under the O&R Plan; and (3) Hourly Savings Plan Contributions, as that term is defined under the O&R Plan, shall be treated as Elective Employer Contributions under this Plan. (c) Employer Matching Contributions. The portion of the Transferred Account attributable to Company Matching Contributions, as that term is defined under the O&R Plan, shall be treated as Employer Matching Contributions under this Plan. (d) Rollover Contributions. The portion of the Transferred Account attributable to Rollover Contributions, as that term is defined under the O&R Plan, shall be treated as Rollover Contributions under this Plan. 19.3 Investment and In-Service Withdrawals of Employer Matching Contributions. In determining a Participant's ability to invest Employer Matching Contributions under Section 8.3(b) and to withdraw Employer Matching Contributions under Section 11.1(a)(4), a Participant shall be given credit for any participation in the O&R Plan. 19.4 Loans from O&R Transferred Accounts. The Transferred Accounts may include loans made under the O&R Plan and shall be amortized in accordance with the loan note(s) provided upon transfer. With respect to Section 11.7(b), any loans transferred shall be considered in determining the limits thereunder. 19.5 Code Section 411(d)(6) Protected Benefits. Notwithstanding any of the foregoing, the provisions of this Article XIX shall not decrease a Participant's accrued benefit, except to the extent permitted under Section 412(c)(8) of the Code, and shall not reduce or eliminate Code Section 411(d)(6) protected benefits. The Committee shall disregard any part of this Article XIX or the Plan to the extent that application of such would fail to satisfy this paragraph. If the Committee disregards any portion of this Article XIX or the Plan because it would eliminate a protected benefit, the Committee shall maintain a schedule of any such impacted early retirement option or other optional forms of benefit and the Plan shall continue such for the affected Participants. IV. Effective as of March 25, 1999, Section 13.14 of the Plan shall be amended by deleting such section in its entirety and replacing it with the following: 13.14 Management of Assets. The Committee shall not have responsibility with respect to control or management of the assets of the Plan. The Trustee shall have the sole responsibility for the administration of the assets of the Plan as provided in the Trust Agreement, except to the extent that an investment advisor (who qualifies as an Investment Manager as that term is defined in ERISA) who is appointed by the Pension Fund Investment Review Committee shall have responsibility for the management of the assets of the Plan, or some part thereof (including powers to acquire and dispose of the assets of the Plan, or some part thereof). V. Effective as of March 25, 1999, Section 14.1 of the Plan shall be amended by deleting such section in its entirety and replacing it with the following: 14.1 Trustee. The Company has entered into a Trust Agreement with the Trustee to hold the funds necessary to provide the benefits set forth in the Plan. If the Board of Directors so determines, the Company may enter into a Trust Agreement or Trust Agreements with additional trustees. Any Trust Agreement may be amended by the Company from time to time in accordance with its terms. Any Trust Agreement shall provide, among other things, that all funds received by the Trustee thereunder will be held, administered, invested, and distributed by the Trustee, and that no part of the corpus or income of the Trust held by the Trustee shall be used for or diverted to purposes other than for the exclusive benefit of Participants or their Beneficiaries, except as otherwise provided in the Plan. Any Trust Agreement may also provide that the investment and reinvestment of the Trust Fund, or any part thereof may be carried out in accordance with directions given to the Trustee by any Investment Manager or Investment Managers (as that term is defined in ERISA) who may be appointed by the Pension Fund Investment Review Committee. The Board of Directors may remove any Trustee or any successor Trustee, and any Trustee or any successor Trustee may resign. Upon removal or resignation of a Trustee, the Board of Directors shall appoint a successor Trustee. VI. Effective as of the date hereof, Section 2.30 of the Plan shall be amended by deleting such section in its entirety and replacing it with the following: 2.30. "Eligible Rollover Distribution" shall mean any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: (a) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee, the joint lives (or joint life expectancies) of the Distributee and the Distributee's Beneficiary, or for a specified period of 10 years or more; (b) any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; (c) the portion of any distribution that is not includable in gross income (determined without regard to the exclusion from net unrealized appreciation with respect to employer securities); and (d) for distributions on or after January 1, 2000, any hardship distribution described in Section 401(k)(2)(B)(i)(IV) of the Code. Except as amended herein by this Fourth Amendment, the Plan shall remain in full force and effect as amended and restated by the Company prior to the adoption of this Fourth Amendment. IN WITNESS WHEREOF, Southern Company Services, Inc., through the duly authorized members of the Employee Savings Plan Committee, has adopted this Fourth Amendment to The Southern Company Employee Savings Plan this ____ day of _________________________, 1999 to be effective as of such date unless stated otherwise herein. EMPLOYEE SAVINGS PLAN COMMITTEE: Christopher C. Womack Robert A. Bell W. Dean Hudson FIFTH AMENDMENT TO THE SOUTHERN COMPANY EMPLOYEE SAVINGS PLAN WHEREAS, the Employee Savings Plan Committee ("Committee") heretofore adopted the amendment and restatement of The Southern Company Employee Savings Plan ("Plan"), effective as of January 1, 1997; and WHEREAS, the Committee desires to amend the Plan to allow Eligible Employees to make a Rollover Contribution to the Plan within 18 months of employment; and WHEREAS, the Committee is authorized pursuant to Section 15.1 of the Plan to amend the Plan at any time, provided that the amendment does not involve a substantial increase in cost to any Employing Company or is necessary or desirable to comply with the laws and regulations applicable to the Plan. NOW, THEREFORE, the Committee hereby amends the Plan as follows, to be effective as provided herein: I. Effective as of January 1, 2000, Section 4.11 of the Plan shall be amended by deleting such Section and substituting a new Section 4.11 as follows: 4.11 Rollovers from Other Plans. An Eligible Employee who is hired or rehired on or after April 1, 1997 and has received a distribution of his interest in a retirement plan of a former employer under circumstances meeting the requirements of Section 402(c)(4) of the Code relating to eligible rollover distributions from qualified trusts may elect to deposit all or any portion (as designated by such Eligible Employee) of the amount of such distribution as a Rollover Contribution to this Plan. A Rollover Contribution may be made only within 60 days following the date the Eligible Employee receives the distribution from the plan of his former employer (or within such additional period as may be provided under Section 408 of the Code if the Eligible Employee shall have made a timely deposit of the distribution in an individual retirement account) and within 12 months of the date of his employment or reemployment with an Employing Company. Notwithstanding the preceding sentence, effective January 1, 2000, a Rollover Contribution may be made only within 60 days following the date the Eligible Employee receives the distribution from the plan of his former employer (or within such additional period as may be provided under Section 408 of the Code if the Eligible Employee shall have made a timely deposit of the distribution in an individual retirement account) and within 18 months after the date of his employment or reemployment with an Employing Company. In addition to the foregoing, an Eligible Employee described in Section 3.5 may elect to make a Rollover Contribution to this Plan without regard to his date of employment, provided that such Rollover Contribution is deposited with this Plan within the period beginning April 1, 1997 and ending June 30, 1997 and which otherwise satisfies the requirements of this Section 4.11. The Committee shall establish rules and procedures to implement this Section 4.11, including without limitation, such procedures as may be appropriate to permit the Committee to verify the tax qualified status of the plan of the former employer and compliance with any applicable provisions of the Code relating to such contributions. The amount contributed to the Trustee pursuant to this Section 4.11 shall be placed in the Eligible Employee's Rollover Contribution subaccount for the benefit of the Eligible Employee pursuant to Section 9.1. The Eligible Employee shall have a fully vested interest in the balance of his Rollover Contribution subaccount at all times and such Rollover Contribution subaccount shall share in the earnings, gains, and losses of the Trust Fund as set forth in Article IX of the Plan. An Employee shall be entitled to a distribution of his Rollover Contribution subaccount pursuant to the applicable provisions of Articles XI and XII hereof. II. Except as amended herein by this Fifth Amendment, the Plan shall remain in full force and effect as amended and restated by the Company prior to the adoption of this Fifth Amendment. IN WITNESS WHEREOF, the Employee Savings Plan Committee, through its duly authorized member, has adopted this Fifth Amendment to The Southern Company Employee Savings Plan pursuant to a Committee resolution, this ________ day of ______________________, 1999 to be effective as of such date unless stated otherwise herein. EMPLOYEE SAVINGS PLAN COMMITTEE: Christopher C. Womack EX-10.4 5 10(A)63 Exhibit 10(a)63 THIRD AMENDMENT TO THE SOUTHERN COMPANY EMPLOYEE STOCK OWNERSHIP PLAN WHEREAS, Southern Company Services, Inc. ("Company") heretofore adopted The Southern Company Employee Stock Ownership Plan ("Plan"), originally effective as of January 1, 1976 and has most recently amended and restated the Plan effective as of January 1, 1997; and WHEREAS, the Employee Stock Ownership Plan Committee ("Committee") desires to amend the Plan to exclude certain former employees of Orange and Rockland Utilities, Inc. who become employed by Southern Energy Resources, Inc. from participating in the Plan; and WHEREAS, the Committee desires to amend the Plan to provide for the participation in the Plan by certain former employees of Pacific Gas and Electric Company who become employed by Southern Energy Resources, Inc.; and WHEREAS, the Committee desires to amend the Plan to allow audit fees incurred by the Plan and the Trust to be paid from the Trust assets; and WHEREAS, the Committee is authorized pursuant to Section 11.1 of the Plan to amend the Plan at any time, provided that the amendment does not involve a substantial increase in cost to any Employing Company or is necessary or desirable to comply with the laws and regulations applicable to the Plan. NOW, THEREFORE, the Committee hereby amends the Plan as follows to be effective as provided herein: I. Effective as of the date hereof, Section 2.20 of the Plan shall be amended by adding a new Subparagraph (5) thereto as follows: (5) An Employee who is described in Section 3.8 of the Plan. II. Effective as of the date hereof, Article III of the Plan shall be amended by adding a new Section 3.8 thereto as follows and by redesignating existing Section 3.8 as Section 3.10: 3.8 Former Orange and Rockland Utilities, Inc. Employees. Notwithstanding any other provision of the Plan to the contrary, a former employee of Orange and Rockland Utilities, Inc. ("O&R") who is employed by Southern Energy Resources, Inc. and who is set forth on a schedule of employees acknowledged by the Committee shall not be eligible to participate in the Plan.. III. Effective as of the date hereof, Article III shall be amended by adding a new Section 3.9 thereto as follows: 3.9 Former Pacific Gas and Electric Company Employees. Notwithstanding any other provision of the Plan to the contrary, with respect to a former employee of Pacific Gas and Electric Company ("PG&E") who is employed by Southern Energy Resources, Inc. and is set forth on a schedule of employees acknowledged by the Committee, such employee shall be given credit for service with PG&E for eligibility purposes and shall become a Participant on the Enrollment Date commencing on or after the date such employee meets the eligibility requirements under Section 3.1 of the Plan. IV. Effective as of March 25, 1999, Section 9.12 shall be amended by deleting such Section in its entirety and replacing it with the following: 9.12 Expenses of Plan and Trust Fund. The expenses of establishment and administration of the Plan and the Trust Fund shall be paid by the Company or the Employing Companies. Notwithstanding the foregoing, to the extent provided in the Trust Agreement, certain administrative expenses may be paid from the Trust Fund either directly or through reimbursement of the Company or the Employing Companies. All fees of the auditors related to the audit of the Plan or the Trust Fund shall be paid from the Trust Fund either directly or through reimbursement of the Company or the Employing Companies. Any expenses directly related to the investments of the Trust Fund, such as stock transfer taxes, brokerage commissions, or other charges incurred in the acquisition or disposition of such investments, shall be paid from the Trust Fund and shall be deemed to be part of the cost of such securities or deducted in computing the proceeds therefrom, as the case may be. Taxes, if any, on any assets held or income received by the Trustee and transfer taxes on the transfer of Common Stock from the Trustee to a Participant or his Beneficiary shall be charged appropriately against the Accounts of Participants as the Committee shall determine. Any expenses paid by the Company pursuant to Section 9.11 and this section shall be subject to reimbursement by other Employing Companies of their proportionate shares of such expenses as determined by the Committee. Except as amended herein by this Third Amendment, the Plan shall remain in full force and effect. IN WITNESS WHEREOF, Southern Company Services, Inc. through the duly authorized members of the Employee Stock Ownership Plan Committee has adopted this Third Amendment to The Southern Company Employee Stock Ownership Plan this _____ day of ________________, 1999, to be effective as of such date unless stated otherwise herein. EMPLOYEE STOCK OWNERSHIP PLAN COMMITTEE: Christopher C. Womack Robert A. Bell W. Dean Hudson EX-10.5 6 10(A)65 Exhibit 10(a)65 DEFERRED COMPENSATION PLAN FOR DIRECTORS OF THE SOUTHERN COMPANY Amended and Restated Effective February 17, 1997 SECTION I Definitions 1.1 "Beneficiary Election" means the designation by the Director of the person or persons to whom distributions are made from the Plan upon the death of the director pursuant to Section 7. 1.2 "Board" or "Board of Directors" means the Board of Directors of the Company. 1.3 "Code" means the Internal Revenue Code of 1986, as amended, or any successor statute. 1.4 "Committee" means the Governance Committee of the Board, or such other committee as may be designated by the Board to be responsible for administering the Plan. 1.5 "Common Stock" means the common stock of the Company, including any shares into which it may be split, subdivided, or combined. 1.6 "Common Stock Investment Account" means the bookkeeping account established pursuant to Section 6.2 in which a Director may elect to defer compensation or make investments, and includes amounts credited thereto to reflect the reinvestment of dividends. 1.7 "Company" means The Southern Company, and any successor thereto. 1.8 "Compensation Payment Date" means the date on which compensation, including cash retainer, meeting fees, and the Stock Retainer, is payable to a Director or compensation would otherwise be payable to a Director if an election to defer such compensation had not been made. 1.9 "Deferred Compensation Account" means the Prime Rate Investment Account, the Common Stock Investment Account, and/or the Deferred Stock Account. 1.10 "Deferred Pension Election" means the election by a Director under Section 5.3 in connection with the deferral of receipt of the Director's Pension Benefit until termination from the Board. 1.11 "Deferred Stock Account" means the bookkeeping account established under Section 6.3 on behalf of a Director and includes shares of Common Stock credited thereto to reflect the reinvestment of dividends pursuant to Section 6.3(a)(iii). 1.12 "Director" means a member of the Board. 1.13 "Directors' Stock Trust" means The Southern Company Directors' Deferred Stock Trust established between the Company and Reliance Trust Company. 1.14 "Distribution Election" means the designation by a Director of the manner of distribution of the amounts and quantities held in the Director's Deferred Compensation Accounts upon the director's termination from the Board of Directors pursuant to Section 5.4. 1.15 "Market Value" means the average of the high and low prices of the Common Stock, as published in the Wall Street Journal in its report of New York Stock Exchange composite transactions, on the date such Market Value is to be determined, as specified herein (or the average of the high and low sale prices on the trading day immediately preceding such date if the Common Stock is not traded on the New York Stock Exchange on such date). 1.16 "Pension Benefit" means the U.S. dollar amount of the actuarially-determined present value of benefits based on a Director's expected service at the required retirement date under The Southern Company Outside Directors Pension Plan, as calculated as of the Termination Date, plus accrued earnings on such amount calculated as if invested at the Prime Interest Rate from the Termination Date, until such amount is invested in Deferred Compensation Accounts pursuant to the provisions of Section 5.3. 1.17 "Pension Benefit Investment Date" means the date to be determined by the Committee, as of which the Director's Pension Benefit will be credited to a Deferred Compensation Account in accordance with the director's Deferred Pension Election under Section 5.3. 1.18 "Plan" means the Deferred Compensation Plan for Directors of The Southern Company as from time to time in effect. 1.19 "Plan Period" shall mean the period designated in Section 4. 1.20 "Prime Interest Rate" means the prime rate of interest as published in the Wall Street Journal. 1.21 "Prime Rate Investment Account" means the bookkeeping account established pursuant to Section 6.1 in which a Director may elect to defer compensation or make investments, the investment return on which is computed at the Prime Interest Rate. 1.22 "Stock Retainer" means the annual Board retainer fee that the Board has determined to credit to a Director's Deferred Stock Account. 1.23 "Termination Date" means January 1, 1997, the date as of which The Southern Company Outside Directors Pension Plan was effectively terminated. Where the context requires, words in the masculine gender shall include the feminine gender, words in the singular shall include the plural, and words in the plural shall include the singular. SECTION 2 Purpose The Plan provides a method of deferring payment to a Director of his compensation until a date following the termination of his membership on the Board of Directors. SECTION 3 Eligibility An individual who serves as a Director and is not otherwise actively employed by the Company or any of its subsidiaries or affiliates is eligible to participate in the Plan. SECTION 4 Plan Periods The first Plan Period under this amended and restated plan shall begin April 1, 1997. Said first Plan Period shall be a nine-month period and all subsequent Plan periods shall be on a calendar year basis, except that the initial Plan Period applicable to any person elected to the Board who was not a Director on the preceding December 31, shall begin on the first day of such Director's membership on the Board. SECTION 5 Elections 5.1 Cash Compensation (a) Prior to the beginning of a Plan Period, a Director may direct that payment of all or any portion of cash compensation that otherwise would be paid to the Director for the Plan Period, be deferred in amounts as designated by the Director, and credited to (i) a Prime Rate Investment Account, (ii) a Common Stock Investment Account, or (iii) a Deferred Stock Account. Upon the Director's termination from the Board of Directors, such deferred compensation and accumulated investment return held in the Director's Deferred Compensation Accounts shall be distributed to the Director in accordance with the Director's Distribution Election and the provisions of Section 7. (b) An election to defer cash compensation is irrevocable. Such an election shall continue from Plan Period to Plan Period unless the Director changes his election to defer cash compensation paid in a future Plan Period prior to the beginning of such future Plan Period. (c) Cash compensation deferred under this Section 5.1 shall be invested in Deferred Compensation Accounts as directed by the Director on the Compensation Payment Date. 5.2 Stock Retainer Director compensation designated as Stock Retainer shall be credited to the Director's Deferred Stock Account as of the Compensation Payment Date. Upon the Director's termination from the Board of Directors, such compensation and accumulated investment return held in the Director's Deferred Stock Account shall be distributed to the Director in accordance with the Director's Distribution Election and the provisions of Section 7. 5.3 Deferred Pension Election Any Director, who has a Pension Benefit as of the Termination Date, must make a single one-time election, on or before March 31, 1997, to credit all of his Pension Benefit into a Deferred Compensation Account. The Pension Benefit will be credited on the Pension Benefit Investment Date, at the election of the Director, to (i) a Prime Rate Investment Account, (ii) a Common Stock Investment Account, or (iii) a Deferred Stock Account. Upon the Director's termination from the Board of Directors, such Pension Benefit and accumulated investment return held in the Director's Deferred Compensation Accounts shall be distributed to the Director in accordance with the Director's Distribution Election and the provisions of Section 7. 5.4 Distribution Election (a) Prior to the establishment of a Deferred Compensation Account for a Director under this amended and restated plan, the Director may elect that upon termination from the Board of Directors the values and quantities held in the Directors Deferred Compensation Accounts be distributed to the Director, pursuant to the provisions of Section 7, in a single distribution or in a series of annual installments not to exceed ten (10). The time for the commencement of distribution shall not be later than the first day of the month coinciding with or next following the second anniversary of termination of Board membership. (b) A Distribution Election is irrevocable except that a Director may amend the Distribution Election then in effect not prior to the 390th day nor later than the 360th day prior to his termination of Board membership. 5.5 Beneficiary Election A Director or former Director may designate a beneficiary to receive distributions from the Plan in accordance with the provisions of Section 7 upon the death of the director. The Beneficiary Election may be changed by a Director or former Director at any time, and without the consent of the prior Beneficiary. 5.6 Form of Election All elections pursuant to the provisions of this Section 5 of the Plan shall be made in writing to the Secretary of the Company on a form or forms available upon request from the Secretary. SECTION 6 Accounts 6.1 Prime Rate Investment Account A Prime Rate Investment Account shall be established for each Director electing deferral or investment at the Prime Interest Rate. The amount directed by the Director to such account shall be credited to it as of the Pension Benefit Investment Date or Compensation Payment Date, as applicable, and credited thereafter with interest computed using the Prime Interest Rate. Interest shall be computed from the date such compensation is credited to the account and compounded quarterly at the end of each calendar quarter. The Prime Interest Rate in effect on the first day of a calendar quarter shall be deemed the Prime Interest Rate in effect for that entire quarter. Interest shall accrue and compound on any balance until the amount credited to the account is fully distributed. 6.2 Common Stock Investment Account The Common Stock Investment Account established for each Director electing deferral or investment at the Common Stock investment rate shall be credited with the number of shares (including fractional shares rounded to the nearest ten-thousandth) of Common Stock which could have been purchased on the Pension Benefit Investment Date or the Compensation Payment Date, as applicable, based on the Market Value as of such date. On the date of the payment of dividends on the Common Stock, the Director's Common Stock Investment Account shall be credited with additional shares (including fractional shares rounded to the nearest ten-thousandth) of Common Stock, as follows: (a) In the case of cash dividends, such additional shares as would have been purchased as of the Common Stock dividend payment date as if the credited shares had been outstanding and dividends reinvested thereon under the Southern Investment Plan; (b) In the case of dividends payable in property other than cash or Common Stock, such additional shares as could be purchased at the Market Value as of the date of payment with the fair market value of the property which would have been payable if the credited shares had been outstanding; and (c) In the case of dividends payable in Common Stock, such additional shares as would have been payable on the credited shares if they had been outstanding. 6.3 Deferred Stock Account (a) A Director's Deferred Stock Account will be credited: (i) with the number of shares of Common Stock (rounded to the nearest ten thousandth of a share) determined by dividing the amount subject to deferral or investment in the Deferred Stock Account by the average price paid by the Trustee of the Directors' Stock Trust for shares of Common Stock with respect to the Pension Benefit Investment Date or the Compensation Payment Date, as applicable, as reported by the Trustee, or, if the Trustee shall not at such time purchase any shares of Common Stock, by the Market Value on such date; (ii) as of the date on which Stock Retainer is paid, with the number of shares of Common Stock (rounded to the nearest ten thousandth of a share) determined by dividing the amount of the Stock Retainer by the average price paid by the Trustee of the Directors' Stock Trust for shares of Common Stock with respect to such payment date, as reported by the Trustee, or, if the Trustee shall not at such time purchase any shares of Common Stock, by the Market Value on such date; and (iii) as of each date on which dividends are paid on the Common Stock, with the number of shares of Common Stock (rounded to the nearest ten thousandth of a share) determined by multiplying the number of shares of Common Stock credited in the Director's Deferred Stock Account on the dividend record date, by the dividend rate per share of Common Stock, and dividing the product by the price per share of Common Stock attributable to the reinvestment of dividends on the shares of Common Stock held in the Directors' Stock Trust on the applicable dividend payment date or, if the Trustee of the Directors' Stock Trust has not reinvested in shares of Common Stock on the applicable dividend reinvestment date, the product shall be divided by the Market Value on the dividend payment date. (b) If the Company enters into transactions involving stock splits, stock dividends, reverse splits or any other recapitalization transactions, the number of shares of Common Stock credited to a Director's Deferred Stock Account will be adjusted (rounded to the nearest ten thousandth of a share) so that the Director's Deferred Stock Account reflects the same equity percentage interest in the Company after the recapitalization as was the case before such transaction. (c) If at least a majority of the Company's stock is sold or exchanged by its shareholders pursuant to an integrated plan for cash or property (including stock of another corporation) or if substantially all of the assets of the Company are disposed of and, as a consequence thereof, cash or property is distributed to the Company's shareholders, each Director's Deferred Stock Account will, to the extent not already so credited under this Section 6.3, be (i) credited with the amount of cash or property receivable by a Company shareholder directly holding the same number of shares of Common Stock as is credited to such Director's Deferred Stock Account and (ii) debited by that number of shares of Common Stock surrendered by such equivalent Company shareholder. (d) Each Director who has a Deferred Stock Account also shall be entitled to provide directions to the Committee to cause the Committee to similarly direct the Trustee of the Director's Stock Trust to vote, on any matter presented for a vote to the shareholders of the Company, that number of shares of Common Stock held by the Director's Stock Trust equivalent to the number of shares of Common Stock credited to the Director's Deferred Stock Account. The Committee shall arrange for distribution to all Directors in a timely manner of all communications directed generally to the shareholders of the Company as to which their votes are solicited. SECTION 7 Distributions 7.1 Upon termination of a Director's membership on the Board, the amount credited to a Director's Deferred Compensation Accounts will be paid to the Director or his beneficiary, as applicable. The amount credited to a Director's Prime Rate Investment Account and Common Stock Investment Account shall be paid in cash and the amount credited to his Deferred Stock Account shall, except as otherwise provided in Section 6.3(c), Section 8, or to the extent the Company is otherwise, in the reasonable judgment of the Committee, precluded from doing so, be paid in shares of Common Stock (with any fractional share interest therein paid in cash to the extent of the then Market Value thereof). Such payments shall be from the general assets of the Company (including the Directors' Stock Trust) in accordance with this Section 7. 7.2 Unless other arrangements are specified by the Committee on a uniform and nondiscriminatory basis, deferred amounts shall be paid in the form of (i) a lump sum payment, or (ii) in approximately equal annual installments, as elected by the Director pursuant to the provision of Section 5.4; provided, however, that payments shall be made only in a single lump sum if payment commences due to termination for cause. Such payments shall be made (or shall commence) as soon as practicable following the termination of Board membership or, if so elected in the Distribution Election, up to twenty-four (24) months following such termination. In the event a Director elected to receive the balance of his Deferred Compensation Accounts in a lump sum, distribution shall be made on the first day of the month selected by the Director on his Distribution Election, or as soon as reasonably possible thereafter. If the Director elected to receive annual installments, the first payment shall be made on the first day of the month selected by a Director, or as soon as reasonably possible thereafter, and shall be equal to the balance in the Director's Deferred Compensation Accounts on such date divided by the number of annual installment payments. Each subsequent annual payment shall be an amount equal to the balance in the Director's Deferred Compensation Accounts on the date of payment divided by the number of remaining annual payments and shall be paid on the anniversary of the preceding date of payment. The Market Value of any shares of Common Stock credited to a Director's Common Stock Investment Account shall be determined as of the twenty-fifth (25th) day of the month immediately preceding the date of any lump sum or installment distribution. Upon the death of a Director, or a former Director prior to the payment of all amounts credited to the Director's Deferred Compensation Accounts, the unpaid balance shall be paid in the sole discretion of the Committee (i) in a lump sum to the designated beneficiary of such Director or former Director within thirty (30) days of the date of death (or as soon as reasonably possible thereafter) or (ii) in accordance with the Distribution Election made by such Director or former Director. In the event a beneficiary designation has not been made, or the designated beneficiary is deceased or cannot be located, payment shall be made to the estate of the Director or former Director. The Market Value of any shares of Common Stock credited to a Director's Common Stock Investment Account shall be determined as of the twenty-fifth (25th) day of the month immediately preceding the date of any lump sum or installment distribution. SECTION 8 General Provisions 8.1 The Company shall make no provision for the funding of any Deferred Compensation Accounts payable hereunder that (i) would cause the Plan to be a funded plan for purposes of section 404(a)(5) of the Code or (ii) would cause the Plan to be other than an "unfunded and unsecured promise to pay money or other property in the future" under Treasury Regulations ss. 1.83-3(e); and, except to the extent specified in the Directors' Stock Trust following a "change of control" (as defined in the Directors' Stock Trust) of the Company, the Company shall have no obligation to make any arrangement for the accumulation of funds to pay any amounts under this Plan. Subject to the restrictions of the preceding sentence and in Section 8.3 herein, the Company, in its sole discretion, may establish one or more grantor trusts described in Treasury Regulations ss. 1.677(a)-I(d) to accumulate funds and/or shares of Common Stock to pay amounts under this Plan, provided that the assets of such trust shall be required to be used to satisfy the claims of the Company's general creditors in the event of the Company's bankruptcy or insolvency. 8.2 In the event that the Company shall decide to establish an advance accrual reserve on its books against the future expense of payments from any Deferred Compensation Accounts, such reserve shall not under any circumstances be deemed to be an asset of this Plan but, at all times, shall remain a part of the general assets of the Company, subject to claims of the Company's creditors. 8.3 A person entitled to any amount under this Plan shall be a general unsecured creditor of the Company with respect to such amount. Furthermore, a person entitled to a payment or distribution with respect to a Deferred Compensation Account, shall have a claim upon the Company only to the extent of the balance in his Deferred Compensation Accounts. 8.4 All commissions, fees and expenses that may be incurred in operating the Plan and any related trust established in accordance with Section 8.1 herein (including the Directors' Stock Trust) will be paid by the Company. 8.5 Notwithstanding any other provision of this Plan: (i) elections under this Plan may only be made by Directors while they are directors of the Company; (with the exception of the designation of beneficiaries) and (ii) distributions otherwise payable to a Director in the form of Common Stock shall be delayed and/or instead paid in cash in an amount equal to the fair market value thereof if such payment in Common Stock would violate any federal or State securities laws (including Section 16(b) of the Securities Exchange Act of 1934, as amended) and/or rules and regulations promulgated thereunder. 8.6 Directors, their legal representatives and their beneficiaries shall have no right to anticipate, alienate, sell, assign, transfer, pledge or encumber their interests in the Plan, nor shall such interests be subject to attachment, garnishment, levy or execution by or on behalf of creditors of the Directors or of their beneficiaries. SECTION 9 Administration Subject to the express provisions of the Plan, the Committee shall have the exclusive right to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it and to make all other determinations necessary or advisable for the administration of the Plan. The decisions, actions and records of the Committee shall be conclusive and binding upon the Company and all persons having or claiming to have any right or interest in or under the Plan. The Committee may delegate to such officers, employees or departments of the Company such authority, duties, and responsibilities of the Committee as it, in its sole discretion, considers necessary or appropriate for the proper and efficient operation of the Plan, including, without limitation, (i) interpretation of the Plan, (ii) approval and payment of claims, and (iii) establishment of procedures for administration of the Plan. SECTION 10 Amendment, Termination and Effective Date 10.1 Amendment of the Plan Subject to the provisions of Section 10.3 herein, the Plan may be wholly or partially amended or otherwise modified at any time by written action of the Board of Directors. 10.2 Termination of the Plan Subject to the provisions of Section 10.3 herein, the Plan may be terminated at any time by written action of the Board of Directors. 10.3 No Impairment of Benefits Notwithstanding the provisions of Sections 10.1 and 10.2, herein no amendment to or termination of the Plan shall impair any rights to benefits which have accrued hereunder. 10.4 Governing Law This Plan shall be construed in accordance with and governed by the laws of the State of Georgia. IN WITNESS WHEREOF, the Plan, as amended and restated effective February 17, 1997, has been executed pursuant to resolutions of the Board of Directors of The Southern Company, this ____ day of _______________, 1997. THE SOUTHERN COMPANY By: ________________________________ Attest: By: ___________________________ EX-10.6 7 10(A)70 Exhibit 10(a)70 SOUTHERN COMPANY PERFORMANCE DIVIDEND PLAN AMENDED AND RESTATED TROUTMAN SANDERS LLP NationsBank Plaza 600 Peachtree Street, N.E., Suite 5200 Atlanta, Georgia 30308 (404) 885-3000 Effective January 1, 1999 SOUTHERN COMPANY PERFORMANCE DIVIDEND PLAN Purposes The purposes of the Southern Company Performance Dividend Plan are to provide a financial incentive which will focus the efforts of certain key employees on areas which will have a direct and significant influence on corporate performance and to provide the potential for levels of compensation which will enhance the Employing Companies' abilities to attract, retain and motivate such key employees. In order to achieve these objectives, the Plan will be based upon corporate performance as measured by total shareholder return or such other performance measure which the Committee may determine under the terms of the Plan. ARTICLE I Definitions For purposes of the Plan, the following terms shall have the following meanings unless a different meaning is plainly required by the context: 1.1 "Annual Dividend" shall mean the aggregate, annual dividend declared by Southern Company on Common Stock for the Plan Year in which an Award is made. 1.2 "Award" shall mean the awards granted pursuant to Article IV hereof. 1.3 "Beneficial Ownership" shall mean beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act. 1.4 "Board of Directors" shall mean the Board of Directors of Southern Company Services, Inc. 1.5 "Business Combination" shall mean a reorganization, merger or consolidation of Southern Company or sale or other disposition of all or substantially all of the assets of Southern Company. 1.6 "Committee" shall mean the Compensation Committee of the Board of Directors of Southern Company. 1.7 "Common Stock" shall mean the common stock of Southern Company. 1.8 "Computation Period" shall mean a four-year period commencing the first day of January of each year, provided, however, that the Computation Period for the first three years beginning in the year of the effective date of the Plan shall be one year, two years and three years, respectively, beginning January 1, 1997. 1.9 "Consummation" shall mean the completion of the final act necessary to complete a transaction as a matter of law, including, but not limited to, any required approvals by the corporation's shareholders and board of directors, the transfer of legal and beneficial title to securities or assets and the final approval of the transaction by any applicable domestic or foreign governments or agencies. 1.10 "Control" shall mean, in the case of a corporation, Beneficial Ownership of more than 50% of the combined voting power of the corporation's Voting Securities, or in the case of any other entity, Beneficial Ownership of more than 50% of such entity's voting equity interests. 1.11 "Employing Company" shall mean those affiliates or subsidiaries of the Southern Company (direct or indirect) which have one or more employees to whom the Board of Directors or any committee thereof has granted an option under the Southern Company Performance Stock Plan provided that such affiliate or subsidiary adopts the Plan. 1.12 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 1.13 "Group" shall mean group within the meaning of Section 14(d) of the Exchange Act. 1.14 "Incumbent Board" shall mean those individuals who constitute the Southern Board as of the Effective Date plus any individual who shall become a director subsequent to such date whose election or nomination for election by Southern Company's shareholders was approved by a vote of at least 75% of the directors then comprising the Incumbent Board. Notwithstanding the foregoing, no individual who shall become a director of the Southern Board subsequent to the Effective Date whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Regulations promulgated under the Exchange Act) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Southern Board shall be a member of the Incumbent Board. 1.15 "Key Employee" shall mean any person who is or was employed by an Employing Company who has been granted Stock Options. 1.16 "Participant" shall mean a Key Employee who satisfies the criteria set forth in Article III. 1.17 "Payment Date" shall mean the date the check evidencing an Award is endorsed by an authorized person of an Employing Company. 1.18 "Peer Group Common Stock" shall mean the common stock of the Peer Group Companies. 1.19 "Peer Group Companies" shall mean those Companies designated by Goldman Sachs as the 80 Utility Peer Group Companies as published quarterly and as composed from time to time. In the event that Goldman Sachs no longer publishes the 80 Utility Peer Group Companies, the Committee shall choose such other and similar list of national peer group companies as published by a similarly nationally recognized firm. 1.20 "Performance Based" shall mean compensation which qualifies as "performance based" within the meaning of Code Section 162(m)(4)(c) and the regulations thereunder. 1.21 "Permanent Disability" shall mean such permanent disability as defined in The Southern Company Pension Plan. 1.22 "Person" shall mean any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of Exchange Act. 1.23 "Phantom Stock" shall mean phantom shares of Common Stock as defined by The Southern Company Deferred Compensation Plan. 1.24 "Plan" shall mean the Southern Company Performance Dividend Plan. 1.25 "Plan Termination" shall mean the termination of the Plan by Southern Company or an Employing Company following a Southern Change in Control unless an equitable arrangement (embodied in an ongoing substitute or replacement plan) has been made with respect to the Plan in connection with the Southern Change in Control. For purposes of this Plan, an ongoing substitute or alternative plan shall be considered an "equitable arrangement" if a nationally recognized compensation consulting firm chosen by the Committee opines in writing that the post-Southern Change in Control plan is an equitable substitute or replacement of the Plan, and that such substitute or alternative plan provides substantially similar target opportunities and a substantially similar level of performance difficulty. 1.26 "Plan Year" shall mean the calendar year. 1.27 "Retirement" shall mean the termination of employment with an Employing Company under the terms of The Southern Company Pension Plan or such other retirement or early retirement plan or arrangement which the Committee shall adopt and make available to a Participant. 1.28 "Southern Board" shall mean the Board of Directors of The Southern Company. 1.29 "Southern Change in Control" shall mean any of the following: (i) The Consummation of an acquisition by any Person of Beneficial Ownership of 20% or more of Southern Company's Voting Securities; provided, however, that for purposes of this subsection (i), the following acquisitions of Southern's Voting Securities shall not constitute a Change in Control: (A) any acquisition directly from Southern Company; (B) any acquisition by Southern Company; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Southern or any corporation controlled by Southern Company; (D) any acquisition by a qualified pension plan or publicly held mutual fund; (E) any acquisition by an Employee or Group composed exclusively of Employees; or (F) any Business Combination which would not otherwise constitute a change in control because of the application of clauses (A), (B) and (C) of Section 1.29(iii). (ii) A change in the composition of the Southern Board whereby individuals who constitute the Incumbent Board cease for any reason to constitute at least a majority of the Southern Board; or (iii) Consummation of a Business Combination, unless, following such Business Combination, all of the following three conditions are met: (A) all or substantially all of the individuals and entities who held Beneficial Ownership, respectively, of Southern Company's Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, 65% or more of the combined voting power of the Voting Securities of the corporation surviving or resulting from such Business Combination, (including, without limitation, a corporation which as a result of such transaction holds Beneficial Ownership of all or substantially all of Southern Company's Voting Securities or all or substantially all of Southern Company's assets) (such surviving or resulting corporation to be referred to as "Surviving Company"), in substantially the same proportions as their ownership, immediately prior to such Business Combination, of Southern Company's Voting Securities; (B) no Person (excluding any corporation resulting from such Business Combination, qualified pension plan, publicly held mutual fund, Group composed exclusively of Employees or employee benefit plan (or related trust) of Southern Company, its subsidiaries or Surviving Company) holds Beneficial Ownership, directly or indirectly, of 20% or more of the combined voting power of the then outstanding Voting Securities of Surviving Company except to the extent that such ownership existed prior to the Business Combination; and (C) at least a majority of the members of the board of directors of Surviving Company were members of the Incumbent Board at the earlier of the date of execution of the initial agreement, or of the action of the Southern Board, providing for such Business Combination. 1.30 "Southern Company" shall mean The Southern Company. 1.31 "Subsidiary Change in Control" shall mean the following: (i) The Consummation of an acquisition by any Person of Beneficial Ownership of 50% or more of the combined voting power of the then outstanding Voting Securities of a Subsidiary Change in Control Company; provided, however, that for purposes of this Subsection 1.31, any acquisition by an Employee, or Group composed entirely of Employees, any qualified pension plan, publicly held mutual fund or any employee benefit plan (or related trust) sponsored or maintained by Southern Company or any corporation Controlled by Southern Company shall not constitute a Change in Control; (ii) Consummation of a reorganization, merger or consolidation of a Subsidiary Change in Control Company (an "Employing Company Business Combination"), in each case, unless, following such Employing Company Business Combination, Southern Company Controls the corporation surviving or resulting from such Employing Company Business Combination; or (iii) Consummation of the sale or other disposition of all or substantially all of the assets of a Subsidiary Change in Control Company to an entity which Southern Company does not Control. 1.32 "Subsidiary Change in Control Company" shall mean an Employing Company which has been authorized to and has adopted the Southern Company change in control program. 1.33 "Southern Termination" shall mean the following: (a) The Consummation of a reorganization, merger or consolidation of Southern Company under circumstances where either (i) Southern Company is not the surviving corporation or (ii) Southern Company's Voting Securities are no longer publicly traded; (b) The Consummation of a sale or other disposition of all or substantially all of Southern Company's assets; or (c) The Consummation of an acquisition by any Person of Beneficial Ownership of all of Southern Company's Voting Securities such that Southern Company's Voting Securities are no longer publicly traded. 1.34 "Subsidiary Employee" shall mean an Employee of a Subsidiary Change in Control Company which has undergone a Subsidiary Change in Control. 1.35 "Stock Option" shall mean those options to acquire Common Stock awarded to Participants pursuant to the Southern Company Performance Stock Plan. 1.36 "Termination for Cause" or "Cause" shall mean the termination of a Participant's employment by an Employing Company under any of the following circumstances: (a) The Participant willfully neglects or refuses to discharge his or her duties to the Employing Company as an employee or refuses to comply with any lawful or reasonable instructions given to him or her by the Employing Company without reasonable excuse; or (b) The Participant is guilty of gross misconduct. For purposes of this Plan, the following acts shall constitute gross misconduct: (i) any act involving fraud or dishonesty or breach of appropriate regulations of competent authorities; (ii) the carrying out of any activity or the making of any statement which would prejudice and/or reduce the good name and standing of Southern Company or an Employing Company or would bring Southern Company or an Employing Company into contempt, ridicule or would reasonably shock or offend any community in which Southern Company or an Employing Company is located; (iii) attendance at work in a state of intoxication or otherwise being found in possession at his or her workplace of any prohibited drug or substance, possession of which would amount to a criminal offense; (iv) assault or other act of violence against any employee or other person during the course of the Participant's employment; and (v) conviction of any felony or misdemeanor involving moral turpitude. 1.37 "Total Shareholder Return" or "TSR' shall mean the total amount an investor would receive by investing $100 per quarter in Common Stock or in Peer Group Common Stock, as the case may be, as determined by measuring the total dividends which would have been paid on such Common Stock or Peer Group Common Stock by reinvesting such dividends on a quarterly basis in additional shares of Common Stock or Peer Group Common Stock as the case may be and the total gain or loss on such Common Stock or Peer Group Common Stock as if such stock had been sold at the closing price on the last day of the respective Computation Period. 1.38 "Voting Securities" shall mean the outstanding voting securities of a corporation entitling the holder thereof to vote generally in the election of such corporation's directors. Where the context requires, words in the masculine gender shall include the feminine and neuter genders, words in the singular shall include the plural, and words in the plural shall include the singular. ARTICLE II Plan Administration 2.1 The Plan shall be administered by the Committee. The Committee is authorized to establish such rules and to appoint such agents as it deems appropriate for the proper administration of the Plan, and to make such determinations and to take such steps in connection with the Plan or the benefits provided hereunder as it deems necessary or advisable. 2.2 Plan Interpretation. The Committee shall have the exclusive authority to interpret the Plan. The decision of the Committee with respect to any question arising as to the grant of an Award to a Participant in the Plan, the amount, term, form, and time of payment of Awards under the Plan, or any other matter concerning the Plan shall be final, conclusive, and binding on both Southern Company and the Participants. ARTICLE III Participants 3.1 Participation in the Plan shall be limited to Key Employees of the Employing Companies, or in the case of death, their estates or beneficiaries, holding Stock Options as of the last day of any Computation Period. 3.2 Any Participant who terminates his or her employment with an Employing Company and who is not immediately re-employed with an affiliate of an Employing Company prior to the Payment Date of any Award due under this Plan for reasons other than death, Permanent Disability, or Retirement shall forfeit any Award due under this Plan. If a Participant terminates his or her employment by reason of death, Permanent Disability or Retirement, such Participant or his or her estate or representative shall continue to be eligible to receive Awards with respect to any Stock Options which remain outstanding in accordance with their terms. 3.3 Notwithstanding any other provision of this Plan, no Participant whose employment is terminated by an Employing Company for Cause shall be eligible to receive an Award under this Plan. 3.4 Notwithstanding any other provision of this Plan, the maximum Award for any Plan Year payable to any Participant with respect to Stock Options awarded during such Plan Year shall be six million dollars ($6,000,000). 3.5 In the case of an individual who becomes a Participant subsequent to January 1, 1997, such Participant shall participate in each Computation Period which ends not less than two (2) years after becoming a Participant. A new four-year measuring period shall begin each year in order to recognize the need to link objectives over longer periods of time, to recognize changes in the operating environment, and to encourage Participants to make long-term decisions. ARTICLE IV Performance Dividend Award 4.1 Each Participant shall receive an Award on the last day of each Computation Period which shall be based upon the number of vested and unvested, outstanding Stock Options held by the Participant on the last day of such Computation Period multiplied by the Annual Dividend multiplied by the Payout Percentage determined in accordance with the following schedule: Percentile of Southern TSR Payout Percentage Versus Peer Group TSR 90th and above 100% 70th 75% 50th 50% 30th 25% Below 30th 0% The Payout Percentage for performance levels falling between the percentiles listed above shall be interpolated on a straight line basis for any given Plan Year. The Committee may increase the Payout Percentage by up to a factor of two (2) with respect to such Participants and under such circumstances as the Committee in its discretion shall deem appropriate. 4.2 The Payout Percentage set forth herein shall be based on Southern Company's Total Shareholder Return during a Computation Period as compared to the Total Shareholder Return ranking of the Peer Group Companies for such Computation Period. The Total Shareholder Return of the Peer Group Companies shall be determined annually by an independent certified public accountant and shall be properly adjusted and annualized by such accountant so that the Peer Group Companies' Total Shareholder Return may be accurately compared to that of Southern Company. 4.3 Notwithstanding the above provisions, an Award shall not be granted for any Computation Period ending with the Plan Year in which the current earnings of Southern Company are less than the amount necessary to fund dividends on its Common Stock at the rate such dividends were paid for the immediately preceding Plan Year. 4.4 Awards shall be paid in cash on or before the 15th day of the third month following the last day of the Computation Period or, with respect to those Participants who are otherwise eligible to participate in the Southern Company Deferred Compensation Plan, may be deferred by exercising an option to do so no later than 12 months before any amount would otherwise be distributed pursuant to this Section 4.4. If an election is made to defer the receipt of the amount of any Award, such amount shall be deemed to be invested in Phantom Stock. Dividend equivalents earned on such Phantom Stock shall be automatically invested in additional shares of Phantom Stock. ARTICLE V Change in Control and Southern Termination 5.1 Southern Change in Control. Notwithstanding any other provision of this Plan to the contrary, in the event of a Plan Termination within two (2) years following a Southern Change in Control, each Participant who is an employee of his Employing Company on the date of such Plan Termination shall be entitled to receive within thirty (30) days of the Plan Termination, cash for each Award held as of such date, based on actual performance under Section 4.1 hereof determined as of the date of the Plan Termination, and the Annual Dividend declared prior to the date of the Plan Termination. 5.2 Subsidiary Change in Control. Notwithstanding any other provision of this Plan to the contrary, in the event of a Subsidiary Change in Control, each Subsidiary Employee on the date of such Change in Control whose employment is not transferred upon such Subsidiary Change in Control, to another Employing Company shall be entitled to receive within thirty (30) days of the Subsidiary Change in Control, cash for each Award held as of such date, based on actual performance under Section 4.1 hereof determined as of the date on which the Subsidiary Change in Control shall have occurred, and the Annual Dividend declared prior to the date of the Subsidiary Change in Control. 5.3 Southern Termination. Notwithstanding any other provision of this Plan to the contrary, in the event of a Southern Termination, each Participant who is an employee of his Employing Company on the date of such Southern Termination shall be entitled to receive within thirty (30) days of the Southern Termination, cash for each Award held as of such date, based on actual performance under Section 4.1 hereof determined as of the date on which the Southern Termination shall have occurred, and the Annual Dividend declared prior to the date of the Southern Termination. ARTICLE VI Miscellaneous Provisions 6.1 Neither the Participant, his or her beneficiary, nor his or her personal representative shall have any rights to commute, sell, assign, transfer or otherwise convey the right to receive any payments hereunder, which payments and the rights thereto are expressly declared to be nonassignable and nontransferable. Any attempt to assign or transfer the right to payments under this Plan shall be void and have no effect. 6.2 An Employing Company shall neither reserve nor otherwise set aside funds for the payments of any Awards under this Plan. 6.3 Except for the provisions of Article V, which may not be amended, modified or terminated following a Southern Change in Control, a Subsidiary Change in Control or a Southern Termination, the Plan may be amended, modified, or terminated by the Board of Directors in its sole discretion at any time and from time to time; provided, however, that no such amendment, modification, or termination shall impair any rights to payments which have accrued under the Plan prior to such amendment, modification, or termination. 6.4 It is expressly understood and agreed that Awards made in accordance with the Plan are in addition to any other benefits or compensation to which a Participant may be entitled or for which he or she may be eligible, whether funded or unfunded, by reason of his or her employment with an Employing Company. 6.5 There shall be deducted from the payment of each Award under the Plan the amount of any tax required by any governmental authority to be withheld and paid over by an Employing Company to such governmental authority for the account of the person entitled to such distribution. 6.6 Any Awards paid to a Participant while employed by an Employing Company shall not be considered in the calculation of the Participant's benefits under any other employee welfare or pension benefit plan maintained by an Employing Company, unless otherwise specifically provided therein. 6.7 This Plan, and all rights under it, shall be governed by and construed in accordance with the laws of the State of Georgia. 6.8 Pooling Accounting. Notwithstanding anything to the contrary herein, if, but for any provision of this Plan, a Change in Control transaction would otherwise be accounted for as a pooling-of-interests under APB No. 16 ("Pooling Accounting") (after giving effect to any and all other facts and circumstances affecting whether such Change in Control transaction would use Pooling Accounting), such provision or provisions of this Plan which would otherwise cause the Change in Control transaction to be ineligible for Pooling Accounting shall automatically be void and ineffective in such a manner and to the extent that by eliminating such provision or provisions of this Plan, Pooling Accounting would be required for such Change in Control transaction and Pooling Accounting is in fact used for such Change in Control transaction. IN WITNESS WHEREOF, Southern Company Services, Inc., through its duly authorized officers, hereby adopts the Southern Company Performance Dividend Plan this _____ day of ______________ 1999 to be effective January 1, 1999. SOUTHERN COMPANY SERVICES, INC. By: Christopher C. Womack Senior Vice President, Human Resources Attest: By: Its: EX-10.7 8 10(A)72 Exhibit 10(a)72 FOURTH AMENDMENT TO THE SOUTHERN COMPANY PENSION PLAN WHEREAS, the Board of Directors of Southern Company Services, Inc. (the "Company") heretofore adopted The Southern Company Pension Plan (the "Plan"), as amended and restated effective January 1, 1997; WHEREAS, the Company desires to amend the Plan to grant prior service credit to certain employees formerly employed by Pacific Gas and Electric Company ("PG&E") and to provide for an offset of the PG&E retirement benefit; WHEREAS, the Company desires to amend the Plan to grant prior service and benefit credit to certain employees formerly employed by Orange and Rockland Utilities, Inc. ("O&R") and to provide for an offset of the O&R retirement benefit; WHEREAS, the Company also desires to make certain clarifying changes to the Plan; and WHEREAS, the Company is authorized pursuant to Section 13.1 of the Plan to amend the Plan at any time. NOW, THEREFORE, the Company hereby amends the Plan as follows to be effective as provided herein: 1. Effective January 1, 1997, Section 15.2(d) of the Plan shall be amended by replacing the term "Early Retirement Date" with the term "earlier Retirement Date" in each place where such term appears. 2. Effective January 1, 1997, Section 15.3 of the Plan is amended by deleting such Section in its entirety and replacing it with the following: 15.3 Early Retirement Reduction. (a) With respect to Employees described in Section 15.1(a) and (b) who retire before their Normal Retirement Date, the monthly amount of Retirement Income provided in Section 15.2 shall be reduced in accordance with Section 5.5. With respect to Employees described in Section 15.1(c), the monthly amount of Retirement Income provided in Section 15.2 shall be reduced in accordance with Section 5.5 except that the term "five-tenths of one percent (0.5%)" shall replace the term "three-tenths of one percent (0.3%)" where it appears in the first paragraph thereof. (b) Notwithstanding paragraph (a) above, if a former Employee subject to Section 15.1(c)(1) who is eligible to receive Retirement Income is reemployed by an Affiliated Employer, his Retirement Income accrued prior to his original termination from service shall be determined in accordance with the terms of the Plan in effect as of such termination. In the event that an Employee described in the preceding sentence accrues additional Retirement Income in accordance with Section 15.2 after his reemployment, such Retirement Income shall be subject to Sections 15.2(c) and the second sentence of Section 15.3(a). 3. Effective January 1, 1995, Section 16.1(a)(3) of the Plan shall be amended to read as follows: (3) With respect to determining the Social Security Offset and the level income option set forth in the last paragraph of Section 5.5, the actual salary history of the Scheduled Employee during his employment with any Affiliated Employer and with Scott Paper Company shall be utilized. If the actual salary history is not available from Scott Paper Company, such history shall be estimated in accordance with Section 5.4. 4. Effective January 1, 1999, Section 16.1(c)(1) of the Plan shall be amended by replacing the phrase "eligible to become a Participant" with the phrase "included in the Plan" and Section 16.1(c)(4) shall be amended to read as follows: (4) For purposes of calculating Retirement Income, such CES Employee's actual salary history with CES shall be included. With respect to determining the Social Security Offset and the level income option set forth in the last paragraph of Section 5.5, if the actual salary history is not available from CES, such history shall be estimated in accordance with Section 5.4. 5. Effective April 1, 1999, Article XVI of the Plan shall be amended by adding the following to the end thereof: (d) Former Pacific Gas and Electric Company Employees. (1) Effective April 1, 1999, notwithstanding any other provision of the Plan to the contrary, any former employees of Pacific Gas and Electric Company ("PG&E") who were employed by Southern Energy Resources, Inc. and are set forth on a schedule of employees acknowledged by the Retirement Board (hereinafter "PG&E Employees") shall be included in the Plan as of the first day of the month coincident with or next following the later of the PG&E Employee's employment date or the date on which he first completes an Eligibility Year of Service as provided in Paragraph (5) below. (2) PG&E Employees who (A) were actively employed by PG&E on January 1, 1997 and (B) attain their fortieth (40th) birthday on or before January 1, 2002 shall not be subject to provisions of Article XV of the Plan. (3) If and when a PG&E Employee attains his Early Retirement Date, Normal Retirement Date, or Deferred Retirement Date, or terminates service for any reason subject to the requirements of Section 8.1 or 8.2, he shall be entitled to receive Retirement Income based on both his Accredited Service with an Employing Company and his service for benefit purposes as defined and accrued under the Pacific Gas and Electric Company Retirement Plan (the "PG&E Plan") which shall be treated as if Accredited Service under this Plan. To calculate such PG&E Employee's Retirement Income, the PG&E Employee's Accrued Retirement Income, as determined in accordance with Section 5.1, shall first be reduced by the Employee's accrued benefit in the PG&E Plan, determined as if he retired from PG&E on his Normal Retirement Date, as defined in the PG&E Plan on April 1, 1999. Thereafter, such PG&E Employee's Retirement Income shall be subject to applicable reductions, if any, in accordance with Article V, Section 8.1 and Section 8.2, as appropriate. (4) For purposes of calculating Retirement Income, such PG&E Employee's actual salary history with PG&E shall be included. With respect to determining the Social Security Offset and the level income option set forth in the last paragraph of Section 5.5, if the actual salary history is not available from PG&E, such history shall be estimated in accordance with Section 5.4. (5) For vesting and participation purposes, such PG&E Employee shall be entitled to receive Vesting and Eligibility Years of Service as provided under the Plan and, in addition, shall be entitled to vesting and eligibility service equal to such service as defined and accrued under the PG&E Plan. 6. Effective July 1, 1999, Article XVI of the Plan shall be amended by adding the following to the end thereof: (e) Former Orange and Rockland Utilities, Inc. Employees. (1) Effective July 1, 1999, notwithstanding any other provision of the Plan to the contrary, any former employees of Orange and Rockland Utilities, Inc. ("O&R") who were employed by Southern Energy Resources, Inc. and are set forth on a schedule of employees acknowledged by the Retirement Board (hereinafter "O&R Employees") shall be included in the Plan as of the first day of the month coincident with or next following the later of the O&R Employee's employment date or the date on which he first completes an Eligibility Year of Service as provided in Paragraph (8) below. (2) Notwithstanding anything in the Plan to the contrary, the monthly Retirement Income payable to an O&R Employee shall be a monthly Retirement Income determined as a single life annuity commencing on his Normal Retirement Date equal to (A) the Allowance payable to such O&R Employee as defined under the Employees' Retirement Plan of Orange and Rockland Utilities, Inc. ("O&R Plan") on June 30, 1999 ("Closing Date") and as accrued under the O&R Plan for periods prior to the Closing Date ("O&R Benefit") and (B) one-twelfth (1/12) of two percent (2%) of the O&R Employee's Earnings received during each year of Accredited Service under the Plan for periods beginning on and after the Closing Date. In addition, for purposes of (B) above, immediately prior to an O&R Employee's separation from the service of an Employing Company, such O&R Employee shall be credited with two additional years of Accredited Service, with Earnings credited during each of these two additional years of Accredited Service equal to his Earnings at the time he separates from service. (3) Notwithstanding anything in the Plan to the contrary, the Early Retirement Date of an O&R Employee under the Plan shall be the first day of the month following the date such O&R Employee retires on or after his fifty-fifth (55th) birthday, provided such O&R Employee has accrued ten (10) or more years of Accredited Service. For such purpose, the O&R Employee's Credited Service for periods prior to April 8, 1999, and Eligible Service for periods on and after April 8, 1999 and prior to the Closing Date, as such service is defined and accrued under the O&R Plan, shall be treated as Accredited Service under this Plan. The amount of such O&R Employee's Retirement Income shall be determined in accordance with Paragraph (2) above, reduced by one-third of one-percent (.333%) for each complete calendar month by which the commencement date precedes the first day of the month following the O&R Employee's sixtieth (60th) birthday. The reduction in the preceding sentence shall be in lieu of the reduction described in Section 5.5. No reduction of an O&R Employee's Retirement Income shall be made, however, if the sum of such O&R Employee's number of years of Accredited Service (including his Eligible Service under the O&R Plan prior to the Closing Date) and his age as of his Early Retirement Date equals or exceeds eighty-five (85). (4) In addition to the other benefits described herein, an O&R Employee who retires from service after his Early Retirement Date and whose Retirement Income commences after his sixtieth (60) birthday and before his sixty-second (62nd) birthday shall receive a supplemental payment of six hundred dollars ($600.00) for each month beginning on the date his Retirement Income commences. Such supplemental payments shall cease after payment is made for the month which includes such O&R Employee's sixty-second (62nd) birthday or the month during which the O&R Employee dies, whichever is earlier. This supplemental payment shall not be paid as an optional form of payment under the Plan and shall not be payable to any Provisional Payee. Notwithstanding the foregoing, in any event, the supplemental payment shall not be paid under this Plan to the extent that a supplemental payment is payable under the O&R Plan. (5) The Retirement Income payable to an O&R Employee who is entitled to receive Retirement Income in accordance with Article VIII shall be determined in accordance with paragraph (2). Such O&R Employee may elect to receive his vested Retirement Income as of the first day of any month after his fifty-fifth (55th) birthday provided such O&R Employee has accrued ten (10) or more years of Accredited Service or as of his Normal Retirement Date. For such purpose, the O&R Employee's Credited Service for periods prior to April 8, 1999, and Eligible Service for periods on and after April 8, 1999 and prior to the Closing Date, as such service is defined and accrued under the O&R Plan, shall be treated as Accredited Service under this Plan. Such Retirement Income shall be reduced by one-half of one-percent (.5%) for each calendar month by which the commencement date precedes the first day of the month following the O&R Employee's sixty-fifth (65th) birthday. The reduction in the preceding sentence shall be in lieu of the reduction described in Section 8.2. (6) For purposes of calculating the level income option set forth in the last paragraph of Section 5.5 , the actual pay history of an O&R Employee with O&R shall be utilized. If the actual pay history is not available from O&R, such history shall be estimated in accordance with Section 5.4. (7) If and when an O&R Employee attains his Early Retirement Date, Normal Retirement Date, or Deferred Retirement Date, or terminates service for any reason subject to the requirements of Section 8.1 or 8.2, his Retirement Income shall be offset by the largest O&R Benefit payable under the O&R Plan as of (A) the Closing Date, (B) the date such O&R Employee's benefits commence under this Plan or (C) any date during the period beginning on the Closing Date and ending on the date such O&R Employee's benefits commence under this Plan. Notwithstanding the preceding sentence, in the event that an O&R Employee is not eligible to receive an O&R Benefit prior to his sixty-fifth (65th) birthday, the amount of the offset shall (A) in the event that the O&R Employee's Retirement Income commences prior to his sixty-fifth (65th) birthday, be reduced when he attains his sixty-fifth (65th) birthday by the largest O&R Benefit payable to such O&R Employee, regardless of whether such O&R Benefit actually commences when he attains his sixty-fifth (65th) birthday, or (B) in the event that the O&R Employee's Retirement Income commences on or after he attains his sixty-fifth (65th) birthday, be reduced by the amount of the O&R Benefit payable to such O&R Employee at the time his Retirement Income commences, regardless of whether his O&R Benefit commences at such time. Any reduction described above shall be made after an O&R Employee's Retirement Income is adjusted in accordance with Article V, or Section 8.1 and Section 8.2, as appropriate. The offsets set forth in this Paragraph shall be further described in an Offset Summary adopted by the Retirement Board, which shall be used as a reference to calculate the amount of the O&R Plan offsets. (8) For purposes of vesting and participation, an O&R Employee shall accrue service as provided under the Plan and, in addition, shall be entitled to service credit for these purposes equal to his Eligible Service as defined and accrued under the O&R Plan prior to the Closing Date. (9) For purposes of Paragraph (2) above, Earnings shall have the same meaning as set forth in Section 1.13 of the Plan modified as follows: (A) during a Plan Year in which an O&R Employee is employed, Earnings shall include the rate of salary or wages actually paid to such O&R Employee, plus actual annual incentive payments made to the O&R Employee for which he is eligible; (B) for the two year period credited in accordance with the last sentence of Paragraph (2), Earnings shall have the same meaning as set forth in (A) above, except that it shall be based on such O&R Employee's rate of salary or wages in effect as of his separation from service. 7. Effective January 1, 1997, Section 1.14(a) of the Georgia Power Company Schedule and Section 1.13(a) of the Southern Nuclear Operating Company, Inc. Schedule shall be amended by replacing the term "nuclear plan premium" with the term "nuclear plant premium" in each place where such term appears. 8. Except as amended herein by this Fourth Amendment, the Plan shall remain in full force and effect. IN WITNESS WHEREOF, Southern Company Services, Inc., through its duly authorized officer, has adopted this Fourth Amendment to The Southern Company Pension Plan pursuant to resolutions of the Board of Directors of Southern Company Services, Inc. this ____ day of ___________________, 1999, to be effective as stated herein. SOUTHERN COMPANY SERVICES, INC. By: Title: ATTEST By: ________________________ Its: ________________________ EX-10.9 9 10(A)74 Exhibit 10(a)74 THE SOUTHERN COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Amended and Restated Effective January 1, 1999 THE SOUTHERN COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ARTICLE I - PURPOSE AND ADOPTION OF PLAN 1.1 Adoption: Southern Company Services, Inc. hereby adopts The Southern Company Supplemental Executive Retirement Plan as amended and restated January 1, 1999 (the "Plan"). The Plan was initially established effective January 1, 1997. The Plan shall be an unfunded deferred compensation arrangement whose benefits shall be paid solely from the general assets of the Company. 1.2 Purpose: The Plan is designed to provide deferred compensation benefits primarily for a select group of management or highly compensated employees which are not otherwise payable under The Southern Company Pension Plan as a result of the exclusion of incentive pay from the definition of earnings set forth under such plan. ARTICLE II - DEFINITIONS 2.1 "Administrative Committee" shall mean the Retirement Board of the Pension Plan. 2.2 "Affiliated Employer" shall mean any corporation which is a member of the controlled group of corporations of which The Southern Company is the common parent corporation which the Board of Directors may from time to time determine to bring under the Plan and which shall adopt the Plan, and any successor of any of them. 2.3 "Beneficiary" shall mean any person, estate, trust or organization entitled to receive any payment under the Plan upon the death of a Participant. 2.4 "Board of Directors" shall mean the Board of Directors of the Company. 2.5 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. 2.6 "Company" shall mean Southern Company Services, Inc. 2.7 "Effective Date" shall mean January 1, 1997. 2.8 "Employee" shall mean any person who is employed by an Affiliated Employer excluding any persons represented by a collective bargaining agent. 2.9 "Incentive Pay" shall mean all awards earned while an Employee under any incentive pay plans sponsored by an Affiliated Employer as shall be determined by the Board from time to time and set forth in Appendix B attached hereto, provided such incentive award was earned on and after January 1, 1994. If a person was formerly represented by a collective bargaining agent with respect to any corporation which is a member of the controlled group of corporations of which The Southern Company is the common parent and such person subsequently becomes an Employee, incentive awards described in the preceding sentence shall include awards earned on and after January 1, 1994 while represented by such collective bargaining agent. 2.10 "Participant" shall mean an Employee or former Employee of an Affiliated Employer who is eligible to participate in the Plan pursuant to Sections 4.1 and 4.2. 2.11 "Pension Plan" shall mean The Southern Company Pension Plan, as amended from time to time. 2.12 "Plan" shall mean The Southern Company Supplemental Executive Retirement Plan, as amended from time to time. 2.13 "Plan Year" shall mean the calendar year. 2.14 "SERP Benefit" shall mean the benefit described in Section 5.1. 2.15 "Supplemental Pension Benefit" shall mean the pension benefit, if any, that is payable to a Participant under a group and/or individual supplemental benefit plan of an Affiliated Employer (as such term is defined therein). Where the context requires, the definitions of all terms set forth in the Pension Plan shall apply with equal force and effect for purposes of interpretation and administration of the Plan, unless said terms are otherwise specifically defined in the Plan. The masculine pronoun shall be construed to include the feminine pronoun and the singular shall include the plural, where the context so requires. ARTICLE III - ADMINISTRATION OF PLAN 3.1 Administrator. The general administration of the Plan shall be placed in the Administrative Committee. 3.2 Powers. The Administrative Committee shall administer the Plan in accordance with its terms and shall have all powers necessary to carry out the provisions of the Plan more particularly set forth herein. The Administrative Committee shall have the discretionary authority to interpret the Plan and shall determine all questions arising in the administration, interpretation and application of the Plan. Any such determination by it shall be conclusive and binding on all persons. It may adopt such regulations as it deems desirable for the conduct of its affairs. It may appoint such accountants, counsel, actuaries, specialists and other persons as it deems necessary or desirable in connection with the administration of this Plan, and shall be the agent for the service of process. 3.3 Duties of the Administrative Committee. (a) The Administrative Committee is responsible for the daily administration of the Plan. It may appoint other persons or entities to perform any of its fiduciary functions. The Administrative Committee and any such appointee may employ advisors and other persons necessary or convenient to help it carry out its duties, including its fiduciary duties. The Administrative Committee shall have the right to remove any such appointee from his position. Any person, group of persons or entity may serve in more than one fiduciary capacity. (b) The Administrative Committee shall maintain accurate and detailed records and accounts of Participants and of their rights under the Plan and of all receipts, disbursements, transfers and other transactions concerning the Plan. Such accounts, books and records relating thereto shall be open at all reasonable times to inspection and audit by persons designated by the Administrative Committee. (c) The Administrative Committee shall take all steps necessary to ensure that the Plan complies with the law at all times. These steps shall include such items as the preparation and filing of all documents and forms required by any governmental agency; maintaining adequate Participants' records; recording and transmission of all notices required to be given to Participants and their Beneficiaries; the receipt and dissemination, if required, of all reports and information received from an Affiliated Employer; securing of such fidelity bonds as may be required by law; and doing such other acts necessary for the proper administration of the Plan. The Administrative Committee shall keep a record of all of its proceedings and acts, and shall keep all such books of account, records and other data as may be necessary for proper administration of the Plan. 3.4 Indemnification. The Company shall indemnify the Administrative Committee against any and all claims, losses, damages, expenses and liability arising from an action or failure to act, except when the same is finally judicially determined to be due to gross negligence or willful misconduct. The Company may purchase at its own expense sufficient liability insurance for the Administrative Committee to cover any and all claims, losses, damages and expenses arising from any action or failure to act in connection with the execution of the duties as Administrative Committee. No member of the Administrative Committee shall receive any compensation from the Plan for his service as such. ARTICLE IV - ELIGIBILITY 4.1 Eligibility Requirements. All Employees who are determined to be eligible to participate in the Plan in accordance with Section 4.2 whose benefits under the Pension Plan are limited by the exclusion of Incentive Pay from the definition of Earnings thereunder (or their spouses, as the case may be) shall be eligible to receive benefits under the Plan provided such Employees are (a) participating in the Plan at the time they terminate from an Affiliated Employer and are retirement eligible or (b) die while in active service while with an Affiliated Employer provided each such Employee's spouse is eligible to receive a survivor benefit under Article VII of the Pension Plan at each eligible Employee's death. Notwithstanding the foregoing sentence, any former Employee who is rehired by an Affiliated Employer on or after January 1, 1997, shall also be required to complete one (1) year of continuous paid service with an Affiliated Employer before being eligible to participate in the Plan. 4.2 Determination of Eligibility. The Administrative Committee shall determine which Employees are eligible to participate. Upon becoming a Participant, an Employee shall be deemed to have assented to the Plan and to any amendments hereafter adopted. The Administrative Committee shall be authorized to rescind the eligibility of any Participant if necessary to ensure that the Plan is maintained primarily for the purpose of providing deferred compensation to a select group of management or highly compensated employees under the Employee Retirement Income Security Act of 1974, as amended. ARTICLE V - BENEFITS 5.1 SERP Benefit. (a) Subject to Article XV of the Pension Plan, a Participant shall be entitled to a monthly SERP Benefit equal to: (1) 1.70% (1.0% if subject to Article XV of the Pension Plan) of the Participant's Average Monthly Earnings multiplied by his years (and fraction of a year) of Accredited Service to his Retirement Date, death or other termination of service, including a Social Security Offset, as adjusted, if necessary, under the terms of the Pension Plan for commencement prior to the Participant's Normal Retirement Date; less (2) such Participant's Retirement Income that is payable under the Pension Plan; less (3) such Participant's Supplemental Pension Benefit. (b) For purposes of Section 5.1(a)(1), the Participant's Average Monthly Earnings shall be calculated based on the Participant's Earnings that are considered under the Pension Plan in calculating his Retirement Income, but without regard to the limitation of Section 401(a)(17) of the Code, and including the following additional amounts: (1) any portion of such Participant's base pay that he may have elected to defer under The Southern Company Deferred Compensation Plan, but excluding Incentive Pay he deferred under such plan; and (2) any Incentive Pay which was earned as of the applicable Plan Year in excess of 25% of the Participant's corresponding base pay for the applicable Plan Year determined under this Section 5.1(b). In addition, to determine the Plan Years which produce the highest monthly average to calculate Average Monthly Earnings under the Plan, a Participant's Earnings should include those additional amounts provided for in Section 5.1(b). (c) For purposes of Section 5.1(a)(1), the Participant's years of Accredited Service shall include any deemed Accredited Service provided under the terms of any agreement concerning supplemental pension payments between the Participant and an Affiliated Employer. (d) To the extent that a Participant's Retirement Income under the Pension Plan is recalculated as a result of an amendment to the Pension Plan in order to increase the amount of his Retirement Income, the Participant's SERP Benefit shall also be recalculated in order to properly reflect such increase in determining payments of the Participant's SERP Benefit made on or after the effective date of such increase. 5.2 Distribution of Benefits. (a) The SERP Benefit, as determined in accordance with Section 5.1, shall be payable in monthly increments on the first day of the month concurrently with the Participant's Retirement Income under the Pension Plan. The form in which the SERP Benefit is paid will be the same as elected by the Participant under the Pension Plan except that the amount of the monthly benefit will be modified at the appropriate time based on the commencement of payments as follows. Payments shall be adjusted to include three components: (1) The amount necessary to pay the tax due under the Federal Insurance Contributions Act with respect to the accrued SERP Benefit determined upon retirement (or such other appropriate "resolution date" as defined under Treasury Regulation Section 31.3121(v)-2) calculated in accordance with Section 5.1; (2) The amount estimated to pay the federal and state income tax withholding liability due on the amount paid under paragraph (1) above; and (3) An adjusted monthly benefit determined on an actuarially equivalent basis in accordance with the terms of the Pension Plan which takes into account the amounts paid under paragraph (1) and (2) above and taking into account the form of benefit elected by the Participant under the Pension Plan. Upon adjustment, the remaining monthly payments shall equal the amount described in paragraph (3) above. The Beneficiary of a Participant's Pension Benefit shall be the same as the Provisional Payee, if any, of the Participant's Retirement Income under the Pension Plan. 5.3 Allocation of SERP Benefit Liability. In the event that a Participant eligible to receive a SERP Benefit has been employed at more than one Affiliated Employer, the SERP Benefit liability shall be apportioned so that each such Affiliated Employer is obligated in accordance with Section 5.4 to cover the percentage of the total SERP Benefit as determined below. Each Affiliated Employer's share of the SERP Benefit liability shall be calculated by multiplying the SERP Benefit by a fraction where the numerator of such fraction is the pay, as defined by the Administrative Committee, received by the Participant at the respective Affiliated Employer multiplied by the Accredited Service earned by the Participant at the respective Affiliated Employer and where the denominator of such fraction is the sum of all numerators calculated for each respective Affiliated Employer for which the Participant has been employed. In the event that a Participant receives additional Accredited Service in accordance with Section 5.1(c), for purposes of determining liability under this Section 5.3, such Accredited Service shall be allocated to each Affiliated Employer which has contracted with the Participant in accordance with such contract and this allocation will be utilized to adjust the appropriate components of the fraction in the preceding sentence in determining each Affiliated Employer's share of the SERP benefit liability. 5.4 Funding of Benefits. The Company shall not reserve or otherwise set aside funds for the payment of its obligations under the Plan, and such obligations shall be paid solely from the general assets of the Company. 5.5 Withholding. There shall be deducted from the payment of any SERP Benefit due under the Plan 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 the Participant or Beneficiary entitled to such payment. ARTICLE VI - MISCELLANEOUS 6.1 Assignment. Neither the Participant, his Beneficiary nor his legal representative shall have any rights to sell, assign, transfer or otherwise convey the right to receive the payment of any SERP Benefit due hereunder, which payment and the right thereto are expressly declared to be nonassignable and nontransferable. Any attempt to assign or transfer the right to payment under the Plan shall be null and void and of no effect. 6.2 Amendment and Termination. The Plan may be amended or terminated at any time by the Board of Directors, provided that no amendment or termination shall cause a forfeiture or reduction in any benefits accrued as of the date of such amendment or termination. 6.3 No Guarantee of Employment. Participation hereunder shall not be construed as creating any contract of employment between an Affiliated Employer and a Participant, nor shall it limit the right of an Affiliated Employer to suspend, terminate, alter or modify, whether or not for cause, the employment relationship between the Affiliated Employer and a Participant. 6.4 Construction. This Plan shall be construed in accordance with and governed by the laws of the State of Georgia, to the extent such laws are not otherwise superseded by the laws of the United States. IN WITNESS WHEREOF, the Plan has been executed by duly authorized officers of Southern Company Services, Inc. pursuant to resolutions of the Board of Directors of Southern Company Services, Inc. this 15th day of April, 1999. SOUTHERN COMPANY SERVICES, INC. By: ____________________________________ Its:____________________________________ ATTEST: By: ____________________________ Its: ____________________________ APPENDIX A THE SOUTHERN COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AFFILIATED COMPANIES AS OF JULY 1, 1998 Alabama Power Company Georgia Power Company Gulf Power Company Mississippi Power Company Savannah Electric and Power Company Southern Communications Services, Inc. Southern Company Energy Solutions, Inc. Southern Company Services, Inc. Southern Energy Resources, Inc. Southern Nuclear Operating Company, Inc. APPENDIX B THE SOUTHERN COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN INCENTIVE PAY PLANS Effective as of January 1, 1999, all awards under the following incentive pay plans shall be counted for purposes of Section 2.9 of the Plan: The Southern Company Performance Pay Plan The Southern Company Productivity Improvement Plan The Southern Company Executive Productivity Improvement Plan Georgia Power Company 1998 Customer Partnership Teams Incentive Plan Georgia Power Company 1998 Residential Customer Partnership Team Incentive Plan Georgia Power Company 1998 Northwest Region Residential Sales Team Incentive Plan Georgia Power Company Customer Choice Group 1998 Compensation Plan Georgia Power Company Olympic Project Management Group 1998 Short Term Incentive Plan Southern Company National Accounts 1998 Incentive Plan Southern Company Energy Solutions, Inc. 1998 Officer and Staff Incentive Compensation Plan Southern Linc Short Term Incentive Plan EX-10.10 10 10(A)76 Exhibit 10(a)76 SEVENTH AMENDMENT TO THE SOUTHERN COMPANY PERFORMANCE SHARING PLAN WHEREAS, Southern Company Services, Inc. ("Company") heretofore adopted The Southern Company Performance Sharing Plan ("Plan"), effective as of January 1, 1997; and WHEREAS, the Performance Sharing Plan Committee ("Committee") desires to amend the Plan in order to clarify that certain transferred employees are not eligible to participate in the Plan; and WHEREAS, the Committee desires to amend the Plan to exclude certain former employees of Orange and Rockland Utilities, Inc. who became employed by Southern Energy Resources, Inc.; and WHEREAS, the Committee desires to amend the Plan to clarify the forfeiture provisions in the Plan; and WHEREAS, the Committee desires to amend the Plan to allow audit fees incurred by the Plan and the Trust to be paid from the Trust assets; and WHEREAS, the Committee desires to amend the Plan to clarify Plan language concerning the delegation of authority to appoint and remove investment managers; and WHEREAS, the Committee desires to amend the Plan to revise the list of incentive pay treated as compensation under the Plan; and WHEREAS, the Committee is authorized pursuant to Section 12.1 of the Plan to amend the Plan at any time, provided that the amendment does not involve a substantial increase in cost to any Employing Company or is necessary or desirable to comply with the laws and regulations applicable to the Plan. NOW, THEREFORE, the Committee hereby amends the Plan as follows, to be effective as provided herein: I. Effective January 1, 1999, Article II, Section 2.19 shall be amended by adding new Sections (u) and (v) after the phrase ""Eligible Employee" shall not include:" as follows: (u) an Employee who is described in Section 3.8 of the Plan; (v) an Employee who has been previously employed by an Employing Company, transferred to Southern Company Energy Marketing, L.P., subsequently transfers back to an Employing Company, and is not described in paragraph (a) of Section 15.1 of The Southern Company Pension Plan; II. Effective as of the date hereof, Article III of the Plan shall be amended by adding a new Section 3.8 thereto as follows: 3.8 Former Orange and Rockland Utilities, Inc. Employees. Notwithstanding any other provision of the Plan to the contrary, a former employee of Orange and Rockland Utilities, Inc. ("O&R") who is employed by Southern Energy Resources, Inc. and who is set forth on a schedule of employees acknowledged by the Committee shall not be eligible to participate in the Plan. In the event any such employee is allowed to participate in the Plan in the future, such employee shall be entitled, for vesting purposes hereunder, to years of vesting service accrued under the Employees' Retirement Plan of Orange and Rockland Utilities, Inc. ("O&R Pension Plan") on or after January 1, 1997, in addition to any Years of Service accrued under this Plan. III. Effective as of January 1, 1999, Section 8.2 shall be amended by deleting such Section in its entirety and replacing it with the following: 8.2 Forfeitures. That portion of the Account to which the Participant is not entitled shall be credited to the Suspense Account (which will always share in earnings or losses of the Trust) and shall be used to offset future Employer Contributions. Such offset shall take place as of the last day of the Plan Year in which the Forfeiture occurs. IV. Effective as of March 25, 1999, Section 10.12 shall be amended by deleting such Section in its entirety and replacing it with the following: 10.12 Expenses of Plan and Trust Fund. The expenses of establishment and administration of the Plan and the Trust Fund shall be paid by the Company or the Employing Companies. Notwithstanding the foregoing, to the extent provided in the Trust Agreement, certain administrative expenses may be paid from the Trust Fund either directly or through reimbursement of the Company or the Employing Companies. All fees of the auditors related to the audit of the Plan or the Trust Fund shall be paid from the Trust Fund either directly or through reimbursement of the Company or the Employing Companies. Any expenses directly related to the investments of the Trust Fund, such as stock transfer taxes, brokerage commissions, or other charges incurred in the acquisition or disposition of such investments, shall be paid from the Trust Fund (or from the particular Investment Fund to which such fees or expenses relate) and shall be deemed to be part of the cost of such securities or deducted in computing the proceeds therefrom, as the case may be. Investment management fees for the Investment Funds shall be paid from the particular Investment Fund to which they relate either directly or through reimbursement of the Company or the Employing Companies unless the Company or the Employing Companies do not elect to receive reimbursement for payment of such expenses. Taxes, if any, on any assets held or income received by the Trustee shall be charged appropriately against the Accounts of Participants as the Committee shall determine. Any expenses paid by the Company pursuant to Section 10.11 and this section shall be subject to reimbursement by other Employing Companies of their proportionate shares of such expenses as determined by the Committee. V. Effective as of March 25, 1999, Section 10.14 of the Plan shall be amended by deleting such Section in its entirety and replacing it with the following: 10.14 Management of Assets. The Committee shall not have responsibility with respect to control or management of the assets of the Plan. The Trustee shall have the sole responsibility for the administration of the assets of the Plan as provided in the Trust Agreement, except to the extent that an investment advisor (who qualifies as an Investment Manager as defined in ERISA) who is appointed by the Pension Fund Investment Review Committee shall have responsibility for the management of the assets of the Plan, or some part thereof (including powers to acquire and dispose of the assets of the Plan, or some part thereof). VI. Effective as of the date hereof, Section 11.1 of the Plan shall be amended by deleting such Section in its entirety and replacing it with the following: 11.1 Trustee. The Company has entered into a Trust Agreement with the Trustee to hold the funds necessary to provide the benefits set forth in the Plan. If the Board of Directors so determines, the Company may enter into a Trust Agreement or Trust Agreements with additional trustees. Any Trust Agreement may be amended by the Company from time to time in accordance with its terms. Any Trust Agreement shall provide, among other things, that all funds received by the Trustee thereunder will be held, administered, invested, and distributed by the Trustee, and that no part of the corpus or income of the Trust held by the Trustee shall be used for or diverted to purposes other than for the exclusive benefit of Participants or their Beneficiaries, except as otherwise provided in the Plan. Any Trust Agreement may also provide that the investment and reinvestment of the Trust Fund, or any part thereof may be carried out in accordance with directions given to the Trustee by any Investment Manager or Investment Managers (as defined in ERISA) who are appointed by the Pension Fund Investment Review Committee. The Board of Directors may remove any Trustee or any successor Trustee, and any Trustee or any successor Trustee may resign. Upon removal or resignation of a Trustee, the Board of Directors shall appoint a successor Trustee. VII. Effective as of January 1, 1999, Appendix B shall be modified in the form attached hereto. Except as amended herein by this Seventh Amendment, the Plan shall remain in full force and effect. IN WITNESS WHEREOF, Southern Company Services, Inc., through the duly authorized members of the Performance Sharing Committee, has adopted this Seventh Amendment to The Southern Company Performance Sharing Plan this _____ day of ________________, 1999, to be effective as of such date unless stated otherwise herein. PERFORMANCE SHARING PLAN COMMITTEE: Christopher C. Womack Robert A. Bell W. Dean Hudson APPENDIX B - INCENTIVE PAY PLANS Effective as of January 1, 1999, all awards under the following incentive pay plans shall be counted as compensation for purposes of Section 2.12 of the Plan: o The Southern Company Performance Pay Plan o The Southern Company Productivity Improvement Plan o The Southern Company Executive Productivity Improvement Plan o Georgia Power Company Customer Choice Group Incentive Compensation Plan o Georgia Power Company Customer Partnership Teams Incentive Plan o Georgia Power Company Residential Customer Partnership Team Incentive Plan o Merchandise Sales Business Unit Incentive Plan (APC/Gulf) o Southern Company Energy Solutions Officer and Staff Incentive Compensation Plan o Southern Company Energy Solutions PowerCall Security Incentive Compensation Plan (Installation & Service Technicians) o Southern Company National Accounts Incentive Compensation Plan o Southern LINC Annual Incentive Plan o Southern LINC Regional Sales Managers Incentive Plan EX-10.11 11 10(A)78 Exhibit 10(a)78 FIRST AMENDMENT TO THE SOUTHERN COMPANY SUPPLEMENTAL BENEFIT PLAN WHEREAS, Southern Company Services, Inc. ("Company") has established The Southern Company Supplemental Benefit Plan ("Plan") to provide deferred compensation benefits primarily for a select group of management or highly compensated employees which are not otherwise payable under tax qualified plans of the Southern Company as a result of certain statutory limitations provided under the Internal Revenue Code; and WHEREAS, the Company, through its Board of Directors, has reserved unto itself the authority to amend the Plan at any time; and WHEREAS, the Company wishes to provide for the withholding of the Old Age, Survivors and Disability Insurance portion of the tax due under the Federal Insurance Contributions Act from payments of Pension Benefits as that term is defined under the Plan. Accordingly, the Plan is hereby amended in the following particulars, to be effective as set forth below: 1. Effective January 1, 1999, amend Section 5.3(a)(1) of the Plan by deleting said Section in its entirety and substituting the following in lieu thereof: 5.3(a)(1) The amount necessary to pay the tax due under the Federal Insurance Contributions Act with respect to the accrued Pension Benefit determined upon retirement (or such other appropriate "resolution date" as defined under Treasury Regulation Section 31.3121(v)-2) calculated in accordance with Section 5.1; 2. All parts of the Plan not inconsistent herewith are hereby ratified and affirmed. IN WITNESS WHEREOF, this First Amendment has been executed by a duly authorized officer of Southern Company Services, Inc. pursuant to resolutions of the Board of Directors of the Company this 15th day of April, 1999. SOUTHERN COMPANY SERVICES, INC. By: Christopher C. Womack Senior Vice President, Human Resources ATTEST: By: Its: EX-10.12 12 10(A)80 Exhibit 10(a)80 FIRST AMENDMENT TO THE SOUTHERN COMPANY CHANGE IN CONTROL SEVERANCE PLAN WHEREAS, effective December 7, 1998, Southern Company Services, Inc. ("Company") established the Southern Company Change in Control Severance Plan ("Plan") to provide certain benefits to eligible employees that may be terminated from employment following a change in control as contemplated therein; and WHEREAS, the Company, through its Board of Directors, previously authorized the adoption of this Plan; and WHEREAS, the Company desires to make a clarifying amendment regarding certain eligible employees' right to benefits under the Southern Energy Resources, Inc. Deferred Incentive Compensation Plan. NOW, THEREFORE, the Plan is hereby amended in the following particulars to be effective December 7, 1998 as set forth below: 1. Section 2.9-A is added thereto as follows: 2.9-A "DIC Plan" shall mean the Southern Energy Resources, Inc. Deferred Incentive Compensation Plan or any successor thereto which is considered an "equitable arrangement" thereof, as such plans may be amended from time to time. 2. Section 3.2(k) is added thereto as follows: 3.2(k) DIC Plan. The provisions of this Section 3.2(k) shall apply to any Participant who, as of the date of the Change in Control, was a participant in the DIC Plan, the defined terms of which are incorporated into this Section 3.2(k) by reference. Provided a Participant is not entitled to benefits under Article V of the DIC Plan, if the DIC Plan is in place through Participant's Termination Date and to the extent that Participant is entitled to participate therein, any of the Participant's Awards as of the Termination Date which are not then vested shall become fully vested and Participant shall be entitled to receive cash in the amount equal to Participant's Account as of his Termination Date. Notwithstanding anything in the DIC Plan to the contrary, the investment return on the Awards determined in accordance with Section 3.1 of the DIC Plan for any Plan Year following a Change in Control of Southern or its Employing Company shall be no less than the investment return determined in accordance with Section 3.1 of the DIC Plan as of the date of such Change in Control with respect to those Accounts which are outstanding as of the date of such Change in Control. IN WITNESS WHEREOF, this First Amendment has been executed by a duly authorized officer of Southern Company Services, Inc. pursuant to resolutions of the Board of Directors of the Company this ____ day of _______________________, 1999. SOUTHERN COMPANY SERVICES, INC. By: Christopher C. Womack Senior Vice President, Human Resources ATTEST: By: Its: EX-10.13 13 10(A)82 Exhbit 10(a)82 FIRST AMENDMENT TO THE SOUTHERN COMPANY EXECUTIVE CHANGE IN CONTROL SEVERANCE PLAN WHEREAS, effective December 7, 1998, Southern Company Services, Inc. ("Company") established the Southern Company Executive Change in Control Severance Plan ("Plan") to provide certain benefits to eligible employees that may be terminated from employment following a change in control as contemplated therein; and WHEREAS, the Company, through its Board of Directors, previously authorized the adoption of this Plan; and WHEREAS, the Company desires to make a clarifying amendment regarding certain eligible employees' right to benefits under the Southern Energy Resources, Inc. Deferred Incentive Compensation Plan. NOW, THEREFORE, the Plan is hereby amended in the following particulars to be effective December 7, 1998 as set forth below: 1. Section 2.11-A is added thereto as follows: 2.11-A "DIC Plan" shall mean the Southern Energy Resources, Inc. Deferred Incentive Compensation Plan or any successor thereto which is considered an "equitable arrangement" thereof, as such plans may be amended from time to time. 2. Section 3.2(k) is added thereto as follows: 3.2(k) DIC Plan. The provisions of this Section 3.2(k) shall apply to any Participant who, as of the date of the Change in Control, was a participant in the DIC Plan, the defined terms of which are incorporated into this Section 3.2(k) by reference. Provided a Participant is not entitled to benefits under Article V of the DIC Plan, if the DIC Plan is in place through Participant's Termination Date and to the extent that Participant is entitled to participate therein, any of the Participant's Awards as of the Termination Date which are not then vested shall become fully vested and Participant shall be entitled to receive cash in the amount equal to Participant's Account as of his Termination Date. Notwithstanding anything in the DIC Plan to the contrary, the investment return on the Awards determined in accordance with Section 3.1 of the DIC Plan for any Plan Year following a Change in Control of Southern or its Employing Company shall be no less than the investment return determined in accordance with Section 3.1 of the DIC Plan as of the date of such Change in Control with respect to those Accounts which are outstanding as of the date of such Change in Control. IN WITNESS WHEREOF, this First Amendment has been executed by a duly authorized officer of Southern Company Services, Inc. pursuant to resolutions of the Board of Directors of the Company this ____ day of _______________________, 1999. SOUTHERN COMPANY SERVICES, INC. By: Christopher C. Womack Senior Vice President, Human Resources ATTEST: By: Its: EX-10.14 14 10(A)84 Exhibit 10(a)84 FIRST AMENDMENT TO AND ASSIGNMENT OF DEFERRED COMPENSATION AGREEMENT THIS FIRST AMENDMENT TO AND ASSIGMENT OF DEFERRED COMPENSATION AGREEMENT ("Amendment") made and entered into by and between The Southern Company ("Southern"), Georgia Power Company (the "Company"), Southern Company Services, Inc. ("SCS") and Henry Allen Franklin ("Mr. Franklin"), effective as of the 8th day of July, 1999. W I T N E S S E T H: WHEREAS, the parties entered into that certain Deferred Compensation Agreement (the "Agreement") effective February 27, 1998; WHEREAS, the employment of Mr. Franklin has been transferred to SCS; WHEREAS, the parties wish to amend and assign the Agreement in connection with such transfer of employment; NOW, THEREFORE, in consideration of the premises, and the agreements of the parties set forth in this Amendment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Pursuant to Section 15 of the Agreement, the Company assigns the Agreement to SCS and SCS shall be the Company for all purposes thereunder. 2. Pursuant to Section 15 of the Agreement, the profitability goals are amended as set forth on Exhibit A hereof to reflect Mr. Franklin's position with SCS. IN WITNESS WHEREOF, this First Amendment to and Assignment of Deferred Compensation Agreement has been executed by the parties, this ___ day of _____________, 1999. THE SOUTHERN COMPANY By: ______________________________ SOUTHERN COMPANY SERVICES, INC. By: GEORGIA POWER COMPANY By: ______________________________ MR. FRANKLIN ------------------------------ Henry Allen Franklin Exhibit A Deferred Compensation Agreement Schedule of Profitability Goals For Performance Period The Southern Company's "core business" shall earn its assigned share of The Southern Company's Earnings Per Share Goal for each of the calendar years in the Performance Period. Achievement of the goal shall be assessed annually by the Chairman of The Southern Company and documented in Exhibit B. Exhibit B Deferred Compensation Agreement Annual Documentation of Profitability Goals For Performance Period EX-10.15 15 10(A)87 Exhibit 10(a)87 DEFERRED COMPENSATION AGREEMENT THIS DEFERRED COMPENSATION AGREEMENT ("Agreement") made and entered into by and between The Southern Company ("Southern"), Southern Energy Resources, Inc. (the "Company") and Gale E. Klappa ("Mr. Klappa"). W I T N E S S E T H: WHEREAS, Mr. Klappa is an Officer of the Company; WHEREAS, the Company and Southern wish to encourage Mr. Klappa to increase the profitability of the Company and to provide Mr. Klappa an interest in the Company's overall profitability, and to provide Mr. Klappa with additional deferred compensation for service he has or will provide 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 hereby agree as follows: 1. Retention Bonus. a. General Nature of Award. Subject to the terms and conditions of this Agreement, the Company shall establish and maintain on behalf of Mr. Klappa an account on the Company's books and records (the "Account") which, if Mr. Klappa continues to be an employee of the Company, or any affiliate or subsidiary of Southern (as set forth in Paragraph 5 hereof), shall entitle Mr. Klappa to receive on July 1, 2003 (the period from the effective date of the Agreement through July 1, 2003 to be referred to as the "Performance Period") an amount equal to the then Market Value (as defined below) of the equivalent of Two Hundred Sixty Thousand Dollars ($260,000.00) of Market Value of Southern's common stock deemed to have been purchased as of the effective date of this Agreement, including reinvested dividends thereon, increased, if certain profitability goals are met, by estimated income tax expenses. b. Investment. (1) As of the date hereof, the Company shall credit to Mr. Klappa's Account that number of deemed shares (including fractional shares) of Southern's common stock ("Common Stock") as shall equal $260,000.00 in Market Value (as defined herein) determined as of the effective date of this Agreement (such hypothetical shares to be referred to herein as the "Phantom Stock"). For purposes of this Agreement, "Market Value" shall mean the average closing price of the Common Stock as reported by the New York Stock Exchange for the ten trading days immediately preceding the respective valuation date. (2) As of the day of each calendar quarter in which occurs the payment of dividends on Common Stock, there shall be credited to Mr. Klappa's Account such additional shares of Phantom Stock (including fractional shares) as could have been purchased at the Market Value on such day as follows: (a) In the case of cash dividends, such additional shares of Phantom Stock as could have been purchased with the dividends payable on the number of shares of Phantom Stock credited to the Account immediately prior to the dividend; (b) In the case of dividends payable in property other than cash or Common Stock, such additional shares of Phantom Stock as could have been purchased with the fair market value of the property which would have been payable as dividends on the number of shares of Phantom Stock credited to the Account immediately prior to the dividend; or (c) In the case of dividends payable in Common Stock, such additional shares of Phantom Stock as would have been payable on the number of shares of Phantom Stock credited to the Account immediately prior to the dividend. (3) In the event that the number of outstanding shares of Common Stock is changed through merger, consolidation, reorganization, recapitalization, reincorporation, stock split, stock dividend (in excess of 2%) or other change in the capital structure of Southern without consideration, or upon the occurrence of any other extraordinary corporate event involving the Common Stock causing a reduction in the value of the Common Stock, such as a corporate spin off or split up, the number of shares of Phantom Stock credited to the Account shall be proportionately adjusted by the Company so as to preserve the value of the Account immediately prior to such event. c. Vesting of Account. The Market Value of Mr. Klappa's Account shall vest on July 1, 2003 (the "Vesting Date"), provided Mr. Klappa is then an employee of the Company, Southern, or an affiliate or subsidiary of Southern. d. Valuation of Account. The value of Mr. Klappa's Account on any date shall be based on the Market Value on such date multiplied by the number of shares of Phantom Stock then credited to the Account, provided, however, that if the profitability goals established for the Company and for Mr. Klappa by the Chief Executive Officers of Southern and the Company have been equaled or exceeded during the Performance Period as set forth on Exhibit A, and as annually documented on Exhibit B of this Agreement (the "Profitability Goals"), the value of the Account shall be increased upon payout to cover Mr. Klappa's federal and state income tax expense as reasonably estimated by the Company for the year of payout (the "Tax Gross-up"). Failure to meet the Profitability Goals for the Performance Period shall result in the forfeiture of the Tax Gross-up, provided, however, that the Chief Executive Officers of Southern and the Company may, in their sole discretion, determine after the close of the Performance Period, that as a result of overall Company profitability and individual performance during the entire Performance Period, all or a portion of the value of the Tax Gross-up shall nevertheless be paid. e. Payment of Account Balance. Provided that Mr. Klappa is then an employee of the Company, Southern, or an affiliate or subsidiary of Southern, and, with respect to the Tax Gross-up amount, has also achieved the Profitability Goals, the Company shall pay to Mr. Klappa the value of his Account, and, if applicable, the Tax Gross-up amount, in cash within ten (10) days of the Vesting Date. f. Election to Defer. By written election filed with Southern's Vice President, Human Resources no less than thirteen (13) months prior to the Vesting Date, Mr. Klappa may defer all or a portion of the amount to be received under this Agreement by having such amount contributed on his account to The Southern Company Deferred Compensation Plan, in accordance with the terms and conditions of such Plan. g. Death, Permanent Disability, Termination Without Cause, Termination for Good Reason, or Continued Employment Following a Change in Control. In the event of Mr. Klappa's termination of employment with the Company prior to the payout of the value of the Account for reasons of death, permanent disability, termination by the Company without Cause, or termination of employment by Mr. Klappa for Good Reason following a Change in Control, or, if prior to the payout of the value of the Account Mr. Klappa continues employment with the Company, any Southern Subsidiary, or any employer that succeeds to all or substantially all of the assets of the Company, Southern, or any Southern Subsidiary following a Change in Control, the Company shall pay to Mr. Klappa, or his estate in the event of death, the value of the Account determined as of the date of such termination or Change in Control, plus, if the Profitability Goals have been met as of such date, the Tax Gross-up amount. For purposes of this Paragraph 1.g., the terms Cause, Change in Control, Good Reason, and Southern Subsidiary shall have the meaning set forth in that certain Change in Control Agreement, dated June 17, 1999, as amended from time to time, between Southern, the Company and Mr. Klappa (the "Change in Control Agreement"), the defined terms of which are incorporated in this Paragraph 1.g. by reference thereto. h. Assignability. Neither Mr. Klappa, his estate, his beneficiaries, nor his legal representative shall have any rights to commute, sell, assign, transfer or otherwise convey the right to receive the payment under this Paragraph 1, which payment and the rights thereto are expressly declared to be nonassignable and nontransferable. Any attempt to assign or transfer the right to such payment shall be void and have no effect. 2. Value Creation Plan. In the event Mr. Klappa transfers his employment to an affiliate of Southern, and pursuant to the Southern Energy Resources, Inc. Value Creation Plan (the "Plan") he has Indexed Rights that have not vested at the time of such transfer, and the Administrative Committee for the Plan fails to take action to provide Mr. Klappa relief from Section 4.5 of the Plan to the extent it provides for forfeiture of unvested Indexed Rights upon termination from the Company for reasons other than Cause and provide that any of Mr. Klappa's unvested Indexed Rights shall continue to vest as long as Mr. Klappa remains employed by an affiliate of Southern, then the Company shall pay Mr. Klappa an amount equal to what he would have received had such Indexed Rights continued to vest following his transfer to an affiliate of Southern, become vested and been exercised by Mr. Klappa within the time period that would have existed under the Plan for such exercise. In determining such amount, the method that would have applied under the Plan shall be used. 3. Publicity; No Disparaging Statement. Except as otherwise provided in Paragraph 6 hereof, Mr. Klappa, Southern 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. 4. Non-Disclosure. a. Definitions. For purposes of this Paragraph 4, the following terms shall have the following meanings: (1) "Entity" shall mean any business, individual, partnership, joint venture, agency, governmental subdivision, association, firm, corporation or other entity. (2) "Affiliate" shall mean the following Entities: (a) any Entity which owns an Interest (as defined below) in the Company either directly or indirectly through any other Entity, (b) any Entity an Interest in which is owned directly or indirectly by any Entity which owns directly or indirectly an Interest in the Company or (c) any Entity in which the Company owns an Interest either directly or indirectly through any other Entity. For purposes of this Agreement, the term "Interest" shall include any equity interest in an Entity in an amount equal to or greater than 30% of the Entity's total outstanding equity interests. (3) "Confidential Information" shall mean proprietary and confidential data or information other than Trade Secrets (as defined below), which is valuable to, and related to the business of, the Company, its Affiliates or non-affiliated Entities with whom the Company or its Affiliates has or have business relationships (collectively, "Third Parties"), and the details of which are generally unknown to the public or to the Company's competitors, including, without limitation, information regarding the Company's employees, business strategies, models and systems, customers, suppliers, partners and affiliates, gained by Mr. Klappa as a result of his affiliation with the Company or its Affiliates, and other items that the Company or its Affiliates may from time to time mark or otherwise identify as confidential. (4) "Trade Secrets" shall mean information of or related to the Company, its Affiliates or Third Parties which (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; it being agreed that such information includes, without limitation, technical and non-technical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans or a list of actual or potential customers or suppliers. (5) "Intellectual Property" shall mean all work product, property, data, documentation, "know-how", concepts or plans, inventions, discovery, compositions, innovations, computer programs, improvements, techniques, processes, designs, article of manufacture or information of any kind, or any new or useful improvements of any of the foregoing and any Trade Secrets, patents, copyrights, Confidential Information, mask work, trademark or service mark, relating in any way to the Company or its Affiliates and its or their business prepared, conceived, revised, discovered, developed, or created by Mr. Klappa for the Company or its Affiliates or by using the Company's or its Affiliates' time, personnel, facilities, equipment, knowledge, information, resources, or material. b. Nondisclosure; Ownership of Proprietary Property. (1) Nondisclosure. In recognition of the Company's need to protect its legitimate business interests, Mr. Klappa hereby acknowledges that he has been given access to valuable Trade Secrets and Confidential Information; and he hereby covenants and agrees that he will use the Trade Secrets and Confidential Information for the Company's business purposes only, and that he will not for any reason, in any fashion, form or manner, other than as instructed by a duly authorized representative of the Company, copy, disclose, disseminate, communicate, transfer or otherwise convey to any Entity any item: (a) which is a Trade Secret, for so long as such item remains a trade secret under applicable law; or (b) which is Confidential Information, other than Trade Secrets, for a period of three (3) years from his termination. (2) Notification of Unauthorized Disclosure. Mr. Klappa shall exercise his best efforts to ensure the continued confidentiality of all Trade Secrets and Confidential Information known by, disclosed or made available to him. He shall immediately notify the Company of any unauthorized disclosure or use of any Trade Secrets or Confidential Information of which he becomes aware. Mr. Klappa shall assist the Company, to the extent necessary, in the procurement or protection of the Company's or its Affiliates' rights to or in any Intellectual Property, Trade Secrets or Confidential Information and, upon the Company's request, shall assist, to the extent necessary, in the procurement or protection of any Third Party's rights to or in any Intellectual Property, Trade Secrets or Confidential Information. (3) Ownership. To the greatest extent possible, any and all Intellectual Property shall be deemed to be "work made for hire" (as defined in the Copyright Act, 17 U.S.C.A. ss.ss. 101 et seq.), and Mr. Klappa hereby unconditionally and irrevocably transfers and assigns to the Company or its Affiliates all rights, title and interest he currently has or in the future may have by operation of law or otherwise in or to any Intellectual Property, including, without limitation, all patents, copyrights, trademarks, service marks and other Intellectual Property rights and agrees that the Company or its Affiliates shall have the exclusive world-wide ownership of such Intellectual Property, and that no Intellectual Property shall be treated as or deemed to be a "joint work" (as defined by the Copyright Act) of Mr. Klappa and the Company, its Affiliates or otherwise. Mr. Klappa agrees to execute and deliver to the Company or its Affiliates any transfers, assignments, documents or other instruments which the Company or its Affiliates may deem necessary or appropriate to vest complete title and ownership of any Intellectual Property, and all rights therein, exclusively in the Company or its Affiliates, as the case may be. (4) Return of Materials. Upon Mr. Klappa's termination, or at any point after that time upon the specific request of the Company, he 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 Intellectual Property, Confidential Information and Trade Secrets, in his possession. 5. Transfer of Employment to Southern or a Southern Subsidiary or Affiliate. In the event that Mr. Klappa's employment by the Company is terminated and he shall become immediately re-employed by Southern or a subsidiary or an affiliate of Southern, the Company shall assign this Agreement to Southern or such subsidiary or affiliate, Southern shall accept such assignment or cause such affiliate or subsidiary to accept such assignment, such assignee shall become the "Company" for all purposes hereunder, and the profitability goals set forth on Exhibit A hereof shall be amended to appropriately reflect the performance of such assignee. In the event of such assignment, the expense of this Paragraph 1 of this Agreement shall be shared pro rata by the Company and any such assignee based upon the number of months after the effective date of this Agreement that Mr. Klappa is employed by the Company, and/or Southern and/or such affiliate or subsidiary of Southern, as the case may be, but the expense of Paragraph 2 shall be the sole responsibility of the Company. 6. Confidentiality and Legal Process. Mr. Klappa 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 any one 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 Mr. Klappa from performing any duty or obligation that shall arise as a matter of law. Specifically, Mr. Klappa shall continue to be under a duty to truthfully respond to matter of law. Specifically, Mr. Klappa 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 Mr. Klappa's right and ability to provide information to any federal, state or local government in the lawful exercise of such governments' governmental functions. 7. Successors And Assigns; Applicable Law. Except as otherwise provided in Paragraph 1.h., this Agreement shall be binding upon and inure to the benefit of Mr. Klappa and his heirs, administrators, representatives, executors, successors and assigns, and shall be binding upon and inure to the benefit of Southern, the Company and their 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 Georgia, United States of America (without giving effect to principles of conflicts of laws). 8. 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 between the parties concerning the subject matter hereof. This Agreement shall not be modified or amended except by a written instrument signed by both Mr. Klappa and an authorized representative of Southern and the Company. 9. 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. 10. 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. 11. 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 Mr. Klappa 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. 12. No Effect On Other Arrangements. It is expressly understood and agreed that the payments made in accordance with this Agreement are in addition to any other benefits or compensation to which Mr. Klappa may be entitled or for which he may be eligible, whether funded or unfunded, by reason of his employment with the Company. 13. Tax Withholding. There shall be deducted from each 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 Mr. Klappa. 14. Compensation. Any compensation contributed on behalf of Mr. Klappa 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. Payments under this Agreement shall not be considered wages, salaries or compensation under any other employee benefit plan. 15. 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 Mr. Klappa and the Company. IN WITNESS WHEREOF, this Agreement has been executed by the parties first listed above, effective this ____ day of ___________, 1999. THE SOUTHERN COMPANY By: ______________________________ SOUTHERN ENERGY RESOURCES, INC. By: Mr. Klappa ------------------------------ Exhibit A Deferred Compensation Agreement Schedule of Profitability Goals For Performance Period The Southern Company shall earn its Earnings Per Share Goal for each of the calendar years in the Performance Period. Achievement of the goals shall be assessed annually by the Chief Executive Officers of Southern and the Company and documented in Exhibit B of this Agreement. Exhibit B Deferred Compensation Agreement Annual Documentation of Profitability Goals For Performance Period FIRST AMENDMENT TO AND ASSIGNMENT OF DEFERRED COMPENSATION AGREEMENT THIS FIRST AMENDMENT TO AND ASSIGMENT OF DEFERRED COMPENSATION AGREEMENT ("Amendment") made and entered into by and between The Southern Company ("Southern"), Southern Energy Resources, Inc. (the "Company"), Southern Company Services, Inc. ("SCS") and Gale F. Klappa ("Mr. Klappa"), effective as of the 6th day of October, 1999. W I T N E S S E T H: WHEREAS, the parties entered into that certain Deferred Compensation Agreement (the "Agreement") effective October 5, 1999; WHEREAS, the employment of Mr. Klappa has been transferred to SCS; WHEREAS, the parties wish to amend and assign the Agreement in connection with such transfer of employment; NOW, THEREFORE, in consideration of the premises, and the agreements of the parties set forth in this Amendment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Pursuant to Section 5 of the Agreement, the Company assigns the Agreement to SCS and SCS shall be the Company for all purposes thereunder. Notwithstanding the foregoing, as provided in Sections 2 and 5 of the Agreement with respect to the Value Creation Plan, Southern Energy Resources, Inc. shall retain the expense related to Section 2. 2. Pursuant to Section 5 of the Agreement, Exhibit A is amended to provide that achievement of the profitability goal shall be documented by the Chairman of The Southern Company. IN WITNESS WHEREOF, this First Amendment to and Assignment of Deferred Compensation Agreement has been executed by the parties, this ___ day of _____________, 2000. THE SOUTHERN COMPANY By: ______________________________ SOUTHERN COMPANY SERVICES, INC. By: SOUTHERN ENERGY RESOURCES, INC. By: ______________________________ MR. KLAPPA ------------------------------ Gale F. Klappa Exhibit A Deferred Compensation Agreement Schedule of Profitability Goals For Performance Period The Southern Company shall earn its Earnings Per Share Goal for each of the calendar years in the Performance Period. Achievement of the goal shall be assessed annually by the Chairman of The Southern Company and documented in Exhibit B. Exhibit B Deferred Compensation Agreement Annual Documentation of Profitability Goals For Performance Period EX-10.16 16 10(A)88 Exhibit 10(a)88 DEFERRED COMPENSATION AGREEMENT THIS DEFERRED COMPENSATION AGREEMENT ("Agreement") made and entered into by and between The Southern Company ("Southern"), Southern Energy Resources, Inc. (the "Company") and S. Marce Fuller ("Ms. Fuller"). W I T N E S S E T H: WHEREAS, Ms. Fuller is an Officer of the Company; WHEREAS, the Company and Southern wish to encourage Ms. Fuller to increase the profitability of the Company and to provide Ms. Fuller an interest in the Company's overall profitability, and to provide Ms. Fuller with additional deferred compensation for service she has or will provide 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 hereby agree as follows: 1. Retention Bonus. a. General Nature of Award. Subject to the terms and conditions of this Agreement, the Company shall establish and maintain on behalf of Ms. Fuller an account on the Company's books and records (the "Account") which, if Ms. Fuller continues to be an employee of the Company, or any affiliate or subsidiary of Southern (as set forth in Paragraph 4 hereof), shall entitle Ms. Fuller to receive on July 1, 2003 (the period from the effective date of the Agreement through July 1, 2003 to be referred to as the "Performance Period") an amount equal to the then Market Value (as defined below) of the equivalent of Four Hundred Thousand Dollars ($400,000.00) of Market Value of Southern's common stock deemed to have been purchased as of the effective date of this Agreement, including reinvested dividends thereon, increased, if certain profitability goals are met, by estimated income tax expenses. b. Investment. (1) As of the date hereof, the Company shall credit to Ms. Fuller's Account that number of deemed shares (including fractional shares) of Southern's common stock ("Common Stock") as shall equal $400,000.00 in Market Value (as defined herein) determined as of the effective date of this Agreement (such hypothetical shares to be referred to herein as the "Phantom Stock"). For purposes of this Agreement, "Market Value" shall mean the average closing price of the Common Stock as reported by the New York Stock Exchange for the ten trading days immediately preceding the respective valuation date. (2) As of the day of each calendar quarter in which occurs the payment of dividends on Common Stock, there shall be credited to Ms. Fuller's Account such additional shares of Phantom Stock (including fractional shares) as could have been purchased at the Market Value on such day as follows: (a) In the case of cash dividends, such additional shares of Phantom Stock as could have been purchased with the dividends payable on the number of shares of Phantom Stock credited to the Account immediately prior to the dividend; (b) In the case of dividends payable in property other than cash or Common Stock, such additional shares of Phantom Stock as could have been purchased with the fair market value of the property which would have been payable as dividends on the number of shares of Phantom Stock credited to the Account immediately prior to the dividend; or (c) In the case of dividends payable in Common Stock, such additional shares of Phantom Stock as would have been payable on the number of shares of Phantom Stock credited to the Account immediately prior to the dividend. (3) In the event that the number of outstanding shares of Common Stock is changed through merger, consolidation, reorganization, recapitalization, reincorporation, stock split, stock dividend (in excess of 2%) or other change in the capital structure of Southern without consideration, or upon the occurrence of any other extraordinary corporate event involving the Common Stock causing a reduction in the value of the Common Stock, such as a corporate spin off or split up, the number of shares of Phantom Stock credited to the Account shall be proportionately adjusted by the Company so as to preserve the value of the Account immediately prior to such event. c. Vesting of Account. The Market Value of Ms. Fuller's Account shall vest on July 1, 2003 (the "Vesting Date"), provided Ms. Fuller is then an employee of the Company, Southern, or an affiliate or subsidiary of Southern. d. Valuation of Account. The value of Ms. Fuller's Account on any date shall be based on the Market Value on such date multiplied by the number of shares of Phantom Stock then credited to the Account, provided, however, that if the profitability goals established for the Company and for Ms. Fuller by the Chief Executive Officer of Southern have been equaled or exceeded during the Performance Period as set forth on Exhibit A, and as annually documented on Exhibit B of this Agreement (the "Profitability Goals"), the value of the Account shall be increased upon payout to cover Ms. Fuller's federal and state income tax expense as reasonably estimated by the Company for the year of payout (the "Tax Gross-up"). Failure to meet the Profitability Goals for the Performance Period shall result in the forfeiture of the Tax Gross-up, provided, however, that the Chief Executive Officer of Southern may, in his sole discretion, determine after the close of the Performance Period, that as a result of overall Company profitability and individual performance during the entire Performance Period, all or a portion of the value of the Tax Gross-up shall nevertheless be paid. e. Payment of Account Balance. Provided that Ms. Fuller is then an employee of the Company, Southern, or an affiliate or subsidiary of Southern, and, with respect to the Tax Gross-up amount, has also achieved the Profitability Goals, the Company shall pay to Ms. Fuller the value of her Account, and, if applicable, the Tax Gross-up amount, in cash within ten (10) days of the Vesting Date. f. Election to Defer. By written election filed with Southern's Vice President, Human Resources no less than thirteen (13) months prior to the Vesting Date, Ms. Fuller may defer all or a portion of the amount to be received under this Agreement by having such amount contributed on her account to The Southern Company Deferred Compensation Plan, in accordance with the terms and conditions of such Plan. g. Death, Permanent Disability, Termination Without Cause, Termination for Good Reason, or Continued Employment Following a Change in Control. In the event of Ms. Fuller's termination of employment with the Company prior to the payout of the value of the Account for reasons of death, permanent disability, termination by the Company without Cause, or termination of employment by Ms. Fuller for Good Reason following a Change in Control, or, if prior to the payout of the value of the Account Ms. Fuller continues employment with the Company, any Southern Subsidiary, or any employer that succeeds to all or substantially all of the assets of the Company, Southern, or any Southern Subsidiary following a Change in Control, the Company shall pay to Ms. Fuller, or her estate in the event of death, the value of the Account determined as of the date of such termination or Change in Control, plus, if the Profitability Goals have been met as of such date, the Tax Gross-up amount. For purposes of this Paragraph 1.g., the terms Cause, Change in Control, Good Reason, and Southern Subsidiary shall have the meaning set forth in that certain Change in Control Agreement, dated June 17, 1999, as amended from time to time, between Southern, the Company and Ms. Fuller (the "Change in Control Agreement"), the defined terms of which are incorporated in this Paragraph 1.g. by reference thereto. h. Assignability. Neither Ms. Fuller, her estate, her beneficiaries, nor her legal representative shall have any rights to commute, sell, assign, transfer or otherwise convey the right to receive the payment under this Paragraph 1, which payment and the rights thereto are expressly declared to be nonassignable and nontransferable. Any attempt to assign or transfer the right to such payment shall be void and have no effect. 2. Publicity; No Disparaging Statement. Except as otherwise provided in Paragraph 5 hereof, Ms. Fuller, Southern 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. 3. Non-Disclosure. a. Definitions. For purposes of this Paragraph 3, the following terms shall have the following meanings: (1) "Entity" shall mean any business, individual, partnership, joint venture, agency, governmental subdivision, association, firm, corporation or other entity. (2) "Affiliate" shall mean the following Entities: (a) any Entity which owns an Interest (as defined below) in the Company either directly or indirectly through any other Entity, (b) any Entity an Interest in which is owned directly or indirectly by any Entity which owns directly or indirectly an Interest in the Company or (c) any Entity in which the Company owns an Interest either directly or indirectly through any other Entity. For purposes of this Agreement, the term "Interest" shall include any equity interest in an Entity in an amount equal to or greater than 30% of the Entity's total outstanding equity interests. (3) "Confidential Information" shall mean proprietary and confidential data or information other than Trade Secrets (as defined below), which is valuable to, and related to the business of, the Company, its Affiliates or non-affiliated Entities with whom the Company or its Affiliates has or have business relationships (collectively, "Third Parties"), and the details of which are generally unknown to the public or to the Company's competitors, including, without limitation, information regarding the Company's employees, business strategies, models and systems, customers, suppliers, partners and affiliates, gained by Ms. Fuller as a result of her affiliation with the Company or its Affiliates, and other items that the Company or its Affiliates may from time to time mark or otherwise identify as confidential. (4) "Trade Secrets" shall mean information of or related to the Company, its Affiliates or Third Parties which (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; it being agreed that such information includes, without limitation, technical and non-technical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans or a list of actual or potential customers or suppliers. (5) "Intellectual Property" shall mean all work product, property, data, documentation, "know-how", concepts or plans, inventions, discovery, compositions, innovations, computer programs, improvements, techniques, processes, designs, article of manufacture or information of any kind, or any new or useful improvements of any of the foregoing and any Trade Secrets, patents, copyrights, Confidential Information, mask work, trademark or service mark, relating in any way to the Company or its Affiliates and its or their business prepared, conceived, revised, discovered, developed, or created by Ms. Fuller for the Company or its Affiliates or by using the Company's or its Affiliates' time, personnel, facilities, equipment, knowledge, information, resources, or material. b. Nondisclosure; Ownership of Proprietary Property. (1) Nondisclosure. In recognition of the Company's need to protect its legitimate business interests, Ms. Fuller hereby acknowledges that she has been given access to valuable Trade Secrets and Confidential Information; and she hereby covenants and agrees that she will use the Trade Secrets and Confidential Information for the Company's business purposes only, and that she will not for any reason, in any fashion, form or manner, other than as instructed by a duly authorized representative of the Company, copy, disclose, disseminate, communicate, transfer or otherwise convey to any Entity any item: (a) which is a Trade Secret, for so long as such item remains a trade secret under applicable law; or (b) which is Confidential Information, other than Trade Secrets, for a period of three (3) years from her termination. (2) Notification of Unauthorized Disclosure. Ms. Fuller shall exercise her best efforts to ensure the continued confidentiality of all Trade Secrets and Confidential Information known by, disclosed or made available to her. She shall immediately notify the Company of any unauthorized disclosure or use of any Trade Secrets or Confidential Information of which she becomes aware. Ms. Fuller shall assist the Company, to the extent necessary, in the procurement or protection of the Company's or its Affiliates' rights to or in any Intellectual Property, Trade Secrets or Confidential Information and, upon the Company's request, shall assist, to the extent necessary, in the procurement or protection of any Third Party's rights to or in any Intellectual Property, Trade Secrets or Confidential Information. (3) Ownership. To the greatest extent possible, any and all Intellectual Property shall be deemed to be "work made for hire" (as defined in the Copyright Act, 17 U.S.C.A. ss.ss. 101 et seq.), and Ms. Fuller hereby unconditionally and irrevocably transfers and assigns to the Company or its Affiliates all rights, title and interest she currently has or in the future may have by operation of law or otherwise in or to any Intellectual Property, including, without limitation, all patents, copyrights, trademarks, service marks and other Intellectual Property rights and agrees that the Company or its Affiliates shall have the exclusive world-wide ownership of such Intellectual Property, and that no Intellectual Property shall be treated as or deemed to be a "joint work" (as defined by the Copyright Act) of Ms. Fuller and the Company, its Affiliates or otherwise. Ms. Fuller agrees to execute and deliver to the Company or its Affiliates any transfers, assignments, documents or other instruments which the Company or its Affiliates may deem necessary or appropriate to vest complete title and ownership of any Intellectual Property, and all rights therein, exclusively in the Company or its Affiliates, as the case may be. (4) Return of Materials. Upon Ms. Fuller's termination, or at any point after that time upon the specific request of the Company, she 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 Intellectual Property, Confidential Information and Trade Secrets, in her possession. 4. Transfer of Employment to Southern or a Southern Subsidiary or Affiliate. In the event that Ms. Fuller's employment by the Company is terminated and she shall become immediately re-employed by Southern or a subsidiary or an affiliate of Southern, the Company shall assign this Agreement to Southern or such subsidiary or affiliate, Southern shall accept such assignment or cause such affiliate or subsidiary to accept such assignment, such assignee shall become the "Company" for all purposes hereunder, and the profitability goals set forth on Exhibit A hereof shall be amended to appropriately reflect the performance of such assignee. In the event of such assignment, the expense of this Agreement shall be shared pro rata by the Company and any such assignee based upon the number of months after the effective date of this Agreement that Ms. Fuller is employed by the Company, and/or Southern and/or such affiliate or subsidiary of Southern, as the case may be. 5. Confidentiality and Legal Process. Ms. Fuller represents and agrees that she will keep the terms, amount and fact of this Agreement confidential and that she will not hereafter disclose any information concerning this Agreement to any one other than her 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 Ms. Fuller from performing any duty or obligation that shall arise as a matter of law. Specifically, Ms. Fuller shall continue to be under a duty to truthfully respond to matter of law. Specifically, Ms. Fuller 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 Ms. Fuller's right and ability to provide information to any federal, state or local government in the lawful exercise of such governments' governmental functions. 6. Successors And Assigns; Applicable Law. Except as otherwise provided in Paragraph 1.h., this Agreement shall be binding upon and inure to the benefit of Ms. Fuller and her heirs, administrators, representatives, executors, successors and assigns, and shall be binding upon and inure to the benefit of Southern, the Company and their 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 Georgia, United States of America (without giving effect to principles of conflicts of laws). 7. 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 between the parties concerning the subject matter hereof. This Agreement shall not be modified or amended except by a written instrument signed by both Ms. Fuller and an authorized representative of Southern and the Company. 8. 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. 9. 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 her 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 her 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 her 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. 10. 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 Ms. Fuller may be entitled to receive the value of her 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. 11. No Effect On Other Arrangements. It is expressly understood and agreed that the payments made in accordance with this Agreement are in addition to any other benefits or compensation to which Ms. Fuller may be entitled or for which she may be eligible, whether funded or unfunded, by reason of her employment with the Company. 12. Tax Withholding. There shall be deducted from each 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 Ms. Fuller. 13. Compensation. Any compensation contributed on behalf of Ms. Fuller 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. Payments under this Agreement shall not be considered wages, salaries or compensation under any other employee benefit plan. 14. 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 Ms. Fuller and the Company. IN WITNESS WHEREOF, this Agreement has been executed by the parties first listed above, effective this ____ day of ___________, 1999. THE SOUTHERN COMPANY By: ______________________________ SOUTHERN ENERGY RESOURCES, INC. By: Ms. Fuller ------------------------------ Exhibit A Deferred Compensation Agreement Schedule of Profitability Goals For Performance Period The Company shall achieve a Corporate Performance Factor under the Southern Energy Resources, Inc. Short Term Incentive Plan of at least 1.0 for each of the calendar years 2000, 2001 and 2002 and an average of 1.5 for such three-year period. Achievement of the goals shall be assessed annually by the Chief Executive Officer of Southern and documented in Exhibit B of this Agreement. Exhibit B Deferred Compensation Agreement Annual Documentation of Profitability Goals For Performance Period EX-10.17 17 10(A)93 Exhibit 10(a)93 CHANGE IN CONTROL AGREEMENT THIS CHANGE IN CONTROL AGREEMENT ("Agreement") made and entered into by and between The Southern Company ("Southern"), Southern Company Services, Inc. (the "Company"), and Mr. Henry Allen Franklin ("Mr. Franklin"). W I T N E S S E T H: WHEREAS, Mr. Franklin entered into an agreement with Southern and Georgia Power Company dated February 17, 1999, providing certain severance benefits under certain circumstances following a change in control (as defined herein) of Southern or Georgia Power Company (the "February 17, 1999 Agreement") WHEREAS, Mr. Franklin became an employee and Officer of the Company effective July 8, 1999 and ceased to be an employee of Georgia Power Company; WHEREAS, the Company wishes to provide to Mr. Franklin certain severance benefits under certain circumstances following a change in control (as defined herein) of Southern or the Company; and WHEREAS, the parties agree that this Agreement supersedes the February 17, 1999 Agreement in its entirety; 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 hereby agree as follows: 1. Definitions. For purposes of this Agreement, the following terms shall have the following meanings: (a) "Annual Compensation" shall mean Mr. Franklin's highest annual base salary rate for the twelve (12) month period immediately preceding the date of the Change in Control plus market level target annual bonus as set forth on Exhibit A hereof. (b) "Beneficial Ownership" shall mean beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act. (c) "Board" shall mean the board of directors of the Company. (d) "Business Combination" shall mean a reorganization, merger or consolidation of Southern or sale or other disposition of all or substantially all of the assets of Southern. (e) "Change in Control" shall mean any of the following: (i) The Consummation of an acquisition by any Person of Beneficial Ownership of 20% or more of Southern's Voting Securities; provided, however, that for purposes of this Paragraph 1.(e)(i), the following acquisitions of Southern's Voting Securities shall not constitute a Change in Control: (A) any acquisition directly from Southern; (B) any acquisition by Southern; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Southern or any Southern Subsidiary; (D) any acquisition by a qualified pension plan or publicly held mutual fund; (E) any acquisition by a Group composed exclusively of employees of Southern, or any Southern Subsidiary; (F) any acquisition by Mr. Franklin or any Group of which Mr. Franklin is a party; or (G) any Business Combination which would not otherwise constitute a change in control because of the application of clauses (A), (B) and (C) of Paragraph 1.(e)(iii); (ii) A change in the composition of the Southern Board whereby individuals who constitute the Incumbent Board cease for any reason to constitute at least a majority of the Southern Board; (iii) Consummation of a Business Combination, provided, however, that such a Business Combination shall not constitute a Change in Control if all three (3) of the following conditions are met: (A) all or substantially all of the individuals and entities who held Beneficial Ownership, respectively, of Southern's Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, 65% or more of the combined voting power of the Voting Securities of the corporation surviving or resulting from such Business Combination, (including, without limitation, a corporation which as a result of such transaction holds Beneficial Ownership of all or substantially all of Southern's Voting Securities or all or substantially all of Southern's assets) (such surviving or resulting corporation to be referred to as "Surviving Company"), in substantially the same proportions as their ownership, immediately prior to such Business Combination, of Southern's Voting Securities; (B) no Person (excluding any corporation resulting from such Business Combination, any employee benefit plan (or related trust) of Southern, any Southern Subsidiary or Surviving Company, Mr. Franklin, any Group of which Mr. Franklin is a party, any Group composed exclusively of Company employees, any qualified pension plan (or related trust) or any publicly held mutual fund) holds Beneficial Ownership, directly or indirectly, of 20% or more of the combined voting power of the then outstanding Voting Securities of Surviving Company except to the extent that such ownership existed prior to the Business Combination; and (C) at least a majority of the members of the board of directors of Surviving Company were members of the Incumbent Board at the earlier of the date of execution of the initial agreement, or of the action of the Southern Board, providing for such Business Combination. (iv) The Consummation of an acquisition by any Person of Beneficial Ownership of 50% or more of the combined voting power of the then outstanding Voting Securities of the Company; provided, however, that for purposes of this Paragraph 1.(e)(iv), any acquisition by Mr. Franklin, any Group composed exclusively of employees of the Company, any Group of which Mr. Franklin is a party, any qualified pension plan (or related trust), any publicly held mutual fund, any employee benefit plan (or related trust) sponsored or maintained by Southern or any Southern Subsidiary shall not constitute a Change in Control; (v) Consummation of a reorganization, merger or consolidation of the Company (an "Employing Company Business Combination"), in each case, unless, following such Employing Company Business Combination, Southern Controls the corporation or other entity surviving or resulting from such Employing Company Business Combination; or (vi) Consummation of the sale or other disposition of all or substantially all of the assets of the Company to a corporation or other entity which Southern does not Control. (f) "COBRA Coverage" shall mean any continuation coverage to which Mr. Franklin or his dependents may be entitled pursuant to Code Section 4980B. (g) "Code" shall mean the Internal Revenue Code of 1986, as amended. (h) "Company" shall mean Southern Company Services, Inc., its successors and assigns. (i) "Consummation" shall mean the completion of the final act necessary to complete a transaction as a matter of law, including, but not limited to, any required approvals by the corporation's shareholders and board of directors, the transfer of legal and beneficial title to securities or assets and the final approval of the transaction by any applicable domestic or foreign governments or governmental agencies. (j) "Control" shall mean, in the case of a corporation, Beneficial Ownership of more than 50% of the combined voting power of the corporation's Voting Securities, or in the case of any other entity, Beneficial Ownership of more than 50% of such entity's voting equity interests. (k) "Effective Date" shall mean the date of execution of this Agreement. (l) "Employee Outplacement Program" shall mean the program established by the Company from time to time for the purpose of assisting participants covered by the plan in finding employment outside of the Company which provides for the following services: (i) self-assessment, career decision and goal setting; (ii) job market research and job sources; (iii) networking and interviewing skills; (iv) planning and implementation strategy; (v) resume writing, job hunting methods and salary negotiation; and (vi) office support and job search resources. (m) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (n) "Good Reason" shall mean, without Mr. Franklin's express written consent, after written notice to the Board, and after a thirty (30) day opportunity for the Board to cure, the continuing occurrence of any of the following events: (i) Inconsistent Duties. A meaningful and detrimental alteration in Mr. Franklin's position or in the nature or status of his responsibilities from those in effect immediately prior to the Change in Control; (ii) Reduced Salary. A reduction of five percent (5%) or more by the Company in either of the following: (i) Mr. Franklin's annual base salary rate as in effect immediately prior to the Change in Control (except for a less than ten percent (10%), across-the-board annual base salary rate reduction similarly affecting at least ninety-five percent (95%) of the Executive Employees of the Company); or (ii) the sum of Mr. Franklin's annual base salary rate plus target bonus under the PPP Plan (except for a less than ten percent (10%), across-the-board reduction of annual base salary rate plus target bonus under the PPP Plan similarly affecting at least ninety-five percent (95%) of the Executive Employees of the Company); (iii) Pension and Compensation Plans. The failure by the Company to continue in effect any pension or compensation plan or agreement in which Mr. Franklin participates or is a party as of the date of the Change in Control or the elimination of Mr. Franklin's participation therein, (except for across-the-board plan changes or terminations similarly affecting at least ninety-five percent (95%) of the Executive Employees of the Company); For purposes of this Paragraph 1.(n), a "pension plan or agreement" shall mean any written arrangement executed by an authorized officer of the Company which provides for payments upon retirement; and a "compensation plan or arrangement" shall mean any written arrangement executed by an authorized officer of the Company which provides for periodic, non-discretionary compensatory payments in the nature of bonuses. (iv) Relocation. A change in Mr. Franklin's work location to a location more than fifty (50) miles from the office where Mr. Franklin is located at the time of the Change in Control, unless such new work location is within fifty (50) miles from Mr. Franklin's principal place of residence at the time of the Change in Control. The acceptance, if any, by Mr. Franklin of employment by the Company at a work location which is outside the fifty mile radius set forth in this Paragraph 1.(n)(iv) shall not be a waiver of Mr. Franklin's right to refuse subsequent transfer by the Company to a location which is more than fifty (50) miles from Mr. Franklin's principal place of residence at the time of the Change in Control, and such subsequent unconsented transfer shall be "Good Reason" under this Agreement; or (v) Benefits and Perquisites. The taking of any action by the Company which would directly or indirectly materially reduce the benefits enjoyed by Mr. Franklin under the Company's retirement, life insurance, medical, health and accident, disability, deferred compensation or savings plans in which Mr. Franklin was participating immediately prior to the Change in Control; or the failure by the Company to provide Mr. Franklin with the number of paid vacation days to which Mr. Franklin is entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect immediately prior to the Change in Control (except for across-the-board plan or vacation policy changes or plan terminations similarly affecting at least ninety-five percent (95%) of the Executive Employees of the Company). (vi) For purposes of this Paragraph 1.(n), the term "Executive Employee" shall mean employees of the Company of Grade Level 10 or above. (o) "Group" shall have the meaning set forth in Section 14(d) of the Exchange Act. (p) "Group Health Plan" shall mean the group health plan covering Mr. Franklin, as such plan may be amended from time to time. (q) "Group Life Insurance Plan" shall mean the group life insurance program covering Mr. Franklin, as such plan may be amended from time to time. (r) "Incumbent Board" shall mean those individuals who constitute the Southern Board as of the Effective Date plus any individual who shall become a director subsequent to such date whose election or nomination for election by Southern's shareholders was approved by a vote of at least 75% of the directors then comprising the Incumbent Board. Notwithstanding the foregoing, no individual who shall become a director of the Southern Board subsequent to the Effective Date whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Regulations promulgated under the Exchange Act) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Southern Board shall be a member of the Incumbent Board. (s) "Month of Service" shall mean any calendar month during which Mr. Franklin has worked at least one (1) hour or was on approved leave of absence while in the employ of the Company or any affiliate or subsidiary of Southern. (t) "Pension Plan" shall mean The Southern Company Pension Plan, as such plan may be amended from time to time. (u) "Performance Dividend Plan" shall mean the Southern Company Performance Dividend Plan or any replacement thereto, as such plans may be amended from time to time. (v) "Performance Stock Plan" shall mean the Southern Company Performance Stock Plan or any replacement thereto, as such plans may be amended from time to time. (w) "Person" shall mean any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of Act. (x) "Performance Pay Plan" or "PPP Plan" shall mean the Southern Company Performance Pay Plan or any replacement thereto, as such plans may be amended from time to time. (y) "Productivity Improvement Plan" or "PIP Plan" shall mean the Southern Company Productivity Improvement Plan or replacement thereto, as such plans may be amended from time to time. (z) "Southern" shall mean The Southern Company, its successors and assigns. (aa) "Southern Board" shall mean the board of directors of Southern. (bb) "Southern Subsidiary" shall mean any corporation or other entity Controlled by Southern. (cc) "Termination for Cause" or "Cause" shall mean the termination of Mr. Franklin's employment by the Company upon the occurrence of any of the following: (i) The willful and continued failure by Mr. Franklin substantially to perform his duties with the Company (other than any such failure resulting from Mr. Franklin's Total Disability or from Mr. Franklin's retirement or any such actual or anticipated failure resulting from termination by Mr. Franklin for Good Reason) after a written demand for substantial performance is delivered to him by the Southern Board, which demand specifically identifies the manner in which the Southern Board believes that he has not substantially performed his duties; or (ii) The willful engaging by Mr. Franklin in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise, including, but not limited to any of the following: (A) any willful act involving fraud or dishonesty in the course of Mr. Franklin's employment by the Company; (B) the willful carrying out of any activity or the making of any statement which would materially prejudice or impair the good name and standing of the Company, Southern or any Southern Subsidiary or would bring the Company, Southern or any Southern Subsidiary into contempt, ridicule or would reasonably shock or offend any community in which the Company, Southern or such Southern Subsidiary is located; (C) attendance at work in a state of intoxication or otherwise being found in possession at his workplace of any prohibited drug or substance, possession of which would amount to a criminal offense; (D) violation of the Company's policies on drug and alcohol usage, fitness for duty requirements or similar policies as may exist from time to time as adopted by the Company's safety officer; (E) assault or other act of violence against any person during the course of employment; or (F) indictment of any felony or any misdemeanor involving moral turpitude. No act or failure to act by Mr. Franklin shall be deemed "willful" unless done, or omitted to be done, by Mr. Franklin not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, Mr. Franklin shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than three quarters of the entire membership of the Southern Board at a meeting of the Southern Board called and held for such purpose (after reasonable notice to Mr. Franklin and an opportunity for him, together with counsel, to be heard before the Southern Board), finding that, in the good faith opinion of the Southern Board, Mr. Franklin was guilty of conduct set forth above in clause (i) or (ii) of this Paragraph 1.(cc) and specifying the particulars thereof in detail. (dd) "Termination Date" shall mean the date on which Mr. Franklin's employment with the Company is terminated; provided, however, that solely for purposes of Paragraph 2.(c) hereof, the Termination Date shall be the effective date of his retirement pursuant to the terms of the Pension Plan. (ee) "Total Disability" shall mean Mr. Franklin's total disability within the meaning of the Pension Plan. (ff) "Voting Securities" shall mean the outstanding voting securities of a corporation entitling the holder thereof to vote generally in the election of such corporation's directors. (gg) "Waiver and Release" shall mean the Waiver and Release attached hereto as Exhibit B. (hh) "Year of Service" shall mean Mr. Franklin's Months of Service divided by twelve (12) rounded to the nearest whole year, rounding up if the remaining number of months is seven (7) or greater and rounding down if the remaining number of months is less than seven (7). If Mr. Franklin has a break in his service with the Company, he will receive credit under this Agreement for service prior to the break in service only if the break in service is less than five years. 2. Severance Benefits. (a) Eligibility. Except as otherwise provided in this Paragraph 2.(a), if Mr. Franklin's employment is involuntarily terminated by the Company at any time during the two year period following a Change in Control for reasons other than Cause, or if Mr. Franklin voluntarily terminates his employment with the Company for Good Reason at any time during the two year period following a Change in Control, Mr. Franklin shall be entitled to receive the benefits described in this Agreement upon the Company's receipt of an effective Waiver and Release. Notwithstanding anything to the contrary herein, Mr. Franklin shall not be eligible to receive benefits under this Agreement if Mr. Franklin: (i) voluntarily terminates his employment with the Company for other than Good Reason; (ii) has his employment terminated by the Company for Cause; (iii) accepts the transfer of his employment to Southern, any Southern Subsidiary or any employer that succeeds to all or substantially all of the assets of the Company, Southern or any Southern Subsidiary; (iv) refuses an offer of continued employment with the Company, any Southern Subsidiary, or any employer that succeeds to all or substantially all of the assets of the Company, Southern, or any Southern Subsidiary under circumstances where such refusal would not amount to Good Reason for voluntary termination of employment; or (v) elects to receive the benefits of any other voluntary or involuntary severance or separation program maintained by the Company; provided however, that the receipt of benefits under the terms of any retention plan or agreement shall not be deemed to be the receipt of severance or separation benefits for purposes of this Agreement. (b) Severance Benefits. If Mr. Franklin meets the eligibility requirements of Paragraph 2.(a) hereof, he shall be entitled to a cash severance benefit in an amount equal to three times his Annual Compensation (the "Severance Amount"). If any portion of the Severance Amount constitutes an "excess parachute payment" (as such term is defined under Code Section 280G ("Excess Parachute Payment")), the Company shall pay to Mr. Franklin an additional amount calculated by determining the amount of tax under Code Section 4999 that he otherwise would have paid on any Excess Parachute Payment with respect to the Change in Control and dividing such amount by a decimal determined by adding the tax rate under Code Section 4999 ("Excise Tax"), the hospital insurance tax under Code Section 3101(b) ("HI Tax") and federal and state income tax measured at the highest marginal rates ("Income Tax") and subtracting such result from the number one (1) (the "280G Gross-up"); provided, however, that no 280G Gross-up shall be paid unless the Severance Amount plus all other "parachute payments" to Mr. Franklin under Code Section 280G exceeds three (3) times Mr. Franklin's "base amount" (as such term is defined under Code Section 280G ("Base Amount")) by ten percent (10%) or more; provided further, that if no 280G Gross-up is paid, the Severance Amount shall be capped at three (3) times Mr. Franklin's Base Amount, less all other "parachute payments" (as such term is defined under Code Section 280G) received by Mr. Franklin, less one dollar (the "Capped Amount"), if the Capped Amount, reduced by HI Tax and Income Tax, exceeds what otherwise would have been the Severance Amount, reduced by HI Tax, Income Tax and Excise Tax. For purposes of this Paragraph 2.(b), whether any amount would constitute an Excess Parachute Payment and any other calculations of tax, e.g., Excise Tax, HI Tax, Income Tax, etc., or other amounts, e.g., Base Amount, Capped Amount, etc., shall be determined by the tax department of the independent public accounting firm then responsible for preparing Southern's consolidated federal income tax return, and such calculations or determinations shall be binding upon the parties hereto. (c) Welfare Benefits. If Mr. Franklin meets the eligibility requirements of Paragraph 2.(a) hereof and is not otherwise eligible to receive retiree medical and life insurance benefits provided to certain retirees pursuant to the terms of the Pension Plan, the Group Health Plan and the Group Life Insurance Plan, he shall be entitled to the benefits set forth in this Paragraph 2.(c). (i) Mr. Franklin shall be eligible to participate in the Company's Group Health Plan, upon payment of both the Company's and his monthly premium under such plan, for a period of six (6) months for each of Mr. Franklin's Years of Service, not to exceed five (5) years. If Mr. Franklin elects to receive this extended medical coverage, he shall also be entitled to elect coverage under the Group Health Plan for his dependents who were participating in the Group Health Plan on Mr. Franklin's Termination Date (and for such other dependents as may be entitled to coverage under the provisions of the Health Insurance Portability and Accountability Act of 1996) for the duration of Mr. Franklin's extended medical coverage under this Paragraph 2.(c)(i) to the extent such dependents remain eligible for dependent coverage under the terms of the Group Health Plan. (A) The extended medical coverage afforded to Mr. Franklin pursuant to Paragraph 2.(c)(i), as well as the premiums to be paid by Mr. Franklin in connection with such coverage shall be determined in accordance with the terms of the Group Health Plan and shall be subject to any changes in the terms and conditions of the Group Health Plan as well as any future increases in premiums under the Group Health Plan. The premiums to be paid by Mr. Franklin in connection with this extended coverage shall be due on the first day of each month; provided, however, that if he fails to pay his premium within thirty (30) days of its due date, such extended coverage shall be terminated. (B) Any Group Health Plan coverage provided under Paragraph 2.(c)(i) shall be a part of and not in addition to any COBRA Coverage which Mr. Franklin or his dependents may elect. In the event that Mr. Franklin or his dependents become eligible to be covered, by virtue of re-employment or otherwise, by any employer-sponsored group health plan or is eligible for coverage under any government-sponsored health plan during the above period, coverage under the Company's Group Health Plan available to Mr. Franklin or his dependents by virtue of the provisions of Paragraph 2.(c)(i) shall terminate, except as may otherwise be required by law, and shall not be renewed. (ii) Mr. Franklin shall be entitled to receive cash in an amount equal to the Company's and Mr. Franklin's cost of premiums for three (3) years of coverage under the Group Health Plan and Group Life Insurance Plan in accordance with the terms of such plans as of the date of the Change in Control. (d) Incentive Plans. If Mr. Franklin meets the eligibility requirements of Paragraph 2.(a) hereof he shall be entitled to the following benefits under the Company's incentive plans: (i) Stock Option Plan. (A) Any of Mr. Franklin's Options and Stock Appreciation Rights under the Performance Stock Plan (the defined terms of which are incorporated in this Paragraph 2.(d)(i) by reference) which are outstanding as of the Termination Date and which are not then exercisable and vested, shall become fully exercisable and vested to the full extent of the original grant; provided, that in the case of a Stock Appreciation Right, if Mr. Franklin is subject to Section 16(b) of the Exchange Act, such Stock Appreciation Right shall not become fully vested and exercisable at such time if such actions would result in liability to Mr. Franklin under Section 16(b) of the Exchange Act, provided further, that any such actions not taken as a result of the rules under Section 16(b) of the Exchange Act shall be effected as of the first date that such activity would no longer result in liability under Section 16(b) of the Exchange Act. (B) The restrictions and deferral limitations applicable to any of Mr. Franklin's Restricted Stock as of the Termination Date shall lapse, and such Restricted Stock shall become free of all restrictions and limitations and become fully vested and transferable to the full extent of the original grant. (C) The restrictions and deferral limitations and other conditions applicable to any other Awards held by Mr. Franklin under the Performance Stock Plan as of the Termination Date shall lapse, and such other Awards shall become free of all restrictions, limitations or conditions and become fully vested and transferable to the full extent of the original grant. (ii) Performance Pay Plan. Provided Mr. Franklin is not entitled to benefits under Article V of the PPP Plan, (the defined terms of which are incorporated in this Paragraph 2.(d)(ii) by reference), if the PPP Plan is in place through Mr. Franklin's Termination Date and to the extent Mr. Franklin is entitled to participate therein, Mr. Franklin shall be entitled to receive cash in an amount equal to a prorated payout of his Incentive Pay Awards under the PPP Plan for the Performance Period in which the Termination Date shall have occurred, at target performance under the PPP Plan and prorated by the number of months which have passed since the beginning of the Performance Period until the Termination Date. (iii) PIP Plan. Provided Mr. Franklin is not entitled to benefits under Article IV of the PIP Plan (the defined terms of which are incorporated in this Paragraph 2.(d)(iii) by reference), if the PIP Plan is in place through Mr. Franklin's Termination Date and to the extent Mr. Franklin is entitled to participate therein, Mr. Franklin shall be entitled to receive cash in an amount equal to his Award Opportunity for the Computation Periods in which the Termination Date shall have occurred at a target Value of Performance Unit of $1.00, prorated for each Computation Period by the number of months which have passed since the beginning of each of the Computation Periods until the Termination Date. (iv) Performance Dividend Plan. Provided Mr. Franklin is not entitled to benefits under the Performance Dividend Plan (the defined terms of which are incorporated in this Paragraph 2.(d)(iv) by reference), if the Performance Dividend Plan is in place through Mr. Franklin's Termination Date and to the extent Mr. Franklin is entitled to participate therein, Mr. Franklin shall be entitled to receive cash for each Award held by Mr. Franklin on his Termination Date, based on actual performance under Section 4.1 of the Performance Dividend Plan determined as of the most recently completed calendar quarter of the Performance Period in which the Termination Date shall have occurred, and the Annual Dividend declared prior to the Termination Date. (v) Other Short Term Incentive Plans. The provisions of this Paragraph 2.(d)(v) shall apply if and to the extent that Mr. Franklin is a participant in any other "short term compensation plan" not otherwise previously referred to in this Paragraph 2.(d). Provided Mr. Franklin is not otherwise entitled to a plan payout under any change of control provisions of such plans, if the "short term compensation plan" is in place as of the Termination Date and to the extent Mr. Franklin is entitled to participate therein, Mr. Franklin shall receive cash in an amount equal to his award under the Company's "short term incentive plan" for the annual performance period in which the Termination Date shall have occurred, at Mr. Franklin's target performance level and prorated by the number of months which have passed since the beginning of the annual performance period until his Termination Date. For purposes of this Paragraph 2.(d)(v) the term "short term incentive compensation plan" shall mean any incentive compensation plan or arrangement adopted in writing by the Company which provides for annual, recurring compensatory bonuses based upon articulated performance criteria. (e) Payment of Benefits. Any amounts due under this Agreement shall be paid in one (1) lump sum payment as soon as administratively practicable following the later of: (i) Mr. Franklin's Termination Date, or (ii) upon Mr. Franklin's tender of an effective Waiver and Release to the Company in the form of Exhibit B attached hereto and the expiration of any applicable revocation period for such waiver. In the event of a dispute with respect to liability or amount of any benefit due hereunder, an effective Waiver and Release shall be tendered at the time of final resolution of any such dispute when payment is tendered by the Company. (f) Benefits in the Event of Death. In the event of Mr. Franklin's death prior to the payment of all amounts due under this Agreement, Mr. Franklin's estate shall be entitled to receive as due any amounts not yet paid under this Agreement upon the tender by the executor or administrator of the estate of an effective Waiver and Release. (g) Legal Fees. In the event of a dispute between Mr. Franklin and the Company with regard to any amounts due hereunder, if any material issue in such dispute is finally resolved in Mr. Franklin's favor, the Company shall reimburse Mr. Franklin's legal fees incurred with respect to all issues in such dispute in an amount not to exceed fifty thousand dollars ($50,000). (h) Employee Outplacement Services. Mr. Franklin shall be eligible to participate in the Employee Outplacement Program, which program shall not be less than six (6) months duration measured from Mr. Franklin's Termination Date. (i) Non-qualified Retirement and Deferred Compensation Plans. The Parties agree that subsequent to a Change in Control, any claims by Mr. Franklin for benefits under any of the Company's non-qualified retirement or deferred compensation plans shall be resolved through binding arbitration in accordance with the provisions and procedures set forth in Paragraph 5 hereof and if any material issue in such dispute is finally resolved in Mr. Franklin's favor, the Company shall reimburse Mr. Franklin's legal fees in the manner provided in Paragraph 2.(g) hereof. 3. Transfer of Employment. In the event that Mr. Franklin's employment by the Company is terminated during the two year period following a Change in Control and Mr. Franklin accepts employment by Southern, a Southern Subsidiary, or any employer that succeeds to all or substantially all of the assets of the Company, Southern or any Southern Subsidiary, the Company shall assign this Agreement to Southern, such Southern Subsidiary, or successor employer, Southern shall accept such assignment or cause such Southern Subsidiary or successor employer to accept such assignment, and such assignee shall become the "Company" for all purposes hereunder. 4. No Mitigation. If Mr. Franklin is otherwise eligible to receive benefits under Paragraph 2 of this Agreement, he shall have no duty or obligation to seek other employment following his Termination Date and, except as otherwise provided in Paragraph 2.(a)(iii) hereof, the amounts due Mr. Franklin hereunder shall not be reduced or suspended if Mr. Franklin accepts such subsequent employment. 5. Arbitration. (a) Any dispute, controversy or claim arising out of or relating to the Company's obligations to pay severance benefits under this Agreement, or the breach thereof, shall be settled and resolved solely by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA") except as otherwise provided herein. The arbitration shall be the sole and exclusive forum for resolution of any such claim for severance benefits and the arbitrators' award shall be final and binding. The provisions of this Paragraph 5 are not intended to apply to any other disputes, claims or controversies arising out of or relating to Mr. Franklin's employment by the Company or the termination thereof. (b) Arbitration shall be initiated by serving a written notice of demand for arbitration to Mr. Franklin, in the case of the Company, or to the Southern Board, in the case of Mr. Franklin. (c) The arbitration shall be held in Atlanta, Georgia. The arbitrators shall apply the law of the State of Georgia, to the extent not preempted by federal law, excluding any law which would require the application of the law of another state. (d) The parties shall appoint arbitrators within fifteen (15) business days following service of the demand for arbitration. The number of arbitrators shall be three. One arbitrator shall be appointed by Mr. Franklin, one arbitrator shall be appointed by the Company, and the two arbitrators shall appoint a third. If the arbitrators cannot agree on a third arbitrator within thirty (30) business days after the service of demand for arbitration, the third arbitrator shall be selected by the AAA. (e) The arbitration filing fee shall be paid by Mr. Franklin. All other costs of arbitration shall be borne equally by Mr. Franklin and the Company, provided, however, that the Company shall reimburse such fees and costs in the event any material issue in such dispute is finally resolved in Mr. Franklin's favor and Mr. Franklin is reimbursed legal fees under Paragraph 2.(g) hereof. (f) The parties agree that they will faithfully observe the rules that govern any arbitration between them, they will abide by and perform any award rendered by the arbitrators in any such arbitration, including any award of injunctive relief, and a judgment of a court having jurisdiction may be entered upon an award. (g) The parties agree that nothing in this Paragraph 5 is intended to preclude upon application of either party any court having jurisdiction from issuing and enforcing in any lawful manner such temporary restraining orders, preliminary injunctions, and other interim measures of relief as may be necessary to prevent harm to a party's interests or as otherwise may be appropriate pending the conclusion of arbitration proceedings pursuant to this Agreement; regardless of whether an arbitration proceeding under this Paragraph 5 has begun. The parties further agree that nothing herein shall prevent any court from entering and enforcing in any lawful manner such judgments for permanent equitable relief as may be necessary to prevent harm to a party's interests or as otherwise may be appropriate following the issuance of arbitral awards pursuant to this Paragraph 5. 6. Miscellaneous. (a) Funding of Benefits. Unless the Board in its discretion shall determine otherwise, the benefits payable to Mr. Franklin under this Agreement shall not be funded in any manner and shall be paid by the Company out of its general assets, which assets are subject to the claims of the Company's creditors. (b) Withholding. There shall be deducted from the payment of any benefit due 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 Mr. Franklin. (c) Assignment. Mr. Franklin shall have no rights to sell, assign, transfer, encumber, or otherwise convey the right to receive the payment of any benefit due hereunder, which payment and the rights thereto are expressly declared to be nonassignable and nontransferable. Any attempt to do so shall be null and void and of no effect. (d) Amendment and Termination. The Agreement may be amended or terminated only by a writing executed by the parties. (e) Construction. This Agreement shall be construed in accordance with and governed by the laws of the State of Georgia, to the extent not preempted by federal law, disregarding any provision of law which would require the application of the law of another state. (f) Pooling Accounting. Notwithstanding anything to the contrary herein, if, but for any provision of this Agreement, a Change in Control transaction would otherwise be accounted for as a pooling-of-interests under APB No.16 ("Pooling Accounting") (after giving effect to any and all other facts and circumstances affecting whether such Change in Control transaction would use Pooling Accounting), such provision or provisions of this Agreement which would otherwise cause the Change in Control transaction to be ineligible for Pooling Accounting shall be void and ineffective in such a manner and to the extent that by eliminating such provision or provisions of this Agreement, Pooling Accounting would be required for such Change in Control transaction. IN WITNESS WHEREOF, the parties hereto have executed this Agreement this ____ day of __________________, _____. THE SOUTHERN COMPANY By: ____________________________________ SOUTHERN COMPANY SERVICES, INC. By: ____________________________________ MR. FRANKLIN ----------------------------- Henry Allen Franklin Exhibit A CHANGE IN CONTROL AGREEMENT Target Annual Bonus for Mr. Henry Allen Franklin 65% Exhibit B CHANGE IN CONTROL AGREEMENT Waiver and Release The attached Waiver and Release is to be given to Mr. Henry Allen Franklin upon the occurrence of an event that triggers eligibility for severance benefits under the Change in Control Agreement, as described in Paragraph 2(a) of such agreement. CHANGE IN CONTROL AGREEMENT Waiver and Release I, Henry Allen Franklin, understand that I am entitled to receive the severance benefits described in Section 2 of the Change in Control Agreement (the "Agreement") if I execute this Waiver and Release ("Waiver"). I understand that the benefits I will receive under the Agreement are in excess of those I would have received from The Southern Company and Southern Company Services, Inc. (collectively, the "Company") if I had not elected to sign this Waiver. I recognize that I may have a claim against the Company under the Civil Rights Act of 1964 and 1991, the Age Discrimination in Employment Act, the Rehabilitation Act of 1973, the Energy Reorganization Act of 1974, as amended, the Americans with Disabilities Act or other federal, state and local laws. In exchange for the benefits I elect to receive, I hereby irrevocably waive and release all claims, of any kind whatsoever, whether known or unknown in connection with any claim which I ever had, may have, or now have against The Southern Company, Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, Savannah Electric and Power Company, Southern Communication Services, Inc., Southern Company Services, Inc., Southern Energy Resources, Inc., Southern Company Energy Solutions, Inc., Southern Nuclear Operating Company, Inc. and other direct or indirect subsidiaries of The Southern Company and their past, present and future officers, directors, employees, agents and attorneys. Nothing in this Waiver shall be construed to release claims or causes of action under the Age Discrimination in Employment Act or the Energy Reorganization Act of 1974, as amended, which arise out of events occurring after the execution date of this Waiver. In further exchange for the benefits I elect to receive, I understand and agree that I will respect the proprietary and confidential nature of any information I have obtained in the course of my service with the Company or any subsidiary or affiliate of The Southern Company. However, nothing in this Waiver shall prohibit me from engaging in protected activities under applicable law or from communicating, either voluntary or otherwise, with any governmental agency concerning any potential violation of the law. In signing this Waiver, I am not releasing claims to benefits that I am already entitled to under any workers' compensation laws or under any retirement plan or welfare benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended, which is sponsored by or adopted by the Company and/or any of its direct or indirect subsidiaries; however, I understand and acknowledge that nothing herein is intended to or shall be construed to require the Company to institute or continue in effect any particular plan or benefit sponsored by the Company and the Company hereby reserves the right to amend or terminate any of its benefit programs at any time in accordance with the procedures set forth in such plans. In signing this Waiver, I realize that I am waiving and releasing, among other things, any claims to benefits under any and all bonus, severance, workforce reduction, early retirement, outplacement, or any other similar type plan sponsored by the Company. I have been encouraged and advised in writing to seek advice from anyone of my choosing regarding this Waiver, including my attorney, and my accountant or tax advisor. Prior to signing this Waiver, I have been given the opportunity and sufficient time to seek such advice, and I fully understand the meaning and contents of this Waiver. I understand that I may take up to twenty-one (21) calendar days to consider whether or not I desire to enter this Waiver. I was not coerced, threatened or otherwise forced to sign this Waiver. I have made my choice to sign this Waiver voluntarily and of my own free will. I understand that I may revoke this Waiver at any time during the seven (7) calendar day period after I sign and deliver this Waiver to the Company. If I revoke this Waiver, I must do so in writing delivered to the Company. I understand that this Waiver is not effective until the expiration of this seven (7) calendar day revocation period. I understand that upon the expiration of such seven (7) calendar day revocation period this entire Waiver will be binding upon me and will be irrevocable. I understand that by signing this Waiver I am giving up rights I may have. IN WITNESS WHEREOF, the undersigned hereby executes this Waiver this ____ day of ____________________, in the year _____. Henry Allen Franklin Sworn to and subscribed to me this ____ day of ____________, _____. Notary Public My Commission Expires: (Notary Seal) Acknowledged and Accepted by the Company, as defined in the Waiver. By: Date: EX-10.18 18 10(A)102 Exhibit 10(a)102 CHANGE IN CONTROL AGREEMENT THIS CHANGE IN CONTROL AGREEMENT ("Agreement") made and entered into by and between The Southern Company ("Southern"), Southern Company Services, Inc. (the "Company"), and Mr. Gale E. Klappa ("Mr. Klappa"). W I T N E S S E T H: WHEREAS, Mr. Klappa entered into an agreement with Southern and Southern Energy Resources, Inc. dated December 10, 1998, providing certain severance benefits under certain circumstances following a change in control (as defined herein) of Southern or Southern Energy Resources, Inc. (the "1998 Agreement); WHEREAS, Mr. Klappa became an employee and Officer of the Company effective October 6, 1999, and ceased to be an employee of Southern Energy Resources, Inc.; WHEREAS, the Company wishes to provide to Mr. Klappa certain severance benefits under certain circumstances following a change in control (as defined herein) of Southern or the Company; and WHEREAS, the parties agree that this Agreement supersedes the 1998 Agreement in its entirety; 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 hereby agree as follows: 1. Definitions. For purposes of this Agreement, the following terms shall have the following meanings: (a) "Annual Compensation" shall mean Mr. Klappa's highest annual base salary rate for the twelve (12) month period immediately preceding the date of the Change in Control plus market level target annual bonus as set forth on Exhibit A hereof. (b) "Beneficial Ownership" shall mean beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act. (c) "Board" shall mean the board of directors of the Company. (d) "Business Combination" shall mean a reorganization, merger or consolidation of Southern or sale or other disposition of all or substantially all of the assets of Southern. (e) "Change in Control" shall mean any of the following: (i) The Consummation of an acquisition by any Person of Beneficial Ownership of 20% or more of Southern's Voting Securities; provided, however, that for purposes of this Paragraph 1.(e)(i), the following acquisitions of Southern's Voting Securities shall not constitute a Change in Control: (A) any acquisition directly from Southern; (B) any acquisition by Southern; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Southern or any Southern Subsidiary; (D) any acquisition by a qualified pension plan or publicly held mutual fund; (E) any acquisition by a Group composed exclusively of employees of Southern, or any Southern Subsidiary; (F) any acquisition by Mr. Klappa or any Group of which Mr. Klappa is a party; or (G) any Business Combination which would not otherwise constitute a change in control because of the application of clauses (A), (B) and (C) of Paragraph 1.(e)(iii); (ii) A change in the composition of the Southern Board whereby individuals who constitute the Incumbent Board cease for any reason to constitute at least a majority of the Southern Board; (iii) Consummation of a Business Combination, provided, however, that such a Business Combination shall not constitute a Change in Control if all three (3) of the following conditions are met: (A) all or substantially all of the individuals and entities who held Beneficial Ownership, respectively, of Southern's Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, 65% or more of the combined voting power of the Voting Securities of the corporation surviving or resulting from such Business Combination, (including, without limitation, a corporation which as a result of such transaction holds Beneficial Ownership of all or substantially all of Southern's Voting Securities or all or substantially all of Southern's assets) (such surviving or resulting corporation to be referred to as "Surviving Company"), in substantially the same proportions as their ownership, immediately prior to such Business Combination, of Southern's Voting Securities; (B) no Person (excluding any corporation resulting from such Business Combination, any employee benefit plan (or related trust) of Southern, any Southern Subsidiary or Surviving Company, Mr. Klappa, any Group of which Mr. Klappa is a party, any Group composed exclusively of Company employees, any qualified pension plan (or related trust) or any publicly held mutual fund) holds Beneficial Ownership, directly or indirectly, of 20% or more of the combined voting power of the then outstanding Voting Securities of Surviving Company except to the extent that such ownership existed prior to the Business Combination; and (C) at least a majority of the members of the board of directors of Surviving Company were members of the Incumbent Board at the earlier of the date of execution of the initial agreement, or of the action of the Southern Board, providing for such Business Combination. (iv) The Consummation of an acquisition by any Person of Beneficial Ownership of 50% or more of the combined voting power of the then outstanding Voting Securities of the Company; provided, however, that for purposes of this Paragraph 1.(e)(iv), any acquisition by Mr. Klappa, any Group composed exclusively of employees of the Company, any Group of which Mr. Klappa is a party, any qualified pension plan (or related trust), any publicly held mutual fund, any employee benefit plan (or related trust) sponsored or maintained by Southern or any Southern Subsidiary shall not constitute a Change in Control; (v) Consummation of a reorganization, merger or consolidation of the Company (an "Employing Company Business Combination"), in each case, unless, following such Employing Company Business Combination, Southern Controls the corporation or other entity surviving or resulting from such Employing Company Business Combination; or (vi) Consummation of the sale or other disposition of all or substantially all of the assets of the Company to a corporation or other entity which Southern does not Control. (f) "COBRA Coverage" shall mean any continuation coverage to which Mr. Klappa or his dependents may be entitled pursuant to Code Section 4980B. (g) "Code" shall mean the Internal Revenue Code of 1986, as amended. (h) "Company" shall mean Southern Company Services, Inc., its successors and assigns. (i) "Consummation" shall mean the completion of the final act necessary to complete a transaction as a matter of law, including, but not limited to, any required approvals by the corporation's shareholders and board of directors, the transfer of legal and beneficial title to securities or assets and the final approval of the transaction by any applicable domestic or foreign governments or governmental agencies. (j) "Control" shall mean, in the case of a corporation, Beneficial Ownership of more than 50% of the combined voting power of the corporation's Voting Securities, or in the case of any other entity, Beneficial Ownership of more than 50% of such entity's voting equity interests. (k) "DIC Plan" shall mean the Southern Energy Resources, Inc. Deferred Incentive Compensation Plan or replacement thereto, as such plans may be amended from time to time. (l) "Effective Date" shall mean the date of execution of this Agreement. (m) "Employee Outplacement Program" shall mean the program established by the Company from time to time for the purpose of assisting participants covered by the plan in finding employment outside of the Company which provides for the following services: (i) self-assessment, career decision and goal setting; (ii) job market research and job sources; (iii) networking and interviewing skills; (iv) planning and implementation strategy; (v) resume writing, job hunting methods and salary negotiation; and (vi) office support and job search resources. (n) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (o) "Good Reason" shall mean, without Mr. Klappa's express written consent, after written notice to the Board, and after a thirty (30) day opportunity for the Board to cure, the continuing occurrence of any of the following events: (i) Inconsistent Duties. A meaningful and detrimental alteration in Mr. Klappa's position or in the nature or status of his responsibilities from those in effect immediately prior to the Change in Control; (ii) Reduced Salary. A reduction of five percent (5%) or more by the Company in either of the following: (i) Mr. Klappa's annual base salary rate as in effect immediately prior to the Change in Control (except for a less than ten percent (10%), across-the-board annual base salary rate reduction similarly affecting at least ninety-five percent (95%) of the Executive Employees of the Company); or (ii) the sum of Mr. Klappa's annual base salary rate plus target bonus under the PPP Plan (except for a less than ten percent (10%), across-the-board reduction of annual base salary rate plus target bonus under the PPP Plan similarly affecting at least ninety-five percent (95%) of the Executive Employees of the Company); (iii) Pension and Compensation Plans. The failure by the Company to continue in effect any pension or compensation plan or agreement in which Mr. Klappa participates or is a party as of the date of the Change in Control or the elimination of Mr. Klappa's participation therein, (except for across-the-board plan changes or terminations similarly affecting at least ninety-five percent (95%) of the Executive Employees of the Company). For purposes of this Paragraph 1.(o), a "pension plan or agreement" shall mean any written arrangement executed by an authorized officer of the Company which provides for payments upon retirement; and a "compensation plan or arrangement" shall mean any written arrangement executed by an authorized officer of the Company which provides for periodic, non-discretionary compensatory payments in the nature of bonuses. (iv) Relocation. A change in Mr. Klappa's work location to a location more than fifty (50) miles from the office where Mr. Klappa is located at the time of the Change in Control, unless such new work location is within fifty (50) miles from Mr. Klappa's principal place of residence at the time of the Change in Control. The acceptance, if any, by Mr. Klappa of employment by the Company at a work location which is outside the fifty mile radius set forth in this Paragraph 1.(o)(iv) shall not be a waiver of Mr. Klappa's right to refuse subsequent transfer by the Company to a location which is more than fifty (50) miles from Mr. Klappa's principal place of residence at the time of the Change in Control, and such subsequent unconsented transfer shall be "Good Reason" under this Agreement; or (v) Benefits and Perquisites. The taking of any action by the Company which would directly or indirectly materially reduce the benefits enjoyed by Mr. Klappa under the Company's retirement, life insurance, medical, health and accident, disability, deferred compensation or savings plans in which Mr. Klappa was participating immediately prior to the Change in Control; or the failure by the Company to provide Mr. Klappa with the number of paid vacation days to which Mr. Klappa is entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect immediately prior to the Change in Control (except for across-the-board plan or vacation policy changes or plan terminations similarly affecting at least ninety-five percent (95%) of the Executive Employees of the Company). (vi) For purposes of this Paragraph 1.(o), the term "Executive Employee" shall mean those employees of the Company of Grade Level 10 or above. (p) "Group" shall have the meaning set forth in Section 14(d) of the Exchange Act. (q) "Group Health Plan" shall mean the group health plan covering Mr. Klappa, as such plan may be amended from time to time. (r) "Group Life Insurance Plan" shall mean the group life insurance program covering Mr. Klappa, as such plan may be amended from time to time. (s) "Incumbent Board" shall mean those individuals who constitute the Southern Board as of the Effective Date plus any individual who shall become a director subsequent to such date whose election or nomination for election by Southern's shareholders was approved by a vote of at least 75% of the directors then comprising the Incumbent Board. Notwithstanding the foregoing, no individual who shall become a director of the Southern Board subsequent to the Effective Date whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Regulations promulgated under the Exchange Act) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Southern Board shall be a member of the Incumbent Board. (t) "Month of Service" shall mean any calendar month during which Mr. Klappa has worked at least one (1) hour or was on approved leave of absence while in the employ of the Company or any affiliate or subsidiary of Southern. (u) "Pension Plan" shall mean The Southern Company Pension Plan, as such plan may be amended from time to time. (v) "Performance Dividend Plan" shall mean the Southern Company Performance Dividend Plan or any replacement thereto, as such plans may be amended from time to time. (w) "Performance Stock Plan" shall mean the Southern Company Performance Stock Plan or any replacement thereto, as such plans may be amended from time to time. (x) "Person" shall mean any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of Act. (y) "Performance Pay Plan" or "PPP Plan" shall mean the Southern Company Performance Pay Plan or any replacement thereto, as such plans may be amended from time to time. (z) "Productivity Improvement Plan" or "PIP Plan" shall mean the Southern Company Productivity Improvement Plan or replacement thereto, as such plans may be amended from time to time. (aa) "Southern" shall mean The Southern Company, its successors and assigns. (bb) "Southern Board" shall mean the board of directors of Southern. (cc) "Southern Subsidiary" shall mean any corporation or other entity Controlled by Southern. (dd) "Termination for Cause" or "Cause" shall mean the termination of Mr. Klappa's employment by the Company upon the occurrence of any of the following: (i) The willful and continued failure by Mr. Klappa substantially to perform his duties with the Company (other than any such failure resulting from Mr. Klappa's Total Disability or from Mr. Klappa's retirement or any such actual or anticipated failure resulting from termination by Mr. Klappa for Good Reason) after a written demand for substantial performance is delivered to him by the Southern Board, which demand specifically identifies the manner in which the Southern Board believes that he has not substantially performed his duties; or (ii) The willful engaging by Mr. Klappa in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise, including, but not limited to any of the following: (A) any willful act involving fraud or dishonesty in the course of Mr. Klappa's employment by the Company; (B) the willful carrying out of any activity or the making of any statement which would materially prejudice or impair the good name and standing of the Company, Southern or any Southern Subsidiary or would bring the Company, Southern or any Southern Subsidiary into contempt, ridicule or would reasonably shock or offend any community in which the Company, Southern or such Southern Subsidiary is located; (C) attendance at work in a state of intoxication or otherwise being found in possession at his workplace of any prohibited drug or substance, possession of which would amount to a criminal offense; (D) violation of the Company's policies on drug and alcohol usage, fitness for duty requirements or similar policies as may exist from time to time as adopted by the Company's safety officer; (E) assault or other act of violence against any person during the course of employment; or (F) indictment of any felony or any misdemeanor involving moral turpitude. No act or failure to act by Mr. Klappa shall be deemed "willful" unless done, or omitted to be done, by Mr. Klappa not in good faith and without reasonable belief that his action or omission was in the best interest of the Company. Notwithstanding the foregoing, Mr. Klappa shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than three quarters of the entire membership of the Southern Board at a meeting of the Southern Board called and held for such purpose (after reasonable notice to Mr. Klappa and an opportunity for him, together with counsel, to be heard before the Southern Board), finding that, in the good faith opinion of the Southern Board, Mr. Klappa was guilty of conduct set forth above in clause (i) or (ii) of this Paragraph 1.(dd) and specifying the particulars thereof in detail. (ee) "Termination Date" shall mean the date on which Mr. Klappa's employment with the Company is terminated; provided, however, that solely for purposes of Paragraph 2.(c) hereof, the Termination Date shall be the effective date of his retirement pursuant to the terms of the Pension Plan. (ff) "Total Disability" shall mean Mr. Klappa's total disability within the meaning of the Pension Plan. (gg) "Voting Securities" shall mean the outstanding voting securities of a corporation entitling the holder thereof to vote generally in the election of such corporation's directors. (hh) "Waiver and Release" shall mean the Waiver and Release attached hereto as Exhibit B. (ii) "Year of Service" shall mean Mr. Klappa's Months of Service divided by twelve (12) rounded to the nearest whole year, rounding up if the remaining number of months is seven (7) or greater and rounding down if the remaining number of months is less than seven (7). If Mr. Klappa has a break in his service with the Company, he will receive credit under this Agreement for service prior to the break in service only if the break in service is less than five years. 2. Severance Benefits. (a) Eligibility. Except as otherwise provided in this Paragraph 2.(a), if Mr. Klappa's employment is involuntarily terminated by the Company at any time during the two year period following a Change in Control for reasons other than Cause, or if Mr. Klappa voluntarily terminates his employment with the Company for Good Reason at any time during the two year period following a Change in Control, Mr. Klappa shall be entitled to receive the benefits described in this Agreement upon the Company's receipt of an effective Waiver and Release. Notwithstanding anything to the contrary herein, Mr. Klappa shall not be eligible to receive benefits under this Agreement if Mr. Klappa: (i) voluntarily terminates his employment with the Company for other than Good Reason; (ii) has his employment terminated by the Company for Cause; (iii) accepts the transfer of his employment to Southern, any Southern Subsidiary or any employer that succeeds to all or substantially all of the assets of the Company, Southern or any Southern Subsidiary; (iv) refuses an offer of continued employment with the Company, any Southern Subsidiary, or any employer that succeeds to all or substantially all of the assets of the Company, Southern, or any Southern Subsidiary under circumstances where such refusal would not amount to Good Reason for voluntary termination of employment; or (v) elects to receive the benefits of any other voluntary or involuntary severance or separation program maintained by the Company; provided however, that the receipt of benefits under the terms of any retention plan or agreement shall not be deemed to be the receipt of severance or separation benefits for purposes of this Agreement. (b) Severance Benefits. If Mr. Klappa meets the eligibility requirements of Paragraph 2.(a) hereof, he shall be entitled to a cash severance benefit in an amount equal to three times his Annual Compensation (the "Severance Amount"). If any portion of the Severance Amount constitutes an "excess parachute payment" (as such term is defined under Code Section 280G ("Excess Parachute Payment")), the Company shall pay to Mr. Klappa an additional amount calculated by determining the amount of tax under Code Section 4999 that he otherwise would have paid on any Excess Parachute Payment with respect to the Change in Control and dividing such amount by a decimal determined by adding the tax rate under Code Section 4999 ("Excise Tax"), the hospital insurance tax under Code Section 3101(b) ("HI Tax") and federal and state income tax measured at the highest marginal rates ("Income Tax") and subtracting such result from the number one (1) (the "280G Gross-up"); provided, however, that no 280G Gross-up shall be paid unless the Severance Amount plus all other "parachute payments" to Mr. Klappa under Code Section 280G exceeds three (3) times Mr. Klappa's "base amount" (as such term is defined under Code Section 280G ("Base Amount")) by ten percent (10%) or more; provided further, that if no 280G Gross-up is paid, the Severance Amount shall be capped at three (3) times Mr. Klappa's Base Amount, less all other "parachute payments" (as such term is defined under Code Section 280G) received by Mr. Klappa, less one dollar (the "Capped Amount"), if the Capped Amount, reduced by HI Tax and Income Tax, exceeds what otherwise would have been the Severance Amount, reduced by HI Tax, Income Tax and Excise Tax. For purposes of this Paragraph 2.(b), whether any amount would constitute an Excess Parachute Payment and any other calculations of tax, e.g., Excise Tax, HI Tax, Income Tax, etc., or other amounts, e.g., Base Amount, Capped Amount, etc., shall be determined by the tax department of the independent public accounting firm then responsible for preparing Southern's consolidated federal income tax return, and such calculations or determinations shall be binding upon the parties hereto. (c) Welfare Benefits. If Mr. Klappa meets the eligibility requirements of Paragraph 2.(a) hereof and is not otherwise eligible to receive retiree medical and life insurance benefits provided to certain retirees pursuant to the terms of the Pension Plan, the Group Health Plan and the Group Life Insurance Plan, he shall be entitled to the benefits set forth in this Paragraph 2.(c). (i) Mr. Klappa shall be eligible to participate in the Company's Group Health Plan, upon payment of both the Company's and his monthly premium under such plan, for a period of six (6) months for each of Mr. Klappa's Years of Service, not to exceed five (5) years. If Mr. Klappa elects to receive this extended medical coverage, he shall also be entitled to elect coverage under the Group Health Plan for his dependents who were participating in the Group Health Plan on Mr. Klappa's Termination Date (and for such other dependents as may be entitled to coverage under the provisions of the Health Insurance Portability and Accountability Act of 1996) for the duration of Mr. Klappa's extended medical coverage under this Paragraph 2.(c)(i) to the extent such dependents remain eligible for dependent coverage under the terms of the Group Health Plan. (A) The extended medical coverage afforded to Mr. Klappa pursuant to Paragraph 2.(c)(i), as well as the premiums to be paid by Mr. Klappa in connection with such coverage shall be determined in accordance with the terms of the Group Health Plan and shall be subject to any changes in the terms and conditions of the Group Health Plan as well as any future increases in premiums under the Group Health Plan. The premiums to be paid by Mr. Klappa in connection with this extended coverage shall be due on the first day of each month; provided, however, that if he fails to pay his premium within thirty (30) days of its due date, such extended coverage shall be terminated. (B) Any Group Health Plan coverage provided under Paragraph 2.(c)(i) shall be a part of and not in addition to any COBRA Coverage which Mr. Klappa or his dependents may elect. In the event that Mr. Klappa or his dependents become eligible to be covered, by virtue of re-employment or otherwise, by any employer-sponsored group health plan or is eligible for coverage under any government-sponsored health plan during the above period, coverage under the Company's Group Health Plan available to Mr. Klappa or his dependents by virtue of the provisions of Paragraph 2.(c)(i) shall terminate, except as may otherwise be required by law, and shall not be renewed. (ii) Mr. Klappa shall be entitled to receive cash in an amount equal to the Company's and Mr. Klappa's cost of premiums for three (3) years of coverage under the Group Health Plan and Group Life Insurance Plan in accordance with the terms of such plans as of the date of the Change in Control. (d) Incentive Plans. If Mr. Klappa meets the eligibility requirements of Paragraph 2.(a) hereof he shall be entitled to the following benefits under the Company's incentive plans: (i) Stock Option Plan. (A) Any of Mr. Klappa's Options and Stock Appreciation Rights under the Performance Stock Plan (the defined terms of which are incorporated in this Paragraph 2.(d)(i) by reference) which are outstanding as of the Termination Date and which are not then exercisable and vested, shall become fully exercisable and vested to the full extent of the original grant; provided, that in the case of a Stock Appreciation Right, if Mr. Klappa is subject to Section 16(b) of the Exchange Act, such Stock Appreciation Right shall not become fully vested and exercisable at such time if such actions would result in liability to Mr. Klappa under Section 16(b) of the Exchange Act, provided further, that any such actions not taken as a result of the rules under Section 16(b) of the Exchange Act shall be effected as of the first date that such activity would no longer result in liability under Section 16(b) of the Exchange Act. (B) The restrictions and deferral limitations applicable to any of Mr. Klappa's Restricted Stock as of the Termination Date shall lapse, and such Restricted Stock shall become free of all restrictions and limitations and become fully vested and transferable to the full extent of the original grant. (C) The restrictions and deferral limitations and other conditions applicable to any other Awards held by Mr. Klappa under the Performance Stock Plan as of the Termination Date shall lapse, and such other Awards shall become free of all restrictions, limitations or conditions and become fully vested and transferable to the full extent of the original grant. (ii) Performance Pay Plan. Provided Mr. Klappa is not entitled to benefits under Article V of the PPP Plan, (the defined terms of which are incorporated in this Paragraph 2.(d)(ii) by reference), if the PPP Plan is in place through Mr. Klappa's Termination Date and to the extent Mr. Klappa is entitled to participate therein, Mr. Klappa shall be entitled to receive cash in an amount equal to a prorated payout of his Incentive Pay Awards under the PPP Plan for the Performance Period in which the Termination Date shall have occurred, at target performance under the PPP Plan and prorated by the number of months which have passed since the beginning of the Performance Period until the Termination Date. (iii) PIP Plan. Provided Mr. Klappa is not entitled to benefits under Article IV of the PIP Plan (the defined terms of which are incorporated in this Paragraph 2.(d)(iii) by reference), if the PIP Plan is in place through Mr. Klappa's Termination Date and to the extent Mr. Klappa is entitled to participate therein, Mr. Klappa shall be entitled to receive cash in an amount equal to his Award Opportunity for the Computation Periods in which the Termination Date shall have occurred at a target Value of Performance Unit of $1.00, prorated for each Computation Period by the number of months which have passed since the beginning of the Computation Periods until the Termination Date. (iv) Performance Dividend Plan. Provided Mr. Klappa is not entitled to benefits under the Performance Dividend Plan (the defined terms of which are incorporated in this Paragraph 2.(d)(iv) by reference), if the Performance Dividend Plan is in place through Mr. Klappa's Termination Date and to the extent Mr. Klappa is entitled to participate therein, Mr. Klappa shall be entitled to receive cash for each Award held by Mr. Klappa on his Termination Date, based on actual performance under Section 4.1 of the Performance Dividend Plan determined as of the most recently completed calendar quarter of the Performance Period in which the Termination Date shall have occurred, and the Annual Dividend declared prior to the Termination Date. (v) Other Short Term Incentive Plans. The provisions of this Paragraph 2.(d)(v) shall apply if and to the extent that Mr. Klappa is a participant in any other "short term compensation plan" not otherwise previously referred to in this Paragraph 2.(d). Provided Mr. Klappa is not otherwise entitled to a plan payout under any change of control provisions of such plans, if the "short term compensation plan" is in place as of the Termination Date and to the extent Mr. Klappa is entitled to participate therein, Mr. Klappa shall receive cash in an amount equal to his award under the Company's "short term incentive plan" for the annual performance period in which the Termination Date shall have occurred, at Mr. Klappa's target performance level and prorated by the number of months which have passed since the beginning of the annual performance period until his Termination Date. For purposes of this Paragraph 2.(d)(v) the term "short term incentive compensation plan" shall mean any incentive compensation plan or arrangement adopted in writing by the Company which provides for annual, recurring compensatory bonuses based upon articulated performance criteria. (vi) DIC Plan. Provided Mr. Klappa is not entitled to benefits under Article V of the DIC Plan (the defined terms of which are incorporated into this Paragraph 2(d)(vi) by reference), if the DIC Plan is in place through Mr. Klappa's Termination Date and to the extent that Mr. Klappa is entitled to participate therein, any of Mr. Klappa's Awards as of the Termination Date which are not then vested shall become fully vested and Mr. Klappa shall be entitled to receive cash in the amount equal to Mr. Klappa's Account as of his Termination Date. Notwithstanding anything in the DIC Plan to the contrary, the investment return on the Awards determined in accordance with Section 3.1 of the DIC Plan for any Plan Year following a Change in Control shall be no less than the investment return determined in accordance with Section 3.1 of the DIC Plan as of the date of such Change in Control with respect to those Accounts which are outstanding as of the date of such Change in Control. (e) Payment of Benefits. Any amounts due under this Agreement shall be paid in one (1) lump sum payment as soon as administratively practicable following the later of: (i) Mr. Klappa's Termination Date, or (ii) upon Mr. Klappa's tender of an effective Waiver and Release to the Company in the form of Exhibit B attached hereto and the expiration of any applicable revocation period for such waiver. In the event of a dispute with respect to liability or amount of any benefit due hereunder, an effective Waiver and Release shall be tendered at the time of final resolution of any such dispute when payment is tendered by the Company. (f) Benefits in the Event of Death. In the event of Mr. Klappa's death prior to the payment of all amounts due under this Agreement, Mr. Klappa's estate shall be entitled to receive as due any amounts not yet paid under this Agreement upon the tender by the executor or administrator of the estate of an effective Waiver and Release. (g) Legal Fees. In the event of a dispute between Mr. Klappa and the Company with regard to any amounts due hereunder, if any material issue in such dispute is finally resolved in Mr. Klappa's favor, the Company shall reimburse Mr. Klappa's legal fees incurred with respect to all issues in such dispute in an amount not to exceed fifty thousand dollars ($50,000). (h) Employee Outplacement Services. Mr. Klappa shall be eligible to participate in the Employee Outplacement Program, which program shall not be less than six (6) months duration measured from Mr. Klappa's Termination Date. (i) Non-qualified Retirement and Deferred Compensation Plans. The Parties agree that subsequent to a Change in Control, any claims by Mr. Klappa for benefits under any of the Company's non-qualified retirement or deferred compensation plans shall be resolved through binding arbitration in accordance with the provisions and procedures set forth in Paragraph 5 hereof and if any material issue in such dispute is finally resolved in Mr. Klappa's favor, the Company shall reimburse Mr. Klappa's legal fees in the manner provided in Paragraph 2.(g) hereof. 3. Transfer of Employment. In the event that Mr. Klappa's employment by the Company is terminated during the two year period following a Change in Control and Mr. Klappa accepts employment by Southern, a Southern Subsidiary, or any employer that succeeds to all or substantially all of the assets of the Company, Southern or any Southern Subsidiary, the Company shall assign this Agreement to Southern, such Southern Subsidiary, or successor employer, Southern shall accept such assignment or cause such Southern Subsidiary or successor employer to accept such assignment, and such assignee shall become the "Company" for all purposes hereunder. 4. No Mitigation. If Mr. Klappa is otherwise eligible to receive benefits under Paragraph 2 of this Agreement, he shall have no duty or obligation to seek other employment following his Termination Date and, except as otherwise provided in Paragraph 2.(a)(iii) hereof, the amounts due Mr. Klappa hereunder shall not be reduced or suspended if Mr. Klappa accepts such subsequent employment. 5. Arbitration. (a) Any dispute, controversy or claim arising out of or relating to the Company's obligations to pay severance benefits under this Agreement, or the breach thereof, shall be settled and resolved solely by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA") except as otherwise provided herein. The arbitration shall be the sole and exclusive forum for resolution of any such claim for severance benefits and the arbitrators' award shall be final and binding. The provisions of this Paragraph 5 are not intended to apply to any other disputes, claims or controversies arising out of or relating to Mr. Klappa's employment by the Company or the termination thereof. (b) Arbitration shall be initiated by serving a written notice of demand for arbitration to Mr. Klappa, in the case of the Company, or to the Southern Board, in the case of Mr. Klappa. (c) The arbitration shall be held in Atlanta, Georgia. The arbitrators shall apply the law of the State of Georgia, to the extent not preempted by federal law, excluding any law which would require the application of the law of another state. (d) The parties shall appoint arbitrators within fifteen (15) business days following service of the demand for arbitration. The number of arbitrators shall be three. One arbitrator shall be appointed by Mr. Klappa, one arbitrator shall be appointed by the Company, and the two arbitrators shall appoint a third. If the arbitrators cannot agree on a third arbitrator within thirty (30) business days after the service of demand for arbitration, the third arbitrator shall be selected by the AAA. (e) The arbitration filing fee shall be paid by Mr. Klappa. All other costs of arbitration shall be borne equally by Mr. Klappa and the Company, provided, however, that the Company shall reimburse such fees and costs in the event any material issue in such dispute is finally resolved in Mr. Klappa's favor and Mr. Klappa is reimbursed legal fees under Paragraph 2.(g) hereof. (f) The parties agree that they will faithfully observe the rules that govern any arbitration between them, they will abide by and perform any award rendered by the arbitrators in any such arbitration, including any award of injunctive relief, and a judgment of a court having jurisdiction may be entered upon an award. (g) The parties agree that nothing in this Paragraph 5 is intended to preclude upon application of either party any court having jurisdiction from issuing and enforcing in any lawful manner such temporary restraining orders, preliminary injunctions, and other interim measures of relief as may be necessary to prevent harm to a party's interests or as otherwise may be appropriate pending the conclusion of arbitration proceedings pursuant to this Agreement; regardless of whether an arbitration proceeding under this Paragraph 5 has begun. The parties further agree that nothing herein shall prevent any court from entering and enforcing in any lawful manner such judgments for permanent equitable relief as may be necessary to prevent harm to a party's interests or as otherwise may be appropriate following the issuance of arbitral awards pursuant to this Paragraph 5. 6. Miscellaneous. (a) Funding of Benefits. Unless the Board in its discretion shall determine otherwise, the benefits payable to Mr. Klappa under this Agreement shall not be funded in any manner and shall be paid by the Company out of its general assets, which assets are subject to the claims of the Company's creditors. (b) Withholding. There shall be deducted from the payment of any benefit due 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 Mr. Klappa. (c) Assignment. Mr. Klappa shall have no rights to sell, assign, transfer, encumber, or otherwise convey the right to receive the payment of any benefit due hereunder, which payment and the rights thereto are expressly declared to be nonassignable and nontransferable. Any attempt to do so shall be null and void and of no effect. (d) Amendment and Termination. The Agreement may be amended or terminated only by a writing executed by the parties. (e) Construction. This Agreement shall be construed in accordance with and governed by the laws of the State of Georgia, to the extent not preempted by federal law, disregarding any provision of law which would require the application of the law of another state. (f) Pooling Accounting. Notwithstanding anything to the contrary herein, if, but for any provision of this Agreement, a Change in Control transaction would otherwise be accounted for as a pooling-of-interests under APB No.16 ("Pooling Accounting") (after giving effect to any and all other facts and circumstances affecting whether such Change in Control transaction would use Pooling Accounting), such provision or provisions of this Agreement which would otherwise cause the Change in Control transaction to be ineligible for Pooling Accounting shall be void and ineffective in such a manner and to the extent that by eliminating such provision or provisions of this Agreement, Pooling Accounting would be required for such Change in Control transaction. IN WITNESS WHEREOF, the parties hereto have executed this Agreement this ____ day of __________________, _____. THE SOUTHERN COMPANY By: ____________________________________ SOUTHERN COMPANY SERVICES, INC. By: ____________________________________ MR. KLAPPA ----------------------------- Gale E. Klappa Exhibit A CHANGE IN CONTROL AGREEMENT Target Annual Bonus for Mr. Gale E. Klappa 45 % Exhibit B CHANGE IN CONTROL AGREEMENT Waiver and Release The attached Waiver and Release is to be given to Mr. Gale E. Klappa upon the occurrence of an event that triggers eligibility for severance benefits under the Change in Control Agreement, as described in Paragraph 2(a) of such agreement. CHANGE IN CONTROL AGREEMENT Waiver and Release I, Gale E. Klappa, understand that I am entitled to receive the severance benefits described in Section 2 of the Change in Control Agreement (the "Agreement") if I execute this Waiver and Release ("Waiver"). I understand that the benefits I will receive under the Agreement are in excess of those I would have received from The Southern Company and Southern Company Services, Inc. (collectively, the "Company") if I had not elected to sign this Waiver. I recognize that I may have a claim against the Company under the Civil Rights Act of 1964 and 1991, the Age Discrimination in Employment Act, the Rehabilitation Act of 1973, the Energy Reorganization Act of 1974, as amended, the Americans with Disabilities Act or other federal, state and local laws. In exchange for the benefits I elect to receive, I hereby irrevocably waive and release all claims, of any kind whatsoever, whether known or unknown in connection with any claim which I ever had, may have, or now have against The Southern Company, Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, Savannah Electric and Power Company, Southern Communication Services, Inc., Southern Company Services, Inc., Southern Energy Resources, Inc., Southern Company Energy Solutions, Inc., Southern Nuclear Operating Company, Inc. and other direct or indirect subsidiaries of The Southern Company and their past, present and future officers, directors, employees, agents and attorneys. Nothing in this Waiver shall be construed to release claims or causes of action under the Age Discrimination in Employment Act or the Energy Reorganization Act of 1974, as amended, which arise out of events occurring after the execution date of this Waiver. In further exchange for the benefits I elect to receive, I understand and agree that I will respect the proprietary and confidential nature of any information I have obtained in the course of my service with the Company or any subsidiary or affiliate of The Southern Company. However, nothing in this Waiver shall prohibit me from engaging in protected activities under applicable law or from communicating, either voluntary or otherwise, with any governmental agency concerning any potential violation of the law. In signing this Waiver, I am not releasing claims to benefits that I am already entitled to under any workers' compensation laws or under any retirement plan or welfare benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended, which is sponsored by or adopted by the Company and/or any of its direct or indirect subsidiaries; however, I understand and acknowledge that nothing herein is intended to or shall be construed to require the Company to institute or continue in effect any particular plan or benefit sponsored by the Company and the Company hereby reserves the right to amend or terminate any of its benefit programs at any time in accordance with the procedures set forth in such plans. In signing this Waiver, I realize that I am waiving and releasing, among other things, any claims to benefits under any and all bonus, severance, workforce reduction, early retirement, outplacement, or any other similar type plan sponsored by the Company. I have been encouraged and advised in writing to seek advice from anyone of my choosing regarding this Waiver, including my attorney, and my accountant or tax advisor. Prior to signing this Waiver, I have been given the opportunity and sufficient time to seek such advice, and I fully understand the meaning and contents of this Waiver. I understand that I may take up to twenty-one (21) calendar days to consider whether or not I desire to enter this Waiver. I was not coerced, threatened or otherwise forced to sign this Waiver. I have made my choice to sign this Waiver voluntarily and of my own free will. I understand that I may revoke this Waiver at any time during the seven (7) calendar day period after I sign and deliver this Waiver to the Company. If I revoke this Waiver, I must do so in writing delivered to the Company. I understand that this Waiver is not effective until the expiration of this seven (7) calendar day revocation period. I understand that upon the expiration of such seven (7) calendar day revocation period this entire Waiver will be binding upon me and will be irrevocable. I understand that by signing this Waiver I am giving up rights I may have. IN WITNESS WHEREOF, the undersigned hereby executes this Waiver this ____ day of ____________________, in the year _____. Gale E. Klappa Sworn to and subscribed to me this ____ day of ____________, _____. Notary Public My Commission Expires: (Notary Seal) Acknowledged and Accepted by the Company, as defined in the Waiver. By: Date: EX-10.19 19 10(A)103 Exhibit 10(a)103 CHANGE IN CONTROL AGREEMENT THIS CHANGE IN CONTROL AGREEMENT ("Agreement") made and entered into by and between The Southern Company ("Southern"), Southern Energy Resources, Inc. (the "Company") and Ms. S. Marce Fuller ("Ms. Fuller") is effective December 10, 1998. W I T N E S S E T H: WHEREAS, Ms. Fuller is the Executive Vice President of the Company; WHEREAS, the Company wishes to provide to Ms. Fuller certain severance benefits under certain circumstances following a change in control (as defined herein) of Southern or the Company; WHEREAS, the Company previously entered into an Agreement dated December 10, 1998 with Ms. Fuller providing these benefits; WHEREAS, the Company desires to clarify that certain additional benefits not set forth in this previous Agreement but authorized by the Company are available to Ms. Fuller under the Southern Energy Resources, Inc. Deferred Incentive Compensation Plan in the event of a change in control (as defined herein); WHEREAS, the parties agree that the prior Agreement dated December 10, 1998 is, therefore, void and that this Agreement supersedes it in its entirety. 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 hereby agree as follows: 1. Definitions. For purposes of this Agreement, the following terms shall have the following meanings: (a) "Annual Compensation" shall mean Ms. Fuller's highest annual base salary rate for the twelve (12) month period immediately preceding the date of the Change in Control plus market level target annual bonus as set forth on Exhibit A hereof. (b) "Beneficial Ownership" shall mean beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act. (c) "Board" shall mean the board of directors of the Company. (d) "Business Combination" shall mean a reorganization, merger or consolidation of Southern or sale or other disposition of all or substantially all of the assets of Southern. (e) "Change in Control" shall mean any of the following: (i) The Consummation of an acquisition by any Person of Beneficial Ownership of 20% or more of Southern's Voting Securities; provided, however, that for purposes of this Paragraph 1.(e)(i), the following acquisitions of Southern's Voting Securities shall not constitute a Change in Control: (A) any acquisition directly from Southern; (B) any acquisition by Southern; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Southern or any Southern Subsidiary; (D) any acquisition by a qualified pension plan or publicly held mutual fund; (E) any acquisition by a Group composed exclusively of employees of Southern, or any Southern Subsidiary; (F) any acquisition by Ms. Fuller or any Group of which Ms. Fuller is a party; or (G) any Business Combination which would not otherwise constitute a change in control because of the application of clauses (A), (B) and (C) of Paragraph 1.(e)(iii); (ii) A change in the composition of the Southern Board whereby individuals who constitute the Incumbent Board cease for any reason to constitute at least a majority of the Southern Board; (iii) Consummation of a Business Combination, provided, however, that such a Business Combination shall not constitute a Change in Control if all three (3) of the following conditions are met: (A) all or substantially all of the individuals and entities who held Beneficial Ownership, respectively, of Southern's Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, 65% or more of the combined voting power of the Voting Securities of the corporation surviving or resulting from such Business Combination, (including, without limitation, a corporation which as a result of such transaction holds Beneficial Ownership of all or substantially all of Southern's Voting Securities or all or substantially all of Southern's assets) (such surviving or resulting corporation to be referred to as "Surviving Company"), in substantially the same proportions as their ownership, immediately prior to such Business Combination, of Southern's Voting Securities; (B) no Person (excluding any corporation resulting from such Business Combination, any employee benefit plan (or related trust) of Southern, any Southern Subsidiary or Surviving Company, Ms. Fuller, any Group of which Ms. Fuller is a party, any Group composed exclusively of Company employees, any qualified pension plan (or related trust) or any publicly held mutual fund) holds Beneficial Ownership, directly or indirectly, of 20% or more of the combined voting power of the then outstanding Voting Securities of Surviving Company except to the extent that such ownership existed prior to the Business Combination; and (C) at least a majority of the members of the board of directors of Surviving Company were members of the Incumbent Board at the earlier of the date of execution of the initial agreement, or of the action of the Southern Board, providing for such Business Combination. (iv) The Consummation of an acquisition by any Person of Beneficial Ownership of 50% or more of the combined voting power of the then outstanding Voting Securities of the Company; provided, however, that for purposes of this Paragraph 1.(e)(iv), any acquisition by Ms. Fuller, any Group composed exclusively of employees of the Company, any Group of which Ms. Fuller is a party, any qualified pension plan (or related trust), any publicly held mutual fund, any employee benefit plan (or related trust) sponsored or maintained by Southern or any Southern Subsidiary shall not constitute a Change in Control; (v) Consummation of a reorganization, merger or consolidation of the Company (an "Employing Company Business Combination"), in each case, unless, following such Employing Company Business Combination, Southern Controls the corporation or other entity surviving or resulting from such Employing Company Business Combination; or (vi) Consummation of the sale or other disposition of all or substantially all of the assets of the Company to a corporation or other entity which Southern does not Control. (f) "COBRA Coverage" shall mean any continuation coverage to which Ms. Fuller or her dependents may be entitled pursuant to Code Section 4980B. (g) "Code" shall mean the Internal Revenue Code of 1986, as amended. (h) "Company" shall mean Southern Energy Resources, Inc., its successors and assigns. (i) "Consummation" shall mean the completion of the final act necessary to complete a transaction as a matter of law, including, but not limited to, any required approvals by the corporation's shareholders and board of directors, the transfer of legal and beneficial title to securities or assets and the final approval of the transaction by any applicable domestic or foreign governments or governmental agencies. (j) "Control" shall mean, in the case of a corporation, Beneficial Ownership of more than 50% of the combined voting power of the corporation's Voting Securities, or in the case of any other entity, Beneficial Ownership of more than 50% of such entity's voting equity interests. (k) "DIC Plan" shall mean the Southern Energy Resources, Inc. Deferred Incentive Compensation Plan or replacement thereto, as such plans may be amended from time to time. (l) "Effective Date" shall mean the date of execution of this Agreement. (m) "Employee Outplacement Program" shall mean the program established by the Company from time to time for the purpose of assisting participants covered by the plan in finding employment outside of the Employing Company which provides for the following services: (i) self-assessment, career decision and goal setting; (ii) job market research and job sources; (iii) networking and interviewing skills; (iv) planning and implementation strategy; (v) resume writing, job hunting methods and salary negotiation; and (vi) office support and job search resources. (n) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (o) "Good Reason" shall mean, without Ms. Fuller's express written consent, after written notice to the Board, and after a thirty (30) day opportunity for the Board to cure, the continuing occurrence of any of the following events: (i) Inconsistent Duties. A meaningful and detrimental alteration in Ms. Fuller's position or in the nature or status of her responsibilities from those in effect immediately prior to the Change in Control; (ii) Reduced Salary. A reduction of five percent (5%) or more by the Company in either of the following: (i) Ms. Fuller's annual base salary rate as in effect immediately prior to the Change in Control (except for a less than ten percent (10%), across-the-board annual base salary rate reduction similarly affecting at least ninety-five percent (95%) of the Executive Employees of the Company); or (ii) the sum of Ms. Fuller's annual base salary rate plus target bonus under the Company's Short Term Plan (except for a less than ten percent (10%), across-the-board reduction of annual base salary rate plus target bonus under the Short Term Plan similarly affecting at least ninety-five percent (95%) of the Executive Employees of the Company); (iii) Pension and Compensation Plans. The failure by the Company to continue in effect any pension or compensation plan or agreement in which Ms. Fuller participates or is a party as of the date of the Change in Control or the elimination of Ms. Fuller's participation therein, (except for across-the-board plan changes or terminations similarly affecting at least ninety-five percent (95%) of the Executive Employees of the Company); For purposes of this Paragraph 1.(o), a "pension plan or agreement" shall mean any written arrangement executed by an authorized officer of the Company which provides for payments upon retirement; and a "compensation plan or arrangement" shall mean any written arrangement executed by an authorized officer of the Company which provides for periodic, non-discretionary compensatory payments in the nature of bonuses. (iv) Relocation. A change in Ms. Fuller's work location to a location more than fifty (50) miles from the office where Ms. Fuller is located at the time of the Change in Control, unless such new work location is within fifty (50) miles from Ms. Fuller's principal place of residence at the time of the Change in Control. The acceptance, if any, by Ms. Fuller of employment by the Company at a work location which is outside the fifty mile radius set forth in this Paragraph 1.(o)(iv) shall not be a waiver of Ms. Fuller's right to refuse subsequent transfer by the Company to a location which is more than fifty (50) miles from Ms. Fuller's principal place of residence at the time of the Change in Control, and such subsequent unconsented transfer shall be "Good Reason" under this Agreement; or (v) Benefits and Perquisites. The taking of any action by the Company which would directly or indirectly materially reduce the benefits enjoyed by Ms. Fuller under the Company's retirement, life insurance, medical, health and accident, disability, deferred compensation or savings plans in which Ms. Fuller was participating immediately prior to the Change in Control; or the failure by the Company to provide Ms. Fuller with the number of paid vacation days to which Ms. Fuller is entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy in effect immediately prior to the Change in Control (except for across-the-board plan or vacation policy changes or plan terminations similarly affecting at least ninety-five percent (95%) of the Executive Employees of the Company). (vi) For purposes of this Paragraph 1.(o), the term "Executive Employee" shall mean employees of the Company whose annual base salary is $130,000 or more. (p) "Group" shall have the meaning set forth in Section 14(d) of the Exchange Act. (q) "Group Health Plan" shall mean the group health plan covering Ms. Fuller, as such plan may be amended from time to time. (r) "Group Life Insurance Plan" shall mean the group life insurance program covering Ms. Fuller, as such plan may be amended from time to time. (s) "Incumbent Board" shall mean those individuals who constitute the Southern Board as of the Effective Date plus any individual who shall become a director subsequent to such date whose election or nomination for election by Southern's shareholders was approved by a vote of at least 75% of the directors then comprising the Incumbent Board. Notwithstanding the foregoing, no individual who shall become a director of the Southern Board subsequent to the Effective Date whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Regulations promulgated under the Exchange Act) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Southern Board shall be a member of the Incumbent Board. (t) "Month of Service" shall mean any calendar month during which Ms. Fuller has worked at least one (1) hour or was on approved leave of absence while in the employ of the Company or any affiliate or subsidiary of Southern. (u) "Pension Plan" shall mean The Southern Company Pension Plan, as such plan may be amended from time to time. (v) "Performance Dividend Plan" shall mean the Southern Company Performance Dividend Plan or any replacement thereto, as such plans may be amended from time to time. (w) "Performance Stock Plan" shall mean the Southern Company Performance Stock Plan or any replacement thereto, as such plans may be amended from time to time. (x) "Person" shall mean any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of Act. (y) "Southern" shall mean The Southern Company, its successors and assigns. (z) "Southern Board" shall mean the board of directors of Southern. (aa) "Southern Subsidiary" shall mean any corporation or other entity Controlled by Southern. (bb) "Termination for Cause" or "Cause" shall mean the termination of Ms. Fuller's employment by the Company upon the occurrence of any of the following: (i) The willful and continued failure by Ms. Fuller substantially to perform her duties with the Company (other than any such failure resulting from Ms. Fuller's Total Disability or from Ms. Fuller's retirement or any such actual or anticipated failure resulting from termination by Ms. Fuller for Good Reason) after a written demand for substantial performance is delivered to her by the Southern Board, which demand specifically identifies the manner in which the Southern Board believes that she has not substantially performed her duties; or (ii) The willful engaging by Ms. Fuller in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise, including, but not limited to any of the following: (A) any willful act involving fraud or dishonesty in the course of Ms. Fuller's employment by the Company; (B) the willful carrying out of any activity or the making of any statement which would materially prejudice or impair the good name and standing of the Company, Southern or any Southern Subsidiary or would bring the Company, Southern or any other Southern Subsidiary into contempt, ridicule or would reasonably shock or offend any community in which the Company, Southern or such Southern Subsidiary is located; (C) attendance at work in a state of intoxication or otherwise being found in possession at her workplace of any prohibited drug or substance, possession of which would amount to a criminal offense; (D) violation of the Company's policies on drug and alcohol usage, fitness for duty requirements or similar policies as may exist from time to time as adopted by the Company's safety officer; (E) assault or other act of violence against any person during the course of employment; or (F) indictment of any felony or any misdemeanor involving moral turpitude. No act or failure to act by Ms. Fuller shall be deemed "willful" unless done, or omitted to be done, by Ms. Fuller not in good faith and without reasonable belief that her action or omission was in the best interest of the Company. Notwithstanding the foregoing, Ms. Fuller shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to her a copy of a resolution duly adopted by the affirmative vote of not less than three quarters of the entire membership of the Southern Board at a meeting of the Southern Board called and held for such purpose (after reasonable notice to Ms. Fuller and an opportunity for her, together with counsel, to be heard before the Southern Board), finding that, in the good faith opinion of the Southern Board, Ms. Fuller was guilty of conduct set forth above in clause (i) or (ii) of this Paragraph 1.(bb) and specifying the particulars thereof in detail. (cc) "Termination Date" shall mean the date on which Ms. Fuller's employment with the Company is terminated; provided, however, that solely for purposes of Paragraph 2.(c) hereof, the Termination Date shall be the effective date of her retirement pursuant to the terms of the Pension Plan. (dd) "Total Disability" shall mean Ms. Fuller's total disability within the meaning of the Pension Plan. (ee) "Value Creation Plan" shall mean the Southern Energy Resources, Inc. Value Creation Plan or any replacement thereto, as such plans may be amended from time to time. (ff) "Voting Securities" shall mean the outstanding voting securities of a corporation entitling the holder thereof to vote generally in the election of such corporation's directors. (gg) "Waiver and Release" shall mean the Waiver and Release attached hereto as Exhibit B. (hh) "Year of Service" shall mean Ms. Fuller's Months of Service divided by twelve (12) rounded to the nearest whole year, rounding up if the remaining number of months is seven (7) or greater and rounding down if the remaining number of months is less than seven (7). If Ms. Fuller has a break in her service with the Company, she will receive credit under this Agreement for service prior to the break in service only if the break in service is less than five years. 2. Severance Benefits. (a) Eligibility. Except as otherwise provided in this Paragraph 2.(a), if Ms. Fuller's employment is involuntarily terminated by the Company at any time during the two year period following a Change in Control for reasons other than Cause, or if Ms. Fuller voluntarily terminates her employment with the Company for Good Reason at any time during the two year period following a Change in Control, Ms. Fuller shall be entitled to receive the benefits described in this Agreement upon the Company's receipt of an effective Waiver and Release. Notwithstanding anything to the contrary herein, Ms. Fuller shall not be eligible to receive benefits under this Agreement if Ms. Fuller: (i) voluntarily terminates her employment with the Company for other than Good Reason; (ii) has her employment terminated by the Company for Cause; (iii) accepts the transfer of her employment to Southern, any Southern Subsidiary or any employer that succeeds to all or substantially all of the assets of the Company, Southern or any Southern Subsidiary; (iv) refuses an offer of continued employment with the Company, any Southern Subsidiary, or any employer that succeeds to all or substantially all of the assets of the Company, Southern, or any Southern Subsidiary under circumstances where such refusal would not amount to Good Reason for voluntary termination of employment; or (v) elects to receive the benefits of any other voluntary or involuntary severance or separation program maintained by the Company; provided however, that the receipt of benefits under the terms of any retention plan or agreement shall not be deemed to be the receipt of severance or separation benefits for purposes of this Agreement. (b) Severance Benefits. If Ms. Fuller meets the eligibility requirements of Paragraph 2.(a) hereof, she shall be entitled to a cash severance benefit in an amount equal to three times her Annual Compensation (the "Severance Amount"). If any portion of the Severance Amount constitutes an "excess parachute payment" (as such term is defined under Code Section 280G ("Excess Parachute Payment")), the Company shall pay to Ms. Fuller an additional amount calculated by determining the amount of tax under Code Section 4999 that she otherwise would have paid on any Excess Parachute Payment with respect to the Change in Control and dividing such amount by a decimal determined by adding the tax rate under Code Section 4999 ("Excise Tax"), the hospital insurance tax under Code Section 3101(b) ("HI Tax") and federal and state income tax measured at the highest marginal rates ("Income Tax") and subtracting such result from the number one (1) (the "280G Gross-up"); provided, however, that no 280G Gross-up shall be paid unless the Severance Amount plus all other "parachute payments" to Ms. Fuller under Code Section 280G exceeds three (3) times Ms. Fuller's "base amount" (as such term is defined under Code Section 280G ("Base Amount")) by ten percent (10%) or more; provided further, that if no 280G Gross-up is paid, the Severance Amount shall be capped at three (3) times Ms. Fuller's Base Amount, less all other "parachute payments" (as such term is defined under Code Section 280G) received by Ms. Fuller, less one dollar (the "Capped Amount"), if the Capped Amount, reduced by HI Tax and Income Tax, exceeds what otherwise would have been the Severance Amount, reduced by HI Tax, Income Tax and Excise Tax. For purposes of this Paragraph 2.(b), whether any amount would constitute an Excess Parachute Payment and any other calculations of tax, e.g., Excise Tax, HI Tax, Income Tax, etc., or other amounts, e.g., Base Amount, Capped Amount, etc., shall be determined by the tax department of the independent public accounting firm then responsible for preparing Southern's consolidated federal income tax return, and such calculations or determinations shall be binding upon the parties hereto. (c) Welfare Benefits. If Ms. Fuller meets the eligibility requirements of Paragraph 2.(a) hereof and is not otherwise eligible to receive retiree medical and life insurance benefits provided to certain retirees pursuant to the terms of the Pension Plan, the Group Health Plan and the Group Life Insurance Plan, she shall be entitled to the benefits set forth in this Paragraph 2.(c). (i) Ms. Fuller shall be eligible to participate in the Company's Group Health Plan, upon payment of both the Company's and her monthly premium under such plan, for a period of six (6) months for each of Ms. Fuller's Years of Service, not to exceed five (5) years. If Ms. Fuller elects to receive this extended medical coverage, she shall also be entitled to elect coverage under the Group Health Plan for her dependents who were participating in the Group Health Plan on Ms. Fuller's Termination Date (and for such other dependents as may be entitled to coverage under the provisions of the Health Insurance Portability and Accountability Act of 1996) for the duration of Ms. Fuller's extended medical coverage under this Paragraph 2.(c)(i) to the extent such dependents remain eligible for dependent coverage under the terms of the Group Health Plan. (A) The extended medical coverage afforded to Ms. Fuller pursuant to Paragraph 2.(c)(i), as well as the premiums to be paid by Ms. Fuller in connection with such coverage shall be determined in accordance with the terms of the Group Health Plan and shall be subject to any changes in the terms and conditions of the Group Health Plan as well as any future increases in premiums under the Group Health Plan. The premiums to be paid by Ms. Fuller in connection with this extended coverage shall be due on the first day of each month; provided, however, that if she fails to pay her premium within thirty (30) days of its due date, such extended coverage shall be terminated. (B) Any Group Health Plan coverage provided under Paragraph 2.(c)(i) shall be a part of and not in addition to any COBRA Coverage which Ms. Fuller or her dependent may elect. In the event that Ms. Fuller or her dependent becomes eligible to be covered, by virtue of re-employment or otherwise, by any employer-sponsored group health plan or is eligible for coverage under any government-sponsored health plan during the above period, coverage under the Company's Group Health Plan available to Ms. Fuller or her dependent by virtue of the provisions of Paragraph 2.(c)(i) shall terminate, except as may otherwise be required by law, and shall not be renewed. (ii) Ms. Fuller shall be entitled to receive cash in an amount equal to the Company's and Ms. Fuller's cost of premiums for three (3) years of coverage under the Group Health Plan and Group Life Insurance Plan in accordance with the terms of such plans as of the date of the Change in Control. (d) Incentive Plans. If Ms. Fuller meets the eligibility requirements of Paragraph 2.(a) hereof she shall be entitled to the following benefits under the Company's incentive plans: (i) Stock Option Plan. (A) Any of Ms. Fuller's Options and Stock Appreciation Rights under the Performance Stock Plan (the defined terms of which are incorporated in this Paragraph 2.(d)(i) by reference) which are outstanding as of the Termination Date and which are not then exercisable and vested, shall become fully exercisable and vested to the full extent of the original grant; provided, that in the case of a Stock Appreciation Right, if Ms. Fuller is subject to Section 16(b) of the Exchange Act, such Stock Appreciation Right shall not become fully vested and exercisable at such time if such action would result in liability to Ms. Fuller under Section 16(b) of the Exchange Act, provided further, that any such actions not taken as a result of the rules of Section 16(b) of the Exchange Act shall be effective as of the first date that such activity would no longer result in liability under Section 16(b) of the Exchange Act. (B) The restrictions and deferral limitations applicable to any of Ms. Fuller's Restricted Stock as of the Termination Date shall lapse, and such Restricted Stock shall become free of all restrictions and limitations and become fully vested and transferable to the full extent of the original grant. (C) The restrictions and deferral limitations and other conditions applicable to any other Awards held by Ms. Fuller under the Performance Stock Plan as of the Termination Date shall lapse, and such other Awards shall become free of all restrictions, limitations or conditions and become fully vested and transferable to the full extent of the original grant. (ii) Performance Dividend Plan. Provided Ms. Fuller is not entitled to benefits under the Performance Dividend Plan (the defined terms of which are incorporated in this Paragraph 2.(d)(ii) by reference), if the Performance Dividend Plan is in place through Ms. Fuller's Termination Date and to the extent Ms. Fuller is entitled to participate therein, Ms. Fuller shall be entitled to receive cash for each Award held by Ms. Fuller on her Termination Date, based on actual performance under Section 4.1 of the Performance Dividend Plan determined as of the most recently completed calendar quarter of the Performance Period in which the Termination Date shall have occurred, and the Annual Dividend declared prior to the Termination Date. (iii) Value Creation Plan. Any of Ms. Fuller's Appreciation Rights or Indexed Rights under the Value Creation Plan (the defined terms of which are incorporated in this Paragraph 2.(d)(iii) by reference) which are outstanding as of the Termination Date and which are not then exercisable and vested, shall become fully exercisable and fully vested to the full extent of the original grant. Notwithstanding anything in the Value Creation Plan to the contrary, Share Value with respect to any Appreciation Rights or Indexed Rights held by Ms. Fuller following her Termination Date shall be no less than the Share Value as of the date of the Change in Control of Southern or the Company, as the case may be. (iv) Other Short Term Incentive Plans. The provisions of this Paragraph 2.(d)(i) shall apply if and to the extent that Ms. Fuller is a participant in any other "short term compensation plan" not otherwise previously referred to in this Paragraph 2.(d). Provided Ms. Fuller is not otherwise entitled to a plan payout under any change of control provisions of such plans, if the "short term compensation plan" is in place as of the Termination Date and to the extent Ms. Fuller is entitled to participate therein, Ms. Fuller shall receive cash in an amount equal to her award under the Company's "short term incentive plan" for the annual performance period in which the Termination Date shall have occurred, at Ms. Fuller's target performance level and prorated by the number of months which have passed since the beginning of the annual performance period until her Termination Date. For purposes of this Paragraph 2.(d)(iv) the term "short term incentive compensation plan" shall mean any incentive compensation plan or arrangement adopted in writing by the Company which provides for annual, recurring compensatory bonuses based upon articulated performance criteria. (v) DIC Plan. Provided Ms. Fuller is not entitled to benefits under Article V of the DIC Plan (the defined terms of which are incorporated into this Paragraph 2(d)(v) by reference), if the DIC Plan is in place through Ms. Fuller's Termination Date and to the extent that Ms. Fuller is entitled to participate therein, any of Ms. Fuller's Awards as of the Termination Date which are not then vested shall become fully vested and Ms. Fuller shall be entitled to receive cash in the amount equal to Ms. Fuller's Account as of her Termination Date. Notwithstanding anything in the DIC Plan to the contrary, the investment return on the Awards determined in accordance with Section 3.1 of the DIC Plan for any Plan Year following a Change in Control shall be no less than the investment return determined in accordance with Section 3.1 of the DIC Plan as of the date of such Change in Control with respect to those Accounts which are outstanding as of the date of such Change in Control. (e) Payment of Benefits. Any amounts due under this Agreement shall be paid in one (1) lump sum payment as soon as administratively practicable following the later of: (i) Ms. Fuller's Termination Date, or (ii) upon Ms. Fuller's tender of an effective Waiver and Release to the Company in the form of Exhibit B attached hereto and the expiration of any applicable revocation period for such waiver. In the event of a dispute with respect to liability or amount of any benefit due hereunder, an effective Waiver and Release shall be tendered at the time of final resolution of any such dispute when payment is tendered by the Company. (f) Benefits in the Event of Death. In the event of Ms. Fuller's death prior to the payment of all amounts due under this Agreement, Ms. Fuller's estate shall be entitled to receive as due any amounts not yet paid under this Agreement upon the tender by the executor or administrator of the estate of an effective Waiver and Release. (g) Legal Fees. In the event of a dispute between Ms. Fuller and the Company with regard to any amounts due hereunder, if any material issue in such dispute is finally resolved in Ms. Fuller's favor, the Company shall reimburse Ms. Fuller's legal fees incurred with respect to all issues in such dispute in an amount not to exceed fifty thousand dollars ($50,000). (h) Employee Outplacement Services. Ms. Fuller shall be eligible to participate in the Employee Outplacement Program, which program shall not be less than six (6) months duration measured from Ms. Fuller's Termination Date. (i) Non-qualified Retirement and Deferred Compensation Plans. The Parties agree that subsequent to a Change in Control, any claims by Ms. Fuller for benefits under any of the Company's non-qualified retirement or deferred compensation plans shall be resolved through binding arbitration in accordance with the provisions and procedures set forth in Paragraph 5 hereof and if any material issue in such dispute is finally resolved in Ms. Fuller's favor, the Company shall reimburse Ms. Fuller's legal fees in the manner provided in Paragraph 2.(g) hereof. 3. Transfer of Employment. In the event that Ms. Fuller's employment by the Company is terminated during the two year period following a Change in Control and Ms. Fuller accepts employment by Southern, a Southern Subsidiary, or any employer that succeeds to all or substantially all of the assets of the Company, Southern or any Southern Subsidiary, the Company shall assign this Agreement to Southern, such Southern Subsidiary, or successor employer, Southern shall accept such assignment or cause such Southern Subsidiary or successor employer to accept such assignment, and such assignee shall become the "Company" for all purposes hereunder. 4. No Mitigation. If Ms. Fuller is otherwise eligible to receive benefits under Paragraph 2 of this Agreement, she shall have no duty or obligation to seek other employment following her Termination Date and, except as otherwise provided in Paragraph 2.(a)(iii) hereof, the amounts due Ms. Fuller hereunder shall not be reduced or suspended if Ms. Fuller accepts such subsequent employment. 5. Arbitration. (a) Any dispute, controversy or claim arising out of or relating to the Company's obligations to pay severance benefits under this Agreement, or the breach thereof, shall be settled and resolved solely by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association ("AAA") except as otherwise provided herein. The arbitration shall be the sole and exclusive forum for resolution of any such claim for severance benefits and the arbitrators' award shall be final and binding. The provisions of this Paragraph 5 are not intended to apply to any other disputes, claims or controversies arising out of or relating to Ms. Fuller's employment by the Company or the termination thereof. (b) Arbitration shall be initiated by serving a written notice of demand for arbitration to Ms. Fuller, in the case of the Company, or to the Southern Board, in the case of Ms. Fuller. (c) The arbitration shall be held in Atlanta, Georgia. The arbitrators shall apply the law of the State of Georgia, to the extent not preempted by federal law, excluding any law which would require the application of the law of another state. (d) The parties shall appoint arbitrators within fifteen (15) business days following service of the demand for arbitration. The number of arbitrators shall be three. One arbitrator shall be appointed by Ms. Fuller, one arbitrator shall be appointed by the Company, and the two arbitrators shall appoint a third. If the arbitrators cannot agree on a third arbitrator within thirty (30) business days after the service of demand for arbitration, the third arbitrator shall be selected by the AAA. (e) The arbitration filing fee shall be paid by Ms. Fuller. All other costs of arbitration shall be borne equally by Ms. Fuller and the Company, provided, however, that the Company shall reimburse such fees and costs in the event any material issue in such dispute is finally resolved in Ms. Fuller's favor and Ms. Fuller is reimbursed legal fees under Paragraph 2.(g) hereof. (f) The parties agree that they will faithfully observe the rules that govern any arbitration between them, they will abide by and perform any award rendered by the arbitrators in any such arbitration, including any award of injunctive relief, and a judgment of a court having jurisdiction may be entered upon an award. (g) The parties agree that nothing in this Paragraph 5 is intended to preclude any court having jurisdiction from issuing and enforcing in any lawful manner such temporary restraining orders, preliminary injunctions, and other interim measures of relief as may be necessary to prevent harm to a party's interests or as otherwise may be appropriate pending the conclusion of arbitration proceedings pursuant to this Agreement regardless of whether an arbitration proceeding under this Paragraph 5 has begun. The parties further agree that nothing herein shall prevent any court from entering and enforcing in any lawful manner such judgments for permanent equitable relief as may be necessary to prevent harm to a party's interests or as otherwise may be appropriate following the issuance of arbitral awards pursuant to this Agreement. 6. Miscellaneous. (a) Funding of Benefits. Unless the Board in its discretion shall determine otherwise, the benefits payable to Ms. Fuller under this Agreement shall not be funded in any manner and shall be paid by the Company out of its general assets, which assets are subject to the claims of the Company's creditors. (b) Withholding. There shall be deducted from the payment of any benefit due 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 Ms. Fuller. (c) Assignment. Ms. Fuller shall have no rights to sell, assign, transfer, encumber, or otherwise convey the right to receive the payment of any benefit due hereunder, which payment and the rights thereto are expressly declared to be nonassignable and nontransferable. Any attempt to do so shall be null and void and of no effect. (d) Amendment and Termination. The Agreement may be amended or terminated only by a writing executed by the parties. (e) Construction. This Agreement shall be construed in accordance with and governed by the laws of the State of Georgia, to the extent not preempted by federal law, disregarding any provision of law which would require the application of the law of another state. (f) Pooling Accounting. Notwithstanding anything to the contrary herein, if, but for any provision of this Agreement, a Change in Control transaction would otherwise be accounted for as a pooling-of-interests under APB No.16 ("Pooling Accounting") (after giving effect to any and all other facts and circumstances affecting whether such Change in Control transaction would use Pooling Accounting,), such provision or provisions of this Agreement which would otherwise cause the Change in Control transaction to be ineligible for Pooling Accounting shall be void and ineffective in such a manner and to the extent that by eliminating such provision or provisions of this Agreement, Pooling Accounting would be required for such Change in Control transaction. IN WITNESS WHEREOF, the parties hereto have executed this Agreement this ____ day of __________________, 199__. THE SOUTHERN COMPANY By: ____________________________________ SOUTHERN ENERGY RESOURCES, INC. By: ____________________________________ MS. FULLER ------------------------------------ S. Marce Fuller Exhibit A CHANGE IN CONTROL AGREEMENT Target Annual Bonus for Ms. S. Marce Fuller 50% Exhibit B CHANGE IN CONTROL AGREEMENT Waiver and Release The attached Waiver and Release is to be given to Ms. S. Marce Fuller upon the occurrence of an event that triggers eligibility for severance benefits under the Change in Control Agreement, as described in Paragraph 2(a) of such agreement. CHANGE IN CONTROL AGREEMENT Waiver and Release I, S. Marce Fuller, understand that I am entitled to receive the severance benefits described in Section 2 of the Change in Control Agreement (the "Agreement") if I execute this Waiver and Release ("Waiver"). I understand that the benefits I will receive under the Agreement are in excess of those I would have received from The Southern Company and Southern Energy Resources, Inc. (collectively, the "Company") if I had not elected to sign this Waiver. I recognize that I may have a claim against the Company under the Civil Rights Act of 1964 and 1991, the Age Discrimination in Employment Act, the Rehabilitation Act of 1973, the Energy Reorganization Act of 1974, as amended, the Americans with Disabilities Act or other federal, state and local laws. In exchange for the benefits I elect to receive, I hereby irrevocably waive and release all claims, of any kind whatsoever, whether known or unknown in connection with any claim which I ever had, may have, or now have against The Southern Company, Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, Savannah Electric and Power Company, Southern Communication Services, Inc., Southern Company Services, Inc., Southern Energy Resources, Inc., Southern Company Energy Solutions, Inc., Southern Nuclear Operating Company, Inc. and other direct or indirect subsidiaries of The Southern Company and their past, present and future officers, directors, employees, agents and attorneys. Nothing in this Waiver shall be construed to release claims or causes of action under the Age Discrimination in Employment Act or the Energy Reorganization Act of 1974, as amended, which arise out of events occurring after the execution date of this Waiver. In further exchange for the benefits I elect to receive, I understand and agree that I will respect the proprietary and confidential nature of any information I have obtained in the course of my service with the Company or any subsidiary or affiliate of The Southern Company. However, nothing in this Waiver shall prohibit me from engaging in protected activities under applicable law or from communicating, either voluntary or otherwise, with any governmental agency concerning any potential violation of the law. In signing this Waiver, I am not releasing claims to benefits that I am already entitled to under any workers' compensation laws or under any retirement plan or welfare benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended, which is sponsored by or adopted by the Company and/or any of its direct or indirect subsidiaries; however, I understand and acknowledge that nothing herein is intended to or shall be construed to require the Company to institute or continue in effect any particular plan or benefit sponsored by the Company and the Company hereby reserves the right to amend or terminate any of its benefit programs at any time in accordance with the procedures set forth in such plans. In signing this Waiver, I realize that I am waiving and releasing, among other things, any claims to benefits under any and all bonus, severance, workforce reduction, early retirement, outplacement, or any other similar type plan sponsored by the Company. I have been encouraged and advised in writing to seek advice from anyone of my choosing regarding this Waiver, including my attorney, and my accountant or tax advisor. Prior to signing this Waiver, I have been given the opportunity and sufficient time to seek such advice, and I fully understand the meaning and contents of this Waiver. I understand that I may take up to twenty-one (21) calendar days to consider whether or not I desire to enter this Waiver. I was not coerced, threatened or otherwise forced to sign this Waiver. I have made my choice to sign this Waiver voluntarily and of my own free will. I understand that I may revoke this Waiver at any time during the seven (7) calendar day period after I sign and deliver this Waiver to the Company. If I revoke this Waiver, I must do so in writing delivered to the Company. I understand that this Waiver is not effective until the expiration of this seven (7) calendar day revocation period. I understand that upon the expiration of such seven (7) calendar day revocation period this entire Waiver will be binding upon me and will be irrevocable. I understand that by signing this Waiver I am giving up rights I may have. IN WITNESS WHEREOF, the undersigned hereby executes this Waiver this ____ day of ____________________, in the year _____. S. Marce Fuller Sworn to and subscribed to me this ____ day of ____________, _____. Notary Public My Commission Expires: (Notary Seal) Acknowledged and Accepted by the Company, as defined in the Waiver. By: _________ Date: _________ FIRST AMENDMENT TO CHANGE IN CONTROL AGREEMENT THIS FIRST AMENDMENT TO CHANGE IN CONTROL AGREEMENT ("Amendment") made and entered into by and between The Southern Company ("Southern"), Southern Energy Resources, Inc. (the "Company"), and Ms. S. Marce Fuller ("Ms. Fuller"), effective as of the 20th day of July, 1999. W I T N E S S E T H: WHEREAS, the parties entered into that certain Change in Control Agreement (the "Agreement") effective December 10, 1998; WHEREAS, Ms. Fuller was promoted to Chief Executive Officer of the Company effective July 20, 1999; WHEREAS, the parties wish to amend the Agreement in connection with such promotion; NOW, THEREFORE, in consideration of the premises, and the agreements of the parties set forth in this Amendment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Exhibit A of the Agreement is deleted in its entirety and the attached new Exhibit A is substituted in its place. IN WITNESS WHEREOF, this First Amendment to Change in Control Agreement has been executed by the parties, this ___ day of _____________, 1999. THE SOUTHERN COMPANY By: ______________________________ SOUTHERN ENERGY RESOURCES, INC. By: MS. FULLER ------------------------------ S. Marce Fuller Exhibit A CHANGE IN CONTROL AGREEMENT Target Annual Bonus for Ms. S. Marce Fuller 65% Exhibit B Deferred Compensation Agreement Annual Documentation of Profitability Goals For Performance Period EX-10.20 20 10(A)104 Exhibit 10(a)104 SEPARATION AGREEMENT FOR THOMAS G. BOREN THIS SEPARATION AGREEMENT ("Agreement"), made and entered by and between THE SOUTHERN COMPANY, SOUTHERN ENERGY RESOURCES, INC. and their affiliates ("Company") and THOMAS G. BOREN ("Employee"). W I T N E S S E T H WHEREAS, Employee has been employed by Company for approximately thirty (30) years; and WHEREAS, Company and Employee wish to agree finally and amicably to the terms of Employee terminatinghis employment with the Company; and WHEREAS, the parties desire to set forth their respective rights and obligations attendant to such termination; and WHEREAS, Employee is a member of a select group of management or highly compensated employee of the Company; and WHEREAS, the Company desires to provide Employee with severance compensation in consideration for certain reasonable restrictive covenants set forth in this Agreement; and WHEREAS, Employee agrees that he has obtained Confidential Information, Trade Secrets and Work Product, each as defined in this Agreement, during his employment with the Company; and WHEREAS, the parties desire to have Employee be subject to certain reasonable non-disclosure, non-solicitation and non-competition restrictions in order to protect the Company's legitimate business interests; and WHEREAS, the parties desire to delineate their respective rights, duties, and obligations, and desire complete accord and satisfaction of all claims arising from Employee's employment and its termination, with appropriate releases. NOW, THEREFORE, in consideration of the mutual premises and covenants hereinafter set forth 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. Termination of Employee. Effective July 31, 1999 (hereinafter the "Effective Date of Termination"), Employee is retiring from his current position as Chief Executive Officer of Southern Energy, Inc., and Executive Vice President of The Southern Company. Employee has no further privileges, duties or obligations in such capacity, nor as an agent of the Company. 2. Severance Benefits and Other Consideration. Employee is entitled to the customary retirement benefits accrued by Employee under the terms of the employee benefit plans maintained by the Company in which Employee participated, which benefits shall not be inconsistent with those set forth on Exhibit 1 of this Agreement. In exchange for the receipt of the fully executed original of this Agreement and Employee's retirement with Company, Company also agrees to pay to Employee: (a) A lump sum severance payment in the amount of $750,000, to be paid at separation after the Employee's release herein is effective, subject to appropriate deductions as required by law. (b) A payment in an amount determined by reference to the 1999 award that Employee could have received under the Southern Energy Resources, Inc. Short-Term Incentive Plan, pro-rated based on the Effective Date of Termination, and payable no later than March 15, 2000. For purposes of determining this amount, the corporate component will be determined under the normal procedures for this Plan, and the individual component will be paid at 100% of the targeted amount. (c) Under the Southern Energy Resources, Inc. Deferred Incentive Compensation Plan, Employee will be paid his vested awards determined as of the Effective Date of Termination by June 30th after the year in which each of Employee's deferral elections in effect for such awards ends. (d) Under the Southern Energy Resources, Inc. Deferred Incentive Compensation Plan, Employee will continue to vest in outstanding and unvested awards determined as of the Effective Date of Termination. Each award will be paid by June 30th after the year in which each such award vests. (e) Under the Southern Energy Resources, Inc. Value Creation Plan, Employee will continue to vest in Employee's outstanding, unvested Appreciation Rights and Index Rights as of the Effective Date of Termination (estimated to be approximately 1,033,053). Employee must exercise all such Appreciation Rights by no later than the end of the first exercise window period following the year the last Appreciation Right vests and each such Indexed Right no later than the end of the first exercise window period following the year in which the last Appreciation Right vests. Employee may exercise vested Appreciation and Index rights anytime prior to the date the last Appreciation Rights vests. (f) Under the Southern Energy Resources, Inc. Value Creation Plan, Employee will be entitled to exercise Employee's vested Appreciation Rights determined as of the Effective Date of Termination (estimated to be approximately 69,814) anytime prior to, but no later than the end of the first exercise window period after the date upon which the last unvested Appreciation Right described in Paragraph 2(e) vests. Employee will not vest and will forfeit unpaid portion of those payments described in Paragraph 2(b) and (d) of this Agreement in the event Employee breaches this Agreement prior to the payment dates for those amounts. Employee will not vest and will forfeit those awards described in Paragraph 2(e) and (f) of this Agreement in the event Employee breaches this Agreement prior to the last date for exercise of those awards. Upon Employee's satisfaction of the covenants set forth in Paragraph 4 of this Agreement, any remaining benefits under this Paragraph 2 shall no longer be subject to forfeiture. In no event will the Employee be required to repay any amounts that have been paid to Employee prior to any breach except pursuant to an action at law or in equity for money damages as described in Paragraph 11 hereof. Employee shall only be entitled to the benefit payments set forth above that become due and payable between Employee's Effective Date of Termination and his death. Upon the death of Employee, unpaid amounts set forth above shall be payable to Employee's heirs or assigns. Except as provided in Paragraph 3(c), Employee covenants and agrees that the amounts and considerations set forth in this Paragraph 2 are in full satisfaction of all sums owed to Employee, if any, by the Company, and constitute good and complete consideration for his release contained in Paragraph 3(a) hereof and for Employee's obligations and other covenants set forth in Paragraph 4 and elsewhere in this Agreement. Employee agrees that the Agreement is providing him certain benefits to which he would otherwise not be entitled, including those set forth in Paragraph 2(a), (b), (c), (d), except in part with respect to vested awards, (e) and (f), except in part with regard to vested awards. Employee represents that he is legally and wholly responsible for any and all required taxes, fees, or other deductions required by law arising from this Agreement and the aforementioned payments which may accrue now or at any time in the future. Company shall make appropriate state and federal income tax, FICA and FUTA withholding, from such payments as required by state and/or federal law. In the event that the Company shall believe that Employee is in breach of this Agreement, the Company shall give Employee written notice of such breach and the facts and circumstances supporting such belief. Employee shall have fourteen (14) days from his receipt of such notice to cure such default and avoid a default or breach of this Agreement by Employee. Company agrees that it will not take any action specifically intended to disadvantage Employee in regard to the computation, exercise or payment of the benefits included in this Paragraph 2, and will treat Employee as the Company generally treats its employees or former employees with regard to such benefits. 3. General Release by Employee. (a) As a material inducement to the Company to enter into this Agreement, 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, and assigns (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 and any claims to benefits under any and all bonus, incentive offer letters, employment agreements, severance, workforce reduction, early retirement, outplacement, or any other similar type plan 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 and/or the termination of his employment relationship and/or affiliation as employee of the Company as of the date of this Agreement against each of the Releasees; provided, however, that the foregoing shall not release the Company from any of its obligations under this Agreement. Notwithstanding the foregoing, Employee does not release any Claims under the Age Discrimination in Employment Act that may arise after his execution of this Agreement. (b) 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 Agreement. (c) Employee and the Company agree that by signing this Agreement, Employee is not releasing his claim to any benefits under any employee benefit plan maintained by the Company payable upon normal retirement in which Employee participated prior to the Effective Date of Termination. 4. Non-Disclosure, Non-Solicitation and Non-Competition Provisions. (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 Non-Disclosure, Non-Solicitation and Non-Competition Provisions. (b) Definitions. For purposes of this Paragraph 4, the following terms shall have the following meanings: (i) "Confidential Information" shall mean the proprietary and confidential data or information belonging to or pertaining to the Company, other than "Trade Secrets" (as defined below), which is of tangible or intangible value to the Company, and that is not generally known to the public but is treated as confidential or secret by the Company and is generally known only to the Company and those of its employees, independent contractors or agents to whom such information must be confided for business purposes, regarding the products, services, contractual arrangements, customers, suppliers, and partners of the Company gained by Employee as a result of his employment with the Company. Confidential Information shall also include other items that the Company may from time to time mark or otherwise identify as confidential if it satisfies the definition of Confidential Information set forth above. (ii) "Entity" shall mean any business, individual, partnership, joint venture, agency, governmental subdivision, association, firm, corporation or other entity. (iii) "Territory" shall include Georgia, Alabama, Mississippi, and Florida. (iv) "Trade Secrets" shall mean information of the Company which (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; it being agreed that such information includes, without limitation, technical and non-technical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans or a list of actual or potential customers or suppliers or any other information which is defined as a "trade secret" under applicable law. (v) "Work Product" shall mean all tangible work product, property, data, documentation, "know-how," concepts or plans, inventions, discovery, compositions, innovations, computer programs, improvements, techniques, processes, designs, article of manufacture or information of any kind, or any new or useful improvements of any of the foregoing and any Trade Secrets, patents, copyrights, Confidential Information, mask work, trademark or service mark, relating in any way to the Company and its or their business prepared, conceived, revised discovered, developed, or created by Employee for the Company or by using the Company's time, personnel, facilities, equipment, knowledge, information, resources or material. (c) Nondisclosure: Ownership of Proprietary Property. (i) In recognition of the need of the Company to protect its legitimate business interests, Employee hereby covenants and agrees that: (a) with regard to each item constituting all or any portion of a Trade Secret at all times such information remains a "trade secret" under applicable law and (b) with regard to any Confidential Information, for a period ending upon the earlier of (x) the date such information no longer qualifies as Confidential Information under applicable law or (y) three (3) years following the Effective Date of Termination (hereafter the "Nondisclosure Period"), 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. Employee shall exercise all reasonable best efforts to ensure the continued confidentiality of all Trade Secrets and Confidential Information of the Company known by, disclosed to or made available to Employee in connection with his employment relationship with the Company or any other past or present relationship with the Company. Employee 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 reasonably necessary at the Company's expense, in the procurement of any protection of the Company's rights to or in any of the Trade Secrets or Confidential Information. (ii) 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, trade secrets, service marks 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 reasonably deem necessary or appropriate, from time to time, 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. (iii) Employee represents and agrees that he will keep the terms and amount of this Agreement completely confidential, and except to his personal agents (including accountants, tax advisors, wife, financial planners and attorneys) or to the extent required by law, he will not hereafter disclose this information concerning this Agreement to anyone, including, but not limited to, any past, present, or prospective employee or applicant for employment with the Company. Employee may only disclose to future, potential employers of Employee that he participates in a separation arrangement with the Company which imposes certain restrictions on him related to such future, potential employment and the specifics of those restrictions. (iv) Employee agrees that he shall not hereafter seek or accept any re-employment with the Company. (d) Non-Solicitation Of Employees. Employee agrees, during the three years following the Employee's Effective Date of Termination, that he will not, either directly or indirectly, alone or in conjunction with any other person or entity, actively recruit, engage in passive hiring efforts, solicit, attempt to solicit, or induce any person who, during such three year period, or within one year prior to Employee's separation from employment, was a salaried employee of Southern Energy Resources, Inc., or its parent or any of its subsidiaries, or was an officer of The Southern Company or any of its affiliates (other than Southern Energy, Inc.) to leave or cease such employment for any reason whatsoever or hire or engage the services of such person in any business substantially similar or competitive with that in which The Southern Company or any of its affiliates were engaged during such employment. (e) Non-Competition. Employee and Company expressly covenant and agree that the scope, Territory, time and other restrictions contained in this 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. Therefore, for a period of two years from the Effective Date of Termination, Employee agrees (A) not to participate in any regulatory, administrative or judicial hearing or proceeding that has as a subject any aspect of the Company's growth or expansion plans, unless Employee is required to do so by law, (B) not to accept employment, or be engaged as a director, consultant, agent or representative in any capacity, however described, of El Paso Energy Corporation, Sonat, Inc., Duke Energy Corporation, Enron or Columbia Energy Corporation or any of their affiliates (the "Specified Companies), provided, however, Employee may become such an employee, director, consultant, agent or representative of any such Specified Company if the entity by which Employee is employed and/or serves as a director is acquired by or merged with any one of the Specified Companies during the two year period following the Effective Date of Termination, (C) not to accept employment or be engaged as a director, consultant, agent or representative in any capacity, however described, of any entity engaged, in any way, in constructing an electric generating plant which will be in commercial operation within the Territory within two years from the Effective Date of Termination, unless on behalf of an entity that owns or operates an existing electric generating plant within the Territory as of the Effective Date of Termination, and (D) if Employee becomes employed by, or otherwise engaged by, an entity that is engaged, in any way, in constructing an electric generating plant that will be in commercial operation within the Territory within three years of the Effective Date of Termination, not to participate in the bidding, permitting, construction or public relations activities regarding such plant. 5. Return Of Company Property. Employee shall immediately return to the Company all property of the Company that he took possession of during the term of his employment and which he has not already returned to the Company and all documents and materials constituting or containing Trade Secrets or Confidential Information of the Company or Work Product including, without limitation, credit cards, keys, financial records, contracts, manuals, correspondence, files, documents, drafts of any document, disks an other documents and media, regardless of form, and copies of any of the foregoing. 6. 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 inquires or investigations, or required filings with state, federal or foreign agencies (hereinafter "Company Matters"). Upon request of the Company, and at any point following the Effective Date of Termination, 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. 7. Publicity; No Disparaging Statement. 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. The only exception to the foregoing shall be in those circumstances (a) in which Employee, the Company or any of the Releasees is obligated to provide information in response to an investigation by a duly authorized governmental entity, in response to legal process, or in response to a request for information from an officer, director or shareholder of the Company or (b) in which a party initiates a legal proceeding to enforce the terms of this Agreement. 8. 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 Releasees 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 GEORGIA (WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS). 9. 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 between the parties whether written or oral. This Agreement shall not be modified or amended except by a written instrument signed by both Employee and an authorized representative of the Company. 10. 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. If any court determines that any provision of Paragraph 4 hereof is unenforceable because of the duration or scope of such provision, such court shall have the power to reduce the scope or duration of such provision as the case may be, and in its reduced form, such provision shall then be enforceable. 11. Waiver Of Breach; Remedies. 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 rights under this Agreement specifically, to recover damages by reason of any breach of any provision of this Agreement and exercise all other rights existing in its favor. The parties hereto agree and acknowledge that any breach of the provisions of this Agreement, including, but not limited to, any prohibited competition or any disclosure or use of Trade Secrets or Confidential Information by Employee, would be wrongful and cause immediate significant, continuing and irreparable injury and damage to the Company that is not compensable by money damages. Should Employee breach or threaten to breach any provision of this Agreement, the Company shall be entitled to stop payments under this Agreement and seek immediate relief and remedies in a court of competent jurisdiction (including, but not limited to, damages, preliminary or permanent injunctive relief and an accounting for all profits and benefits arising out of Employee's breach), cumulative of and in addition to any other rights or remedies to which the Company may be entitled by this Agreement, at law or in equity. 12. No Admission Of Liability. This Agreement 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, its employees, or its agents. 13. Voluntary Signing Of Agreement. Employee warrants, represents and agrees that he has been encouraged in writing to seek advice from anyone of his choosing regarding this Agreement, including his attorney, accountant, or tax advisor prior to his signing it; that this Agreement 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 Agreement. EMPLOYEE UNDERSTANDS THAT HE MAY TAKE UP TO TWENTY-ONE (21) DAYS TO CONSIDER WHETHER OR NOT HE DESIRES TO ENTER INTO THIS AGREEMENT. He further represents and warrants that he was not coerced, threatened or otherwise forced to sign this Agreement, and that each signature appearing hereinafter is voluntary and genuine. . 13. Ability to Revoke Agreement. EMPLOYEE UNDERSTANDS THAT HE MAY REVOKE THIS AGREEMENT BY NOTIFYING THE COMPANY IN WRITING OF SUCH REVOCATION WITHIN SEVEN (7) DAYS OF HIS EXECUTION OF THIS AGREEMENT AND THAT THIS AGREEMENT 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 AGREEMENT WILL BE BINDING UPON HIM AND HIS HEIRS, ADMINISTRATORS, REPRESENTATIVES, EXECUTORS, SUCCESSORS AND ASSIGNS AND WILL BE IRREVOCABLE. IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of the dates described below. "COMPANY" THE SOUTHERN COMPANY AND ITS AFFILIATES ____________________________________ By:____________________________________ Date_____ _________ Title:_________________________________ Title: I UNDERSTAND THAT BY SIGNING THIS AGREEMENT, I AM GIVING UP RIGHTS I MAY HAVE. I UNDERSTAND THAT I DO NOT HAVE TO SIGN THIS AGREEMENT. __________________ "EMPLOYEE" ____________________________________ By:________________________________ Date Exhibit 1 to Boren Severance Agreement Normal Benefits Upon Retirement - ------------------------------------------------------------------------------- SEI's Short-term Incentive Plan -- $0 o 1999 award forfeited due to separation prior to Normal Retirement (age 65) Southern's Voluntary Deferred Compensation Plan - About $30,000 o Any amounts will be paid according to last effective form of payment election SEI's Mandatory Deferred Incentive Compensation Plan - About $242,000 o Amount payable in a single sum upon termination o Nonvested amounts lost due to separation before Normal Retirement (value today about $531,000) Value Creation Plan - 69,812 SAR awards o Includes normal and indexed SARs o Exercisable within 30 days of separation o Current value approximately $121,000 as of July 15, 1999 o Remaining 1,033,055 awards forfeited due to nonvested separation prior to Normal Retirement Nonqualified Stock Options - 89,097 awards o Full vesting of all nonvested options upon retirement o Exercisable within 36 months of retirement o Current value approximately $365,000 as of July 15, 1999 o Continued eligibility for performance dividend payments for all options granted after 1996 Pension - About $12,325 per month o Includes tax-qualified and supplemental pension benefits o Expressed as single life annuity (other forms of payment available with appropriate adjustment) o Anticipates retirement and benefit commencement on August 1, 1999 o 1999 incentives reflected at $0 ESP/ESOP - About $352,000 as of July 14, 1999 o Includes qualified and supplemental account balances o Payable at or after retirement in accordance with plans' provisions and employee's elections Retiree Medical and Life Insurance - Coverage o Coverages pursuant to terms of "cap" plans o Coverages subject to affirmative coverage election, payment of required contributions, and amendment/termination by company Relevant Notes o All amounts subject to appropriate taxation. o All amounts are based on separation from service on July 31, 1999. o Amounts are based on best available information but are still approximate due to limited access to information at the current time. Amounts will be verified and, if necessary, adjusted once all relevant information is accessible. EX-10.21 21 10(B)44 Exhibit 10(b)44 DEFERRED COMPENSATION PLAN FOR DIRECTORS OF ALABAMA POWER COMPANY As Amended and Restated as of April 25, 1997 ARTICLE I DEFINITIONS 1.1 Board of Directors shall mean the Board of Directors of Alabama Power Company. 1.1A Accrued Pension means the U.S. dollar amount of the actuarially-determined present value of the accrued and unpaid past service pension benefits under The Southern Company Outside Directors Pension Plan (the "Directors Pension Plan") of a Director acting as such at and as of December 31, 1996, as calculated as of the termination date of the Directors Pension Plan (the "Termination Date"), taking into account the Director's age and years and months of past service and such other assumptions as shall be reasonable and uniformly applied to all Directors. 1.2 Company shall mean Alabama Power Company. 1.3 Common Stock shall mean the Common Stock of Southern Company. 1.4 Compensation shall mean the compensation payable to the Directors of the Company and shall include retainer fees and meeting fees, as determined from time to time by the Board of Directors, except such term shall not include Common Stock payable to a Director under the Outside Directors Stock Plan for Subsidiaries of Southern Company. 1.5 Compensation Committee shall mean the Compensation Committee appointed by the Board of Directors. 1.6 Deferred Compensation Account shall mean the account established pursuant to Section 7.1 for a Director who elects to participate in the Plan. 1.7 Director shall mean a member of the Board of Directors and shall include an Advisory Director. 1.8 Market Value shall mean the average of the high and low prices of the Common Stock, as published in the Wall Street Journal in its report of New York Stock Exchange composite transactions, on the date such Market Value is to be determined, as specified herein (or the average of the high and low sale prices on the trading day immediately preceding such date if the Common Stock is not traded on the New York Stock Exchange on such date). 1.9 Plan shall mean this Deferred Compensation Plan for the Directors of Alabama Power Company. 1.10 Plan Period shall mean the period designated in Article V. ARTICLE II PURPOSE 2.1 The Plan provides a method of deferring payment to a Director of his Compensation as fixed from time to time by the Board of Directors, until termination of his service on the Board. ARTICLE III ELIGIBILITY 3.1 An individual who serves as a Director and is not otherwise actively employed by the Company or any of its subsidiaries shall be eligible to participate in the Plan. ARTICLE IV ADMINISTRATION 4.1 The Plan shall be administered by the Compensation Committee of the Board of Directors as appointed from time to time. The Compensation Committee shall have the power to interpret the Plan and, subject to its provisions, to make all determinations necessary or desirable for the Plan's administration. ARTICLE V PLAN PERIODS 5.1 The first Plan Period shall commence the first day of the month which begins at least thirty (30) days following the date a Director is elected to that position. Said first Plan Period shall continue until the end of the calendar year during which the Director was elected to that position and all subsequent Plan Periods shall be on a calendar year basis. ARTICLE VI PARTICIPATION 6.1 Prior to the beginning of any Plan Period, a Director may elect to participate in the Plan by directing that payment of all or any part of the Compensation which would otherwise be paid to the Director in the next succeeding Plan Period be deferred until the Director terminates his membership on the Board of Directors. 6.2 The deferred payment shall be computed by the Company in accordance with one of the following methods as elected by the Director: (a) The amount deferred shall be treated as a sum certain to which the Company will add in lieu of interest an amount equal to the prime rate of interest set by AmSouth Bank, N.A. Interest shall be computed as if credited from the date such Compensation would otherwise have been paid and shall be compounded quarterly at the end of each calendar quarter. The prime rate in effect on the first day of each calendar quarter shall be deemed the prime rate in effect for each calendar quarter. Interest will be treated as if accrued and will be compounded on any balance until such amount is fully distributed. (b) The amount deferred shall be treated as though invested in Common Stock and the number of shares (including fractional shares) credited to the Director's Deferred Compensation Account shall be based on the Market Value of the Common Stock as of the date the Compensation would otherwise have been paid. As of each date of payment of dividends on the Common Stock, there shall be credited with respect to shares of Common Stock in the Director's Deferred Compensation Account such additional shares (including fractional shares) of Common Stock as follows: (i) In the case of cash dividends, such additional shares as could be purchased at the Market Value as of the dividend payment date with the dividends which would have been payable if the credited shares had been outstanding; (ii) In the case of dividends payable in property other than cash or Common Stock, such additional shares as could be purchased at the Market Value as of the payment date with the fair market value of the property which would have been payable if the credited shares had been outstanding; or (iii) In the case of dividends payable in Common Stock, such additional shares as would have been payable on the credited shares if they had been outstanding. 6.3 The election to defer payment of all or any part of the Compensation ("Deferral Election") and the method by which the Company shall compute the deferred payment in accordance with Section 6.2 shall be made by written notice on a form prescribed by the Compensation Committee and delivered to the Secretary of the Company prior to the first day of a Plan Period. At the time of the initial election made under this Article VI, the Director shall elect the form of payment to be received upon termination of his membership on the Board of Directors, such form of payment to be either (1) a lump sum distribution, or (2) annual or quarterly installments, over a period not to exceed fifteen (15) years and the time for commencement of distribution of payment, which shall not be later than the first day of the month coinciding with or next following the second anniversary of the termination of his membership on the Board of Directors. The Deferral Election shall be irrevocable and shall continue from year to year unless the Director terminates participation or changes the election regarding future payments by submitting a written request to the Secretary on a form prescribed by the Compensation Committee. Although a Director may submit such a written request at any time during the calendar year, the effective date of such a termination of participation or change in the Deferral Election shall not affect amounts previously deferred. The initial Deferral Election made after the effective date of this Amendment Three with respect to (a) the method of payment, whether it be lump sum or installments, including the number of installments selected, and (b) the time for commencement of distribution of a Director's Deferred Compensation Account may not be revoked and shall govern the distribution of a Director's Deferred Compensation Account, except as provided in Section 6.6. This Amendment Number Three shall have no affect on the payment of benefits to Directors who completed service prior to the effective day of this Amendment, and their benefits shall be payable in accordance with the terms of the Plan prior to this Amendment. 6.4 A Director who has filed a termination of election may thereafter file a new election to participate to be effective as of the first day of the Plan Period subsequent to the filing of such new election. A new election is subject to all requirements for participation contained in this Article VI of the Plan. The new election shall not affect amounts previously deferred. 6.5 Any Director, who has an Accrued Pension as of the Termination Date, may make a single one-time election, on or before June 1, 1997 in writing and on a form prescribed by the Compensation Committee, to convert his or her Accrued Pension into a deferred pension account under the Plan (a "Deferred Pension Account"). Upon making a deferred pension election (a "Deferred Pension Election"), a new Deferred Pension Account will be established in the Director's name and will be credited with the amount of his or her Accrued Pension so converted. Once made, a Deferred Pension Election cannot be changed or revoked. A Deferred Pension Election shall defer the starting date for the payment of the designated amount of the Director's Accrued Pension, and any investment return credited thereon, until the termination of the Director's membership on the Board. In the event of any such Deferred Pension Election, the form of payment of any distribution (i.e., in a lump sum or in approximately equal quarterly or annual installments over a period not to exceed fifteen (15) years) and the starting date of such distribution (which may not be later than the date which is twenty-four (24) months following the date of termination of membership on the Board), shall be elected at the same time. Except as otherwise provided by the Plan, such form of payment and time of payment election shall not be changed or revoked. 6.6 Except as provided below, with the approval of the Compensation Committee, a Director may amend a prior Deferral Election on a form prescribed by the Compensation Committee not prior to the 390th day nor later than the 360th day prior to his termination of membership on the Board of Directors in order to change (a) the form, and/or (b) the time for commencement of the distribution of his Deferred Compensation Account in accordance with the terms of the Plan; provided, however, that any Director whose election is restricted by the Securities and Exchange Act of 1934, as amended, with respect to equity securities of The Southern Company, shall not be permitted to amend his Deferral Election if such an amendment would be restricted by Rule 16 of the Securities and Exchange Act of 1934, as amended. Any such amendment to a prior Deferral Election, as described in this Section 6.6, shall be contingent upon the Director's completion of his term of membership on the Board of Directors, except in the event of the disability or death of such Director. ARTICLE VII DEFERRED COMPENSATION ACCOUNTS 7.1 An account shall be established on the Company books for each Director electing deferral, which shall be designated as the Deferred Compensation Account of said Director. The amounts computed in accordance with Article VI shall be credited to the account. 7.2 At the end of each Plan Period, a report shall be issued to each Director who has a Deferred Compensation Account which sets forth the amount and the Market Value of any shares of Common Stock (and fractions thereof) reflected in such account. ARTICLE VIII DISTRIBUTION OF ACCOUNTS 8.1 When a Director terminates his membership on the Board of Directors, said Director shall be entitled to receive the entire amount and the market value of any shares of Common Stock (and fractions thereof) reflected in his Deferred Compensation Account as computed in accordance with Section 6.2, payable in cash in accordance with his deferral election pursuant to Section 6.3. No portion of a Director's Deferred Compensation Account shall be distributed in Common Stock. In the event a Director shall have elected to receive the balance of his Deferred Compensation Account in a lump sum, distribution shall be made following his termination of membership on the Board in accordance with his election regarding time of payment of benefits. In the alternative, the Director may irrevocably elect by written notice to the Secretary of the company to receive quarterly or annual installments of the deferred amount. The installments shall not extend over a period longer than fifteen (15) years. The election shall be part of the initial election to defer the payment of Compensation. The payment or payments shall be in cash. In the event the Director shall have elected to receive installments, the first payment shall commence in accordance with his election regarding the time of payment of benefits and shall be an amount equal to the balance in the Director's Deferred Compensation Account on such date divided by the number of installment payments. Each subsequent payment shall be an amount equal to the balance of the Director's Account on the payment date divided by the number of remaining payments. Notwithstanding a Directors election to receive his Deferred Compensation Account balance in installments, the Compensation Committee, upon request of the Director or his legal representative, and in its sole discretion, may accelerate the payment or any such installments for cause, such as financial hardship or financial emergency. The Market Value of any shares of Common Stock credited to a Director's Deferred Compensation Account shall be determined as of the twenty-fifth (25th) day of the month immediately preceding the date of any lump sum or installment distribution. 8.2 Upon the death of a Director, or a former Director prior to the payment of all amounts credited to said Director's Deferred Compensation Account, the entire unpaid balance shall be paid to the designated beneficiary of such Director or former Director within thirty (30) days of the date of death or as soon as reasonably possible thereafter. In the event a beneficiary designation is not on file or the designated beneficiary is deceased or cannot be located, payment shall be made to the estate of the Director or former Director. 8.3 The beneficiary designation referred to above may be changed by a Director or former Director at any time, and without the consent of the prior beneficiary, on a form to be provided by the Secretary of the Company. ARTICLE IV MISCELLANEOUS 9.1 No Director or Beneficiary shall have any right to sell, assign, transfer, encumber or otherwise convey the right to receive payment of any benefit payable hereunder, which payment and the right thereto are expressly declared to be nonassignable and nontransferable. Any attempt to do so shall be null and void and of no effect. 9.2 The Company shall not reserve or otherwise set aside funds for the payment of its obligations hereunder, which obligations will be paid from the general assets of the Company. Notwithstanding that a Director shall be entitled to receive the entire amount in his Deferred Compensation Account as provided in Section 8.1, any amounts credited to a Director's Account to be paid to such Director shall at all times be subject to the claims of the Company's creditors. 9.3 The Board of Directors may terminate the Plan at any time or may, from time to time, amend the Plan; provided, however, that no such amendment or termination shall impair any rights to payments which had been deferred under the Plan prior to the termination or amendment. 9.4 This Plan shall be construed in accordance with and governed by the laws of the State of Alabama. EX-10.22 22 10(C)81 Exhibit 10(c)81 DEFERRED COMPENSATION PLAN FOR DIRECTORS OF GEORGIA POWER COMPANY Amended and Restated Effective November 19,1986 Article I -- Definitions 1.1 "Account" shall mean the Deferred Compensation Account established for each Director electing to participate in the Plan pursuant to Article VI. 1.2 "Board of Directors" or "Board" shall mean the Board of Directors of Georgia Power Company. 1.3 "Common Stock" shall mean the common stock of The Southern Company. 1.4 "Company" shall mean Georgia Power Company. 1.5 "Compensation" shall mean the compensation payable to the Directors of the Company, including retainer fees and meeting fees, as determined from time to time by the Board of Directors. 1.6 "Deferral Election" shall mean the written election by a Director to defer payment of all or a portion of his Compensation under the Plan pursuant to Article VI. 1.7 "Director" shall mean a member of the Board of Directors and shall include an Advisory Director. 1.8 "Investment Election" shall mean the written election by a Director to have his deferred Compensation invested pursuant to Section 7.2 or Section 7.3. 1.9 "Market Value" shall mean the average of the high and low sale prices of the Common Stock, as published in The Wall Street Journal in its report of New York Stock Exchange composite transactions, on the date such Market Value is to be determined, as specified herein (or the average of the high and low sale prices on the trading day immediately preceding such date if the Common Stock is not traded on the New York Stock Exchange on such date). 1.10 "Plan" shall mean the Deferred Compensation Plan for Directors of Georgia Power Company. 1.11 "Plan Period" shall mean the Period designated in Article V. Article II--Purpose 2.1 The Plan provides a method of deferring payment to a Director of his Compensation until a date following the termination of his membership on the Board of Directors. Article III--Eligibility 3.1 An individual who serves as a Director and is not otherwise actively employed by the Company or any of its subsidiaries or affiliates shall be eligible to participate in the Plan. Article IV--Administration 4.1 The Plan shall be administered by the Compensation Committee of the Board of Directors, as appointed from time to time. The Compensation Committee shall have the power to interpret the Plan and, subject to its provisions, to make all determinations necessary or desirable for the Plan's administration. Article V--Plan Periods 5.1 The first Plan Period shall commence April 1, 1982. Said first Plan Period shall be a nine-month period and all subsequent Plan Periods shall be on a calendar year basis, except that the initial Plan period applicable to any person elected to fill a vacancy on the Board of Directors who was not a Director on the preceding December 31 shall begin on the first day of such Director's membership on the Board of Directors. Article VI--Participation 6.1 Prior to the beginning of any Plan Period, a Director may elect to participate in the Plan by directing that payment of all or any part of the Compensation which would otherwise be paid to the Director in the next succeeding Plan Period be deferred until the Director terminates his membership on the Board of Directors and elects to commence distribution of his Deferred Compensation Account pursuant to the terms of the Plan. 6.2 The Deferral Election shall be in writing on a form prescribed by the Compensation Committee and shall state (a) that the Director wishes to make an election to defer payment of his Compensation, (b) the percentage dollar amount of Compensation to be deferred, (c) the method of payment, which shall be the payment of a lump sum or a series of annual payments not to exceed ten (10), and (d) the time for commencement of distribution of his Account balance, which shall be not later than the first day of the month coinciding with or next following the second anniversary of the termination of his membership on the Board of Directors. Each Director making a Deferral Election in accordance with the terms of the Plan, and his successors, heirs and assigns shall be bound as to any action taken pursuant to the terms thereof and to the terms of the Plan. 6.3 The Deferral Election shall be made by written notice delivered to the Secretary of the Company prior to the first day of the next succeeding Plan Period and shall be effective on the first day of such succeeding Plan Period. The Deferral Election made in accordance with this Article shall be irrevocable. Such Deferral Election shall continue from Plan Period to Plan Period unless the Director terminates participation or changes the Deferral Election regarding future payments by submitting a written request to the Secretary of the Company on a form prescribed by the Compensation Committee. Any such termination or change shall become effective as of the first day of the Plan Period next following the Plan Period in which such request is given. A termination of participation in the Plan or change in Deferral Election regarding future payments shall not affect amounts previously deferred. The initial Deferral Election made after the effective date of this Amendment and Restatement with respect to (a) the method of payment, whether it be lump sum or installments, including the number of installments selected, and (b) the time for commencement of distribution of a Participant's Account may not be revoked and shall govern the distribution of a Participant's Account, except as provided in Section 6.5. 6.4 A Director who has filed a termination of Deferral Election may thereafter file a new Deferral Election to participate for Plan Periods subsequent to the Plan Period of the filing of such Deferral Election. The new Deferral Election shall not affect amounts previously deferred. 6.5 A Director may amend a prior Deferral Election on a form prescribed by the Compensation Committee not prior to the sixtieth (60th) day nor later than the thirtieth (30th) day prior to his termination on the Board of Directors in order to change (a) the form, and/or (b) the time for commencement of his Deferred Compensation Account in accordance with the terms of the Plan. Article VII--Deferred Compensation Accounts 7.1 An Account shall be established on the Company books for each Director electing to defer all or a portion of his Compensation, which shall be credited with (a) any Compensation deferred in accordance with Article VI and (b) pursuant to each Director's Investment Election, the amounts computed in accordance with Section 7.2 and/or the number of shares computed in accordance with Section 7.3. 7.2 The Deferred Compensation Account of each Director electing to invest his deferred Compensation for a Plan Period pursuant to this Section 7.2 shall be credited with an amount computed by the Company by treating the amount deferred as a sum certain to which the Company will add in lieu of interest an amount equal to the prime rate of interest set by The First National Bank of Atlanta. Interest shall be computed as if credited from the date such Compensation would otherwise have been paid and shall be compounded quarterly at the end of each calendar quarter. The prime rate in effect on the first day of each calendar quarter shall be deemed the prime rate in effect for each calendar quarter. Interest will be treated as if accrued and will be compounded on any balance until such amount is fully distributed. 7.3 The Deferred Compensation Account of each Director electing to invest his Deferred Compensation for a Plan Period pursuant to this Section 7.3 shall be credited with the number of shares (including fractional shares) of Common Stock which could have been purchased on the date such Deferred Compensation otherwise would have been paid based upon the Common Stock's Market Value. As of each date of payment of dividends on the Common Stock, there shall be credited with respect to shares of Common Stock in the Director's Deferred Compensation Account such additional shares(including fractional shares) of Common Stock as follows: (a) In the case of cash dividends, such additional shares as could be purchased at the Market Value as of the dividend payment date with the dividends which would have been payable if the credited shares had been outstanding; (b) In the case of dividends payable in property other than cash or Common Stock, such additional shares as could be purchased at the Market Value as of the payment date with the fair market value of the property which would have been payable if the credited shares had been outstanding; or (c) In the case of dividends payable in Common Stock, such additional shares as would have been payable on the credited shares if they had been outstanding. 7.4 The Investment Election by a Director with respect to his Deferred Compensation Account shall be made in writing on a form prescribed by the Compensation Committee. Any Investment Election shall be delivered to the Secretary of the Company prior to the first day of the next succeeding Plan Period and shall be effective on the first day of such succeeding Plan Period. The Investment Election made in accordance with this Article VII shall be irrevocable. Such Investment Election shall continue from Plan Period to Plan Period unless the Director changes the Investment Election regarding future Deferred Compensation by submitting a written request to the Secretary of the Company on a form prescribed by the Compensation Committee. Any such change shall become effective as of the first day of the Plan Period next following the Plan Period in which such request is given. 7.5 At the end of each Plan Period, a report shall be issued to each Director who has a Deferred Compensation Account which sets forth the amount and Market Value of any shares of Common Stock (and fractions thereof) reflected in such Account. Article VIII--Distribution of Accounts 8.1 When a Director terminates his membership on the Board of Directors, said Director shall be entitled to receive the entire amount and the Market Value of any shares of Common Stock (and fractions thereof) reflected in his Deferred Compensation Account payable in cash in accordance with his Deferral Election. No portion of a Director's Deferred Compensation Account shall be distributed in Common Stock. In the event a Director shall have elected to receive the balance of his Deferred Compensation Account in a lump sum, distribution shall be made on the first day of the month selected by the Director in accordance with the terms of the Plan, or as soon as reasonably possible thereafter. In the event the Director shall have elected to receive annual installments, the first payment shall be on the first day of the month selected by a Director, or as soon as reasonably possible thereafter, and shall be an amount equal to the balance in the Director's Account on such date divided by the number of annual installment payments. Each subsequent annual payment shall be an amount equal to the balance in the Director's Account on the payment date divided by the number of remaining annual payments and shall be paid on the anniversary of the preceding payment date. The Market Value of any shares of Common Stock credited to a Director's Deferred Compensation Account shall be determined as of the twenty-fifth (25th) day of the month immediately preceding the date of any lump sum or installment distribution. 8.2 Upon the death of a Director, or a former Director, prior to the payment of all amounts and the Market Value of any shares of Common Stock (and fractions thereof) credited to said Director's Account, the unpaid balance shall be paid at the sole discretion of the Compensation Committee (a) in a lump sum to the designated beneficiary of such Director or former Director within thirty (30) days of the date of death (or as soon as reasonably possible thereafter) or (b) in accordance with the Deferral Election made by such Director or former Director. In the event a beneficiary designation has not been made, or the designated beneficiary is deceased or cannot be located, payment shall be made to the estate of the Director or former Director. The Market Value of any shares of Common Stock credited to a Director's Deferred Compensation Account shall be determined as of the twenty fifth (25th) day of the month immediately preceding the date of any lump sum or installment distribution. 8.3 The beneficiary designation referred to above may be changed by a Director or former Director at any time, and without the consent of the prior beneficiary, on a form to be provided by the Secretary of the Company. Article IX--Miscellaneous 9.1 No Director or beneficiary shall have any right to sell, assign, transfer, encumber or otherwise convey the right to receive payment of any benefit payable here under, which payment and the right thereto are expressly declared to be nonassignable and nontransferable. Any attempt to do so shall be null and void and of no effect. 9.2 The Company shall not reserve or otherwise set aside funds for the payment of its obligations here under, which obligations will be paid from the general assets of the Company. Notwithstanding that a Director shall be entitled to receive the entire amount in his Deferred Compensation Account as provided in Section 8.1, any amounts credited to a Director's Account to be paid to such Director shall at all times be subject to the claims of the Company's creditors. 9.3 The Board of Directors may terminate the Plan at any time or may, from time to time, amend the Plan; provided, however, that no such amendment or termination shall impair any rights to payments which had been deferred under the Plan prior to the termination or amendment. 9.4 This Plan shall be construed in accordance with and governed by the laws of the State of Georgia. EX-10.23 23 10(D)41 Exhibit 10(d)41 DEFERRED COMPENSATION PLAN FOR DIRECTORS OF GULF POWER COMPANY Amended and Restated Effective January 1, 1987 Article I Definitions 1.1 "Account" shall mean the Deferred Compensation Account established for each Director electing to participate in the Plan pursuant to Article VI. 1.2 "Board of Directors" or "Board" shall mean the Board of Directors of Gulf Power Company. 1.3 "Common Stock" shall mean the common stock of The Southern Company. 1.4 "Company" shall mean Gulf Power Company. 1.5 "Compensation" shall mean the compensation payable to the Directors of the Company, including retainer fees and meeting fees, as determined from time to time by the Board of Directors. 1.6 "Deferral Election" shall mean the written election by a Director to defer payment of all or a portion of his Compensation under the Plan pursuant to Article VI. 1.7 "Director" shall mean a member of the Board of Directors and shall include an Advisory Director. 1.8 "Investment Election" shall mean the written election by a Director to have his Deferred Compensation invested pursuant to Section 7.2 or Section 7.3. 1.9 "Market Value" shall mean the average of the high and low prices of the Common Stock, as Published in the Wall Street Journal in its report of New York Stock Exchange composite transactions, on the date such Market Value is to be determined, as specified herein (or the average of the high and low sale prices on the trading day immediately preceding such date if the Common Stock is not traded on the New York Stock Exchange on such date). 1.10 "Plan" shall mean the Deferred Compensation Plan for Directors of Gulf Power Company. 1.11 "Plan Period" shall mean the period designated in Article V. II-5 Article II Purpose 2.1 The Plan provides a method of deferring payment to a Director of his Compensation until a date following the termination of his membership on the Board of Directors. Article III Eligibility 3.1 An individual who serves as a Director and is not otherwise actively employed by the Company or any of its subsidiaries or affiliates shall be eligible to participate in the Plan. Article IV Administration 4.1 The Plan shall be administered by the Compensation Committee of the Board of Directors, as appointed from time to time. The Compensation Committee shall have the power to interpret the Plan and, subject to its provisions, to make all determinations necessary or desirable for the Plan's administration. Article V Plan Periods 5.1 The first Plan Period shall commence June 1, 1981. Said first Plan Period shall be a seven-month period and all subsequent Plan Periods shall be on a calendar year basis, except that the initial Plan Period applicable to any person elected to fill a vacancy on the Board of Directors who was not a Director on the preceding December 31 shall begin on the first day of such Director's membership on the Board of Directors. Article VI Participation 6.1 Prior to the beginning of any Plan Period, a Director may elect to participate in the Plan by directing that payment of all or any part of the Compensation which would otherwise be paid to the Director in the next succeeding Plan period be deferred until the Director terminates his membership on the Board of Directors and elects to commence distribution of his Deferred Compensation Account pursuant to the terms of the Plan. 6.2 The Deferral Election shall be in writing on a form prescribed by the Compensation Committee and shall state (a) that the Director wishes to make an election to defer payment of his Compensation, (b) the percentage/dollar amount of Compensation to be deferred, (c) the method of II-6 payment, which shall be the payment of a lump sum or a series of annual payments not to exceed ten (10), and (d) the time for commencement of distribution of his Account balance, which shall be not later than the first day of the month coinciding with or next following the second anniversary of the termination of his membership on the Board of Directors. Each Director making a Deferral Election in accordance with the terms of the Plan, and his successors, heirs and assigns shall be bound as to any action taken pursuant to the terms thereof and to the terms of the Plan. 6.3 The Deferral Election shall be made by written notice delivered to the Corporate Secretary of the Company prior to the first day of the next succeeding Plan Period and shall be effective on the first day of such succeeding Plan Period. The Deferral Election made in accordance with this Article shall be irrevocable during that Plan Period. Such Deferral Election shall continue from Plan Period to Plan Period unless the Director terminates participation or changes the Deferral Election regarding future payments by submitting a written request to the Corporate Secretary of the Company on a form prescribed by the Compensation Committee. Any such termination or change shall become effective as of the first day of the Plan Period next following the Plan Period in which such request is given. A termination of participation in the Plan or change in Deferral Election regarding future payments shall not affect amounts previously deferred. The initial Deferral Election made after the effective date of this Amendment and Restatement with respect to (a) the method of payment, whether it be lump sum or installments, including the number of installments selected, and (b) the time for commencement of distribution of a Participants Account may not be revoked and shall govern the distribution of a Participant's Account, except as provided in Section 6.5. 6.4 A Director who has filed a termination of Deferral Election may thereafter file a new Deferral Election to participate for Plan Periods subsequent to the Plan Period of the filing of such Deferral Election. The new Deferral Election shall not affect amounts previously deferred. 6.5 With the approval of the Compensation Committee, a Director may amend a prior Deferral Election on a form prescribed by the Compensation Committee not prior to the 390th day nor later than the 360th day prior to his termination on the Board of Directors in order to change (a) the form, and/or (b) the time for commencement of the distribution of his Deferred Compensation Account in accordance with the terms of the Plan. Any such amendment to a prior Deferral Election, as described in this Section 6.5, shall be contingent upon the Director's completion of his term of membership on the Board of Directors, except in the event of the disability or death of such Director. II-7 Article VII Deferred Compensation Accounts 7.1 An Account shall be established on the Company books for each Director electing to defer all or a portion of his compensation, which shall be credited with (a) any Compensation deferred in accordance with Article VI and (b) pursuant to each Director's Investment Election, the amounts computed in accordance with Section 7.2 and/or the number of shares computed in accordance with Section 7.3. 7.2 The Deferred Compensation Account of each Director electing to invest his Deferred Compensation for a Plan Period pursuant to this Section 7.2 shall be credited with an amount computed by the Company by treating the amount deferred as a sum certain to which the Company will add in lieu of interest an amount equal to the prime rate of interest set by the First National Bank of Atlanta. Interest shall be computed as if credited from the date such Compensation would otherwise have been paid and shall be compounded quarterly at the end of each calendar quarter. The prime rate in effect on the first day of each calendar quarter shall be deemed the prime rate in effect for each calendar quarter. Interest will be treated as if accrued and will be compounded on any balance until such amount is fully distributed. 7.3 The Deferred Compensation Account of each Director electing to invest his Deferred Compensation for a Plan Period pursuant to this Section 7.3 shall be credited with the number of shares (including fractional shares) of Common Stock which could have been Purchased on the date such Deferred Compensation otherwise would have been paid based upon the Common Stock's Market Value. As of each date of payment of dividends on the Common Stock, there shall be credited with respect to shares of Common Stock in the Director's Deferred Compensation Account such additional shares (including fractional shares) of Common Stock as follows: (a) In the case of cash dividends, such additional shares as could be purchased at the Market Value as of the dividend payment date with the dividends which would have been payable if the credited shares had been outstanding; (b) In the case of dividends payable in property other than cash or Common Stock, such additional shares as could be purchased at the Market Value as of the payment date with the fair market value of the property which would have been payable if the credited shares had been outstanding; or (c) In the case of dividends payable in Common Stock, such additional shares as would have been payable on the credited shares if they had been outstanding. II-8 7.4 The Investment Election by a Director with respect to his Deferred Compensation Account shall be made in writing on a form prescribed by the Compensation Committee and delivered to the Corporate Secretary of the Company prior to the first day of the next succeeding Plan Period and shall be effective on the first day of such succeeding Plan Period. The Investment Election made in accordance with this Article VII shall be irrevocable during that Plan Period. Such Investment Election shall continue from Plan Period to Plan Period unless the Director changes the Investment Election regarding future deferred Compensation by submitting a written request to the Corporate Secretary of the Company on a form prescribed by the Compensation Committee. Any such change shall become effective as of the first day of the Plan Period next following the Plan Period in which such request is given. 7.5 At the end of each Plan Period, a report shall be issued to each Director who has a Deferred Compensation Account which sets forth the amount and Market Value of any shares of Common Stock (and fractions thereof) reflected in such Account. Article VIII Distribution of Accounts 8.1 When a Director terminates his membership on the Board of Directors, said Director shall be entitled to receive the entire amount and the Market Value of any shares of Common Stock (and fractions thereof) reflected in his Deferred Compensation Account payable in cash in accordance with his Deferral Election. No portion of a Director's Deferred Compensation Account shall be distributed in Common Stock. In the event a Director shall have elected to receive the balance of his Deferred Compensation Account in a lump sum, distribution shall be made on the first day of the month selected by the Director in accordance with the terms of the Plan, or as soon as reasonably possible thereafter. In the event the Director shall have elected to receive annual installments, the first payment shall be on the first day of the month selected by a Director, or as soon as reasonably possible thereafter, and shall be paid an amount equal to the balance in the Director's Account on such date divided by the number of annual installment payments. Each subsequent annual payment shall be an amount equal to the balance in the Director's Account on the payment date divided by the number of remaining annual payments and shall be paid on the anniversary of the preceding payment date. Notwithstanding a Director's election to receive his Deferred Compensation Account balance in annual installments, the Compensation Committee, in its sole discretion upon request of the Director or his legal representative, may accelerate the payment of any such installments for cause. The Market Value of any shares of Common Stock credited to a Director's Deferred Compensation Account shall be determined as of the twenty-fifth (25th) day of the month immediately preceding the date of any lump sum or installment distribution. II-9 8.2 Upon the death of a Director, or a former Director prior to the payment of all amounts and the Market Value of any shares of Common Stock (and fractions thereof) credited to said Director's Account, the unpaid balance shall be paid in the sole discretion of the Compensation Committee (a) in a lump sum to the designated beneficiary of such Director or former Director within thirty (30) days of the date of death (or as soon as reasonably possible thereafter) or (b) in accordance with the Deferral Election made by such Director or former Director. In the event a beneficiary designation has not been made, or the designated beneficiary is deceased or cannot be located, payment shall be made to the estate of the Director or former Director. The Market Value of any shares of Common Stock credited to a Director's Deferred Compensation Account shall be determined as of the twenty-fifth (25th) day of the month immediately preceding the date of any lump sum or installment distribution. 8.3 The beneficiary designation referred to above may be changed by a Director or former Director at any time, and without the consent of the prior beneficiary, on a form to be provided by the Corporate Secretary of the Company. Article IX Miscellaneous 9.1 No Director or beneficiary shall have any right to sell, assign, transfer, encumber or otherwise convey the right to receive payment of any benefit payable hereunder, which payment and the right thereto are expressly declared to be nonassignable and non-transferable. Any attempt to do so shall be null and void and of no effect. 9.2 The Company shall not reserve or otherwise set aside funds for the payment of its obligations hereunder, which obligations will be paid from the general assets of the Company. Notwithstanding that Director shall be entitled to receive the entire amount in his Deferred Compensation Account as provided in Section 8.1, any amounts credited to a Director's Account to be paid to such Director shall at all times be subject to the claims of the Company's creditors. 9.3 The Board of Directors may terminate the Plan at any time or may, from time to time, amend the Plan; provided, however, that no such amendment or termination shall impair any rights to payments which had been deferred under the Plan prior to the termination or amendment. 9.4 This Plan shall be construed in accordance with and governed by the laws of the State of Florida. II-10 FIRST AMENDMENT TO THE DEFERRED COMPENSATION PLAN FOR DIRECTORS OF GULF POWER COMPANY WHEREAS, the Board of Directors of Gulf Power Company (the "Company") heretofore adopted the amendment and restatement of the Deferred Compensation Plan for Directors of Gulf Power Company (the "Plan") effective as of January 16, 1987; and WHEREAS, the Board of Directors of the Company desires to amend the Plan to comply with changes in the Securities and Exchange Act of 1934; and WHEREAS, under Section 9.3 of the Plan, the Board of Directors has the authority to amend the Plan at any time. NOW THEREFORE, effective as of the date of execution, the Board of Directors hereby amends the Plan as follows: 1. Section 6.5 of the Plan shall be amended by deleting said Section in its entirety and substituting therefore the following language: 6.5 Except as provided below, with the approval of the Compensation Committee, a Director may amend a prior Deferral Election on a form prescribed by the Compensation Committee not prior to the 390th day nor later than the 360th day prior to his termination of membership on the Board of Directors in order to change (a) the form, and/or (b) the time for commencement of the distribution of his Deferred Compensation Account in accordance with the terms of the Plan; provided, however, that any Director who is required to file reports pursuant to Section 16(a) of the Securities and Exchange Act of 1934, as amended, with respect to equity securities of The Southern Company shall not be permitted to amend his Deferral Election during any time period for which such Director is required to file any such reports with respect to the portion of his Deferred Compensation Account invested in accordance with the provisions of Section 7.3 of the Plan. Any such amendment to a prior Deferral Election, as described in this Section 6.5, shall be contingent upon the Director's completion of his term of membership on the Board of Directors, except in the event of the disability or death of such Director. 2. Except as amended herein by this First Amendment, the Plan shall remain in full force and effect as adopted and amended by the Company prior to the adoption of this First Amendment. IN WITNESS WHEREOF, this First Amendment has been executed pursuant to resolutions of the Board of Directors of Gulf Power Company this 1st day of February, 1993, to be effective as of the date of execution. GULF POWER COMPANY By: /s/ D. L. McCrary ------------------- Its: President ------------------ Attest: By: /s/ W. E. Tate ------------------------ Its: Secretary & Treasurer ----------------------- (CORPORATE SEAL) -2- SECOND AMENDMENT TO THE DEFERRED COMPENSATION PLAN FOR DIRECTORS OF GULF POWER COMPANY WHEREAS, the Board of Directors of Gulf Power Company (the "Company') heretofore adopted the Amendment and Restatement of the Deferred Compensation Plan for Directors of Gulf Power Company (the "Plan') effective as of January 16, 1987; and WHEREAS, the Board of Directors of the Company desires to amend the Plan to address the payment of compensation in the form of stock to Participants in the Plan; and WHEREAS, under Section 9.3 of the Plan, the Board of Directors has the authority to amend the Plan at any time. NOW, THEREFORE, effective as of the date of execution set forth below, the Board of Directors hereby amends the Plan as follows: 1. Section 1.5 of the Plan shall be amended by deleting said Section in its entirety and substituting therefore the following language: 1.5 "Compensation" shall mean the compensation payable to the Directors of the Company, including retainer fees and meeting fees, but excluding any amount paid in the form of stock, as determined from time to time by the Board of Directors. 2. Section 6.3 of the Plan shall be amended by adding to the end of such Section the following language: Notwithstanding the foregoing, if the Compensation paid to a Director is increased during a Plan Period, such Director shall receive a Deferral Election Form proscribed by the Compensation Committee and shall be entitled to make a new deferral election regarding increased future Compensation effective as of the date the increase in Compensation occurs. 3. Except as amended herein by this Second Amendment, the Plan shall remain in full force and effect as adopted and amended by the Company prior to adoption of this Second Amendment. IN WITNESS WHEREOF, this Second Amendment has been executed pursuant to resolutions of the Board of Directors of Gulf Power Company this 27th day of July, 1994, to be effective as of the date of execution. GULF POWER COMPANY By: /s/ Travis J. Bowden Its: President -------------------------------- ATTEST: By: /s/ W. E. Tate --------------------------------- Its: Secretary/Treasurer [CORPORATE SEAL] 2 THIRD AMENDMENT TO THE DEFERRED COMPENSATION PLAN FOR DIRECTORS OF GULF POWER COMPANY WHEREAS, the Board of Directors of Gulf Power Company (the "Company") heretofore adopted the amendment and restatement of the Deferred Compensation Plan for the Directors of Gulf Power Company (the "Plan") effective as of January 1, 1987; and WHEREAS, under Section 9.3 of the Plan, the Board of Directors has the authority to amend the Plan from time to time; and WHEREAS, the Board of Directors of the Company desires to amend the Plan to add an additional deferral feature; NOW, THEREFORE, effective as of April 25, 1997, the Board of Directors hereby amends the Plan as follows: 1. A new Section 1.15 is hereby added to the Plan and shall read as follows: 1.15 "Accrued Pension" means the U.S. dollar amount of the actuarially-determined present value of the accrued and unpaid past service pension benefits under The Southern Company OutsideDirectors' Pension Plan (the "Directors Pension Plan ") of a Director acting as such at and as of December 31, 1996, as calculated as of the termination date of the Directors Pension Plan (the "Termination Date"), taking into account the Directors age and years and months of past service and such other assumptions as shall be reasonable and uniformly applied to all Directors. 2. A new Section 6.25 is hereby added to the Plan and shall read as follows: 6.25 Deferred Pension Election (a) Any Director, who has an Accrued Pension as of the Termination Date, may make a single one- time election, on or before April 25, 1997 in writing and on a form to be furnished by the Committee, to convert his or her Accrued Pension into a deferred pension account under the Plan (a "Deferred Pension Account"). Upon making a deferred pension election (a "Deferred Pension Election '), a new Deferred Pension Account will be established in the Director's name and will be credited with the amount of his or her Accrued Pension so converted. (b) Once made, a Deferred Pension Election cannot be changed or revoked. (c) A Deferred Pension Election shall defer the starting date for the payment of the designated amount of the Director's Accrued Pension, and any investment return credited thereon, until the termination of the Director's membership on the Board. (d) In the event of any such Deferred Pension Election, the form of payment of any distribution (i.e., in a lump sum or in up to ten approximately equal annual installments) and the starting date of such distribution, (which may not be later than the date which is twenty- four (24) months following the date of termination of membership on the Board) shall be elected at the same time. Except as herein provided, such form-of-payment election shall not be changed or revoked. IN WITNESS WHEREOF, this Third Amendment has been executed pursuant to resolutions of the Board of Directors of Gulf Power Company this 25th day of April, 1997, to be effective as of the date of execution. GULF POWER COMPANY By: /s/ Travis J. Bowden Its: President --------------------- Attest: By: /s/ W. E. Tate ---------------------- Its: Secretary/Treasurer (Corporate Seal) -2- April 25, 1997 EX-10.24 24 10(E)37 Exhibit 10(e)37 DEFERRED COMPENSATION PLAN FOR DIRECTORS OF MISSISSIPPI POWER COMPANY Amended and Restated Effective January 1, 2000 SECTION 1 Definitions 1.1 "Beneficial Ownership" means beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act. "Board" or "Board of Directors" means the Board of Directors of the Company. 1.3 "Business Combination" means a reorganization, merger or consolidation or sale of Southern, or a sale of all or substantially all of Southern's assets. 1.4 "Cash Compensation" means the annual retainer fees and meeting fees payable to a Director in cash. 1.5 "Code" means the Internal Revenue Code of 1986, as amended, or any successor statute. 1.6 "Committee" means the Compensation Committee of the Board, or such other committee as may be designated by the Board to be responsible for administering the Plan. 1.7 "Common Stock" means the common stock of Southern, including any shares into which it may be split, subdivided, or combined. 1.8 "Company" means Mississippi Power Company or any successor thereto. 1.9 "Company Change in Control" means the following: (a) The Consummation of an acquisition by any Person of Beneficial Ownership of 50% or more of the combined voting power of the then outstanding Voting Securities of the Company; provided, however, that for purposes of this Section 1.9, any acquisition by an Employee, or Group composed entirely of Employees, any qualified pension plan, any publicly held mutual fund or any employee benefit plan (or related trust) sponsored or maintained by Southern or any corporation Controlled by Southern shall not constitute a Change in Control; (b) Consummation of a reorganization, merger or consolidation of the Company (a "Company Business Combination"), in each case, unless, following such Company Business Combination, Southern Controls the corporation surviving or resulting from such Company Business Combination; or (c) Consummation of the sale or other disposition of all or substantially all of the assets of the Company to an entity which Southern does not Control. 1.10 "Compensation Payment Date" means the date on which compensation, including cash retainer, meeting fees, and the Stock Retainer, is payable to a Director or compensation would otherwise be payable to a Director if an election to defer such compensation had not been made. 1.11 "Consummation" means the completion of the final act necessary to complete a transaction as a matter of law, including, but not limited to, any required approvals by the corporation's shareholders and board of directors, the transfer of legal and beneficial title to securities or assets and the final approval of the transaction by any applicable domestic or foreign governments or agencies. 1.12 "Control" means, in the case of a corporation, Beneficial Ownership of more than 50% of the combined voting power of the corporation's Voting Securities, or in the case of any other entity, Beneficial Ownership of more than 50% of such entity's voting equity interests. 1.13 "Deferred Cash Trust" means the Deferred Cash Compensation Trust for Directors of The Southern Company and its Subsidiaries. 1.14 "Deferred Compensation Account" means the Prime Rate Investment Account, the Phantom Stock Investment Account, and/or the Deferred Stock Account. 1.15 "Deferred Pension Election" means the election by a Director under Section 5.3 in connection with the deferral of receipt of the Director's Pension Benefit until termination from the Board. 1.16 "Deferred Stock Account" means the bookkeeping account established under Section 6.3 on behalf of a Director and includes shares of Common Stock credited thereto to reflect the reinvestment of dividends pursuant to Section 6.3(a)(iii). 1.17 "Deferred Stock Trust" means the Deferred Stock Trust for Directors of The Southern Company and its Subsidiaries. 1.18 "Director" means a member of the Board. 1.19 "Distribution Election" means the designation by a Director of the manner of distribution of the amounts and quantities held in the Director's Deferred Compensation Accounts upon the director's termination from the Board pursuant to Section 5.4. 1.20 "Effective Date" means January 1, 2000. 1.21 "Employee" means an employee of Southern or any of its subsidiaries that are "employing companies" as defined in the Southern Company Deferred Compensation Plan as amended and restated January 1, 2000, and as may be amended from time to time. 1.22 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 1.23 "Group" has the meaning set forth in Section 14(d) of the Exchange Act. 1.24 "Incumbent Board" means those individuals who constitute the Southern board of directors as of October 19, 1998, plus any individual who shall become a director subsequent to such date whose election or nomination for election by Southern's shareholders was approved by a vote of at least 75% of the directors then comprising the Incumbent Board. Notwithstanding the foregoing, no individual who shall become a director of the Southern board of directors subsequent to October 19, 1998, whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the regulations promulgated under the Exchange Act) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Southern board of directors shall be a member of the Incumbent Board. 1.25 "Market Value" means the average of the high and low prices of the Common Stock, as published in the Wall Street Journal in its report of New York Stock Exchange composite transactions, on the date such Market Value is to be determined, as specified herein (or the average of the high and low sale prices on the trading day immediately preceding such date if the Common Stock is not traded on the New York Stock Exchange on such date). 1.26 "Participant" means a Director or former Director who has an unpaid Deferred Compensation Account balance under the Plan. 1.27 "Participating Companies" means those companies whose boards of directors have authorized the establishment of trust(s) for the funding of their respective directors' Deferred Compensation Accounts under their respective Deferred Compensation Plans for Directors, including the Company. 1.28 "Pension Benefit" means the U.S. dollar amount of the actuarially-determined present value of benefits based on a Director's expected service at the required retirement date under The Southern Company Outside Directors Pension Plan, as calculated as of the Termination Date, plus accrued earnings on such amount calculated as if invested at the Prime Interest Rate from the Termination Date, until such amount is invested in Deferred Compensation Accounts pursuant to the provisions of Section 5.3. 1.29 "Pension Benefit Investment Date" means the date to be determined by the Committee, as of which the Director's Pension Benefit will be credited to a Deferred Compensation Account in accordance with the director's Deferred Pension Election under Section 5.3. 1.30 "Phantom Stock Investment Account" means the bookkeeping account established pursuant to Section 6.2 in which a Director may elect to defer Cash Compensation or make investments, and includes amounts credited thereto to reflect the reinvestment of dividends. 1.31 "Plan" means the Deferred Compensation Plan for Directors of Mississippi Power Company as from time to time in effect. "Plan Period" means the period designated in Section 4. 1.33 "Person" means any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act. 1.34 "Preliminary Change in Control" means the occurrence of any of the following as determined by the Southern Committee: (a) Southern or the Company has entered into a written agreement, such as, but not limited to, a letter of intent, which, if Consummated, would result in a Southern Change in Control or a Company Change in Control, as the case may be; (b) Southern, the Company or any Person publicly announces an intention to take or to consider taking actions which, if Consummated, would result in a Southern Change in Control or a Company Change in Control under circumstances where the Consummation of the announced action or intended action is legally and financially possible; (c) Any Person becomes the Beneficial Owner of fifteen percent (15%) or more of the Common Stock; or (d) The Southern board of directors or the board of directors of the Company has declared that a Preliminary Change in Control has occurred. 1.35 "Prime Interest Rate" means the prime rate of interest as published in the Wall Street Journal. "Prime Rate Investment Account" means the bookkeeping account established pursuant to Section 6.1 in which a Director may elect to defer Cash Compensation or make investments, the investment return on which is computed at the Prime Interest Rate. 1.37 "Southern" means The Southern Company. 1.38 "Southern Change in Control" means any of the following: (a) The Consummation of an acquisition by any Person of Beneficial Ownership of 20% or more of Southern's Voting Securities; provided, however, that for purposes of this subsection (a), the following acquisitions of Southern's Voting Securities shall not constitute a Change in Control: (i) any acquisition directly from Southern, (ii) any acquisition by Southern, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Southern or any corporation controlled by Southern, (iv) any acquisition by a qualified pension plan or publicly held mutual fund, (v) any acquisition by an Employee or Group composed exclusively of Employees, or (vi) any Business Combination which would not otherwise constitute a Change in Control because of the application of clauses (i), (ii) and (iii) of Section 1.37(c); (b) A change in the composition of Southern's board of directors whereby individuals who constitute the Incumbent Board cease for any reason to constitute at least a majority of Southern's board of directors; or (c) Consummation of a Business Combination, unless, following such Business Combination, all of the following three conditions are met: (i) all or substantially all of the individuals and entities who held Beneficial Ownership, respectively, of Southern's Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, 65% or more of the combined voting power of the Voting Securities of the corporation surviving or resulting from such Business Combination, (including, without limitation, a corporation which as a result of such transaction holds Beneficial Ownership of all or substantially all of Southern's Voting Securities or all or substantially all of Southern's assets) (such surviving or resulting corporation to be referred to as "Surviving Company"), in substantially the same proportions as their ownership, immediately prior to such Business Combination, of Southern's Voting Securities; (ii) no Person (excluding any corporation resulting from such Business Combination, any qualified pension plan, publicly held mutual fund, Group composed exclusively of employees or employee benefit plan (or related trust) of Southern, its subsidiaries, or Surviving Company) holds Beneficial Ownership, directly or indirectly, of 20% or more of the combined voting power of the then outstanding Voting Securities of Surviving Company except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors of Surviving Company were members of the Incumbent Board at the earlier of the date of execution of the initial agreement, or of the action of the Southern board of directors, providing for such Business Combination. 1.39 "Southern Committee" means Chairman of the Southern board of directors, Chief Financial Officer of Southern, General Counsel of Southern, and the Chairman of the "Administrative Committee", as defined in Section 3.1 of the Southern Company Deferred Compensation Plan, as restated and amended effective January 1, 2000. "Stock Retainer" means the annual Board retainer fee that is paid to the Director in the form of Common Stock. 1.40 "Termination Date" means January 1, 1997, the date as of which The Southern Company Outside Directors Pension Plan was effectively terminated. 1.41 "Trust Administrator" means the individual or committee that is established to in the Deferred Stock Trust and the Deferred Cash Trust, to administer such trusts on behalf of the Participating Companies. 1.42 "Voting Securities" shall mean the outstanding voting securities of a corporation entitling the holder thereof to vote generally in the election of such corporation's directors. Where the context requires, words in the masculine gender shall include the feminine gender, words in the singular shall include the plural, and words in the plural shall include the singular. SECTION 2 Purpose The Plan provides a method of deferring payment to a Director of his compensation until a date following the termination of his membership on the Board. SECTION 3 Eligibility An individual who serves as a Director and is not otherwise actively employed by the Company or any of its subsidiaries or affiliates is eligible to participate in the Plan. SECTION 4 Plan Periods Except as pertains to a Director's initial Plan Period, all Plan Periods shall be on a calendar year basis The initial Plan Period applicable to any person elected to the Board who was not a Director on the preceding December 31, shall begin on the first day of such Director's membership on the Board. The initial Plan Period under this amended and restated plan shall begin January 1, 2000. Except as otherwise provided herein, the terms of the Plan in effect prior to the effective date of this Plan shall continue to be applicable to deferrals made pursuant to the Plan prior to January 1, 2000. SECTION 5 Elections 5.1 Cash Compensation (a) Prior to the beginning of a Plan Period, a Director may direct that payment of all or any portion of Cash Compensation that otherwise would be paid to the Director for the Plan Period, be deferred in amounts as designated by the Director, and credited to (i) a Prime Rate Investment Account, (ii) a Phantom Stock Investment Account, or (iii) a Deferred Stock Account. Upon the Director's termination from the Board of Directors, such deferred compensation and accumulated investment return held in the Director's Deferred Compensation Accounts shall be distributed to the Director in accordance with the Director's Distribution Election and the provisions of Section 7. (b) An election to defer Cash Compensation is irrevocable. Such an election shall continue from Plan Period to Plan Period unless the Director changes his election to defer cash compensation paid in a future Plan Period prior to the beginning of such future Plan Period. (c) Cash Compensation deferred under this Section 5.1 shall be invested in Deferred Compensation Accounts as directed by the Director on the Compensation Payment Date. 5.2 Stock Retainer (a) Prior to the beginning of a Plan Period, a Director may direct that payment of all of the Stock Retainer that otherwise would be paid to the Director for the Plan Period, be deferred in amounts as designated by the Directors, and credited to his Deferred Stock Account, such deferred compensation and accumulated investment return held in the Director's Deferred Stock Account shall be distributed to the Director in accordance with the Director's Distribution Election and the provisions of Section 7. (b) An election to defer the Stock Retainer is irrevocable. Such an election shall continue from Plan Period to Plan Period unless the Director changes his election to defer Stock Retainer paid in a future Plan Period prior to the beginning of such future Plan Period. (c) Stock Retainer deferred under this Section 5.2 shall be invested in Deferred Stock Account as directed by the Director on the Compensation Payment Date. 5.3 Deferred Pension Election Any Director, who had a Pension Benefit as of the Termination Date, made a single one-time election, , to credit all of his Pension Benefit into a Deferred Compensation Account. The Pension Benefit was credited on the Pension Benefit Investment Date, at the election of the Director, to (i) a Prime Rate Investment Account or (ii) a Phantom Stock Investment Account. Upon the Director's termination from the Board, such Pension Benefit and accumulated investment return held in the Director's Deferred Compensation Accounts shall be distributed to the Director in accordance with the Director's Distribution Election and the provisions of Section 7. 5.4 Distribution Election (a) Prior to the establishment of a Deferred Compensation Account for a Director under this amended and restated plan, the Director may elect that upon termination from the Board of Directors the values and quantities held in the Directors Deferred Compensation Accounts be distributed to the Director, pursuant to the provisions of Section 7, in a single distribution or in a series of annual installments not to exceed ten (10). The time for the commencement of distribution shall not be later than the first day of the month coinciding with or next following the second anniversary of termination of Board membership. (b) A Distribution Election is irrevocable except that a Director may amend the Distribution Election then in effect not prior to the 390th day or later than the 360th day prior to his termination of Board membership. 5.5 Beneficiary Designation A Director or former Director may designate a beneficiary to receive distributions from the Plan in accordance with the provisions of Section 7 upon the death of the director. The beneficiary designation may be changed by a Director or former Director at any time, and without the consent of the prior beneficiary. 5.6 Form of Election All elections pursuant to the provisions of this Section 5 of the Plan shall be made in writing to the Secretary of the Company on a form or forms available upon request of the Secretary. SECTION 6 Accounts 6.1 Prime Rate Investment Account A Prime Rate Investment Account shall be established for each Director electing deferral or investment of Cash Compensation at the Prime Interest Rate. The amount directed by the Director to such account shall be credited to it as of the Pension Benefit Investment Date or Compensation Payment Date, as applicable, and credited thereafter with interest computed using the Prime Interest Rate. Interest shall be computed from the date such compensation is credited to the account and compounded quarterly at the end of each calendar quarter. The Prime Interest Rate in effect on the first day of a calendar quarter shall be deemed the Prime Interest Rate in effect for that entire quarter. Interest shall accrue and compound on any balance until the amount credited to the account is fully distributed. 6.2 Phantom Stock Investment Account The Phantom Stock Investment Account established for each Director electing deferral of Cash Compensation for investment at the Common Stock investment rate shall be credited with the number of shares (including fractional shares rounded to the nearest ten-thousandth) of Common Stock which could have been purchased on the Pension Benefit Investment Date or the Compensation Payment Date, as applicable, as determined by dividing the applicable compensation by the Market Value on such date. On the date of the payment of dividends on the Common Stock, the Director's Phantom Stock Investment Account shall be credited with additional shares (including fractional shares rounded to the nearest ten-thousandth) of Common Stock, as follows: (a) In the case of cash dividends, such additional shares as would have been purchased as of the Common Stock dividend record date as if the credited shares had been outstanding on such date and dividends reinvested thereon under the Southern Investment Plan; (b) In the case of dividends payable in property other than cash or Common Stock, such additional shares as could be purchased at the Market Value as of the date of payment with the fair market value of the property which would have been payable if the credited shares had been outstanding; and (c) In the case of dividends payable in Common Stock, such additional shares as would have been payable on the credited shares as if they had been outstanding. 6.3 Deferred Stock Account (a) A Director's Deferred Stock Account will be credited: (i) with the number of shares of Common Stock (rounded to the nearest ten thousandth of a share) determined by dividing the amount of Cash Compensation subject to deferral or investment in the Deferred Stock Account by the average price paid by the Trustee of the Deferred Stock Trust for shares of Common Stock with respect to the Pension Benefit Investment Date or the Compensation Payment Date, as applicable, as reported by the Trustee, or, if the Trustee shall not at such time purchase any shares of Common Stock, by the Market Value on such date; (ii) as of the date on which Stock Retainer is paid, the shares of Common Stock payable to the Director as his Stock Retainer; and (iii) as of each date on which dividends are paid on the Common Stock, with the number of shares of Common Stock (rounded to the nearest ten thousandth of a share) determined by multiplying the number of shares of Common Stock credited in the Director's Deferred Stock Account on the dividend record date, by the dividend rate per share of Common Stock, and dividing the product by the price per share of Common Stock attributable to the reinvestment of dividends on the shares of Common Stock held in the Deferred Stock Trust on the applicable dividend payment date or, if the Trustee of the Deferred Stock Trust has not reinvested in shares of Common Stock on the applicable dividend reinvestment date, the product shall be divided by the Market Value on the dividend payment date. (b) If Southern enters into transactions involving stock splits, stock dividends, reverse splits or any other recapitalization transactions, the number of shares of Common Stock credited to a Director's Deferred Stock Account will be adjusted (rounded to the nearest ten thousandth of a share) so that the Director's Deferred Stock Account reflects the same equity percentage interest in Southern after the recapitalization as was the case before such transaction. (c) If at least a majority of Southern's stock is sold or exchanged by its shareholders pursuant to an integrated plan for cash or property (including stock of another corporation) or if substantially all of the assets of Southern are disposed of and, as a consequence thereof, cash or property is distributed to Southern's shareholders, each Director's Deferred Stock Account will, to the extent not already so credited under this Section 6.3, be (i) credited with the amount of cash or property receivable by a Southern shareholder directly holding the same number of shares of Common Stock as is credited to such Director's Deferred Stock Account and (ii) debited by that number of shares of Common Stock surrendered by such equivalent Southern shareholder. (d) Each Director who has a Deferred Stock Account also shall be entitled to provide directions to the Trust Administrator to cause such committee to similarly direct the Trustee of the Deferred Stock Trust to vote, on any matter presented for a vote to the shareholders of Southern, that number of shares of Common Stock held by the Deferred Stock Trust equivalent to the number of shares of Common Stock credited to the Director's Deferred Stock Account. Such committee shall arrange for distribution to all Directors in a timely manner of all communications directed generally to the Southern shareholders as to which their votes are solicited. SECTION 7 Distributions 7.1 Upon termination of a Director's membership on the Board, the amount credited to a Director's Deferred Compensation Accounts will be paid to the Director or his beneficiary, as applicable. The amount credited to a Director's Prime Rate Investment Account and Phantom Stock Investment Account shall be paid in cash and the amount credited to his Deferred Stock Account shall, except as otherwise provided in Section 6.3(c), Section 9.5, or to the extent the Company is otherwise, in the reasonable judgment of the Committee, precluded from doing so, be paid in shares of Common Stock (with any fractional share interest therein paid in cash to the extent of the then Market Value thereof). Such payments shall be from the general assets of the Company (including the Deferred Cash Trust and the Deferred Stock Trust) in accordance with this Section 7. 7.2 Unless other arrangements are specified by the Committee on a uniform and nondiscriminatory basis, deferred amounts shall be paid in the form of (i) a lump sum payment, or (ii) in approximately equal annual installments, as elected by the Director pursuant to the provision of Section 5.4; provided, however, that payments shall be made only in a single lump sum if payment commences due to termination for cause. Such payments shall be made (or shall commence) as soon as practicable following the termination of Board membership or, if so elected in the Distribution Election, up to twenty-four (24) months following such termination. In the event a Director elected to receive the balance of his Deferred Compensation Accounts in a lump sum, distribution shall be made on the first day of the month selected by the Director on his Distribution Election, or as soon as reasonably possible thereafter. If the Director elected to receive annual installments, the first payment shall be made on the first day of the month selected by a Director, or as soon as reasonably possible thereafter, and shall be equal to the balance in the Director's Deferred Compensation Accounts on such date divided by the number of annual installment payments. Each subsequent annual payment shall be an amount equal to the balance in the Director's Deferred Compensation Accounts on the date of payment divided by the number of remaining annual payments and shall be paid on the anniversary of the preceding date of payment. The Market Value of any shares of Common Stock credited to a Director's Phantom Stock Investment Account shall be determined as of the twenty-fifth (25th) day of the month immediately preceding the date of any lump sum or installment distribution. Upon the death of a Director, or a former Director prior to the payment of all amounts credited to the Director's Deferred Compensation Accounts, the unpaid balance shall be paid in the sole discretion of the Committee (i) in a lump sum to the designated beneficiary of such Director or former Director within thirty (30) days of the date of death (or as soon as reasonably possible thereafter) or (ii) in accordance with the Distribution Election made by such Director or former Director. In the event a beneficiary designation has not been made, or the designated beneficiary is deceased or cannot be located, payment shall be made to the estate of the Director or former Director. The Market Value of any shares of Common Stock credited to a Director's Phantom Stock Investment Account shall be determined as of the twenty-fifth (25th) day of the month immediately preceding the date of any lump sum or installment distribution. SECTION 8 Change in Control and Other Special Provisions 8.1 Notwithstanding any other terms of the Plan to the contrary, following a Southern Change in Control or a Company Change in Control, the provisions of this Section 8 shall apply to the payment of benefits under the Plan with respect to any Director who is a Participant on such date. 8.2 The Deferred Cash Trust and the Deferred Stock Trust (collectively "Trusts") have been established to hold assets of the Participating Companies under certain circumstances as a reserve for the discharge of the Company's obligations under the Plan. In the event of a Preliminary Change in Control of Southern or the Company, the Company shall be obligated to immediately contribute such amounts to the Trusts as may be necessary to fully fund all benefits payable under the Plan in accordance with the procedures set forth in Section 8.3 hereof. In addition, in order to provide the added protections for certain individuals in accordance with Paragraph 7(c) of the Trust, the Company may fund the Trusts prior to a Preliminary Change in Control of Southern or the Company in accordance with the terms of the Trusts. All assets held in the Trusts remain subject only to the claims of the Participating Companies' general creditors whose claims against the Participating Companies are not satisfied because of the Participating Companies' bankruptcy or insolvency (as those terms are defined in the Trust). No Participant has any preferred claim on, or beneficial ownership interest in, any assets of the Trusts before the assets are paid to the Participant and all rights created under the Trusts, as under the Plan, are unsecured contractual claims of the Participant against the Company. 8.3 As soon as practicable following either a Preliminary Change in Control of Southern or of the Company, the Company shall contribute an amount based upon the funding strategy adopted by the Trust Administrator necessary to fulfill the Company's obligations pursuant to this Section 8. In the event of a dispute over such actuary's determination, the Company and any complaining Participant(s) shall refer such dispute to an independent, third party actuarial consultant, chosen by the Company and such Participant. If the Company and the Participant cannot agree on an independent, third party actuarial consultant, the actuarial consultant shall be chosen by lot from an equal number of actuaries submitted by the Company and the applicable Trustee. Any such referral shall only occur once in total and the determination by the third-party actuarial consultant shall be final and binding upon both parties. The Company shall be responsible for all of the fees and expenses of the independent actuarial consultant. 8.4 In the event of a Southern Change in Control or a Company Change in Control, notwithstanding anything to the contrary in the Plan, upon termination as a Director, that amount in the Deferred Compensation Plan Account(s) of a Participant who was a Director determined as of such Change in Control shall be paid out in a lump sum if such Participant makes an election pursuant to procedures established by the Trust Administrator, in its sole and absolute discretion. If no such election is made, the Director shall receive payment of his Accounts solely in accordance with Section 7. SECTION 9 General Provisions 9.1 In the event that the Company shall decide to establish an advance accrual reserve on its books against the future expense of payments from any Deferred Compensation Accounts, such reserve shall not under any circumstances be deemed to be an asset of this Plan but, at all times, shall remain a part of the general assets of the Company, subject to claims of the Company's creditors. 9.2 A person entitled to any amount under this Plan shall be a general unsecured creditor of the Company with respect to such amount. Furthermore, a person entitled to a payment or distribution with respect to a Deferred Compensation Account shall have a claim upon the Company only to the extent of the balance in his Deferred Compensation Accounts. 9.3 All commissions, fees, and expenses that may be incurred in operating the Plan will be paid by the Company. 9.4 The Company will pay its prorated share of all commissions, fees, and expenses that may be incurred in operating any trust(s) established under the Plan (including the Deferred Stock Trust and the Deferred Cash Trust). 9.5 Notwithstanding any other provision of this Plan: (i) elections under this Plan may only be made by Directors while they are directors of the Company; (with the exception of the designation of beneficiaries) and (ii) distributions otherwise payable to a Director in the form of Common Stock shall be delayed and/or instead paid in cash in an amount equal to the fair market value thereof if such payment in Common Stock would violate any federal or State securities laws (including Section 16(b) of the Securities Exchange Act of 1934, as amended) and/or rules and regulations promulgated thereunder. 9.6 Directors, their legal representatives and their beneficiaries shall have no right to anticipate, alienate, sell, assign, transfer, pledge or encumber their interests in the Plan, nor shall such interests be subject to attachment, garnishment, levy or execution by or on behalf of creditors of the Directors or of their beneficiaries. SECTION 10 Administration Subject to the express provisions of the Plan, the Committee shall have the exclusive right to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it and to make all other determinations necessary or advisable for the administration of the Plan. The decisions, actions and records of the Committee shall be conclusive and binding upon the Company and all persons having or claiming to have any right or interest in or under the Plan. The Committee may delegate to such officers, employees, or departments of the Company or Southern, such authority, duties, and responsibilities of the Committee as it, in its sole discretion, considers necessary or appropriate for the proper and efficient operation of the Plan, including, without limitation, (i) interpretation of the Plan, (ii) approval and payment of claims, and (iii) establishment of procedures for administration of the Plan. SECTION 11 Amendment, Termination and Effective Date 11.1 Amendment of the Plan Except for the provisions of Section 8, which may not be amended following a Southern Change in Control or Company Change in Control, and subject to the provisions of Section 11.3, the Plan may be wholly or partially amended or otherwise modified at any time by written action of the Board of Directors. 11.2 Termination of the Plan Subject to the provisions of Section 11.3 herein, the Plan may be terminated at any time by written action of the Board of Directors. 11.3 No Impairment of Benefits Notwithstanding the provisions of Sections 11.1 and 11.2, herein no amendment to or termination of the Plan shall impair any rights to benefits that have accrued hereunder. 11.4 Governing Law This Plan shall be construed in accordance with and governed by the laws of the State of Mississippi. IN WITNESS WHEREOF, the Plan, as amended and restated effective January 1, 2000, has been executed pursuant to resolutions of the Board of Directors of Mississippi Power Company, this 23rd day of February, 2000. MISSISSIPPI POWER COMPANY By: ________________________________ Attest: By: ___________________________ EX-21.1 25 21(A) Exhibit 21(a) Subsidiaries of The Southern Company The voting stock of each company shown indented is owned by the company immediately above which is not indented to the same degree. Subsidiaries not indented are directly owned by The Southern Company.
Name of Company Jurisdiction of Organization Alabama Power Company...............................................................................................Alabama Alabama Energy Providers, Inc..................................................................................Alabama Alabama Power Capital Trust I.................................................................................Delaware Alabama Power Capital Trust II................................................................................Delaware Alabama Power Capital Trust III...............................................................................Delaware Alabama Power Capital Trust IV................................................................................Delaware Alabama Power Capital Trust V.................................................................................Delaware Alabama Property Company.......................................................................................Alabama Southern Electric Generating Company...........................................................................Alabama (50% - Alabama Power Company; 50% - Georgia Power Company) Georgia Power Company...............................................................................................Georgia Georgia Power Capital Trust I.................................................................................Delaware Georgia Power Capital Trust II................................................................................Delaware Georgia Power Capital Trust III...............................................................................Delaware Georgia Power Capital Trust IV................................................................................Delaware Georgia Power Capital Trust V.................................................................................Delaware Georgia Power Capital Trust VI................................................................................Delaware Georgia Power L.P. Holdings Corp...............................................................................Georgia Georgia Power Capital, L.P..................................................................................Delaware Piedmont-Forrest Corporation...................................................................................Georgia Southern Electric Generating Company...........................................................................Alabama (50% - Alabama Power Company; 50% - Georgia Power Company) Gulf Power Company....................................................................................................Maine Gulf Power Capital Trust I....................................................................................Delaware Gulf Power Capital Trust II...................................................................................Delaware Gulf Power Capital Trust III..................................................................................Delaware Mississippi Power Company.......................................................................................Mississippi Mississippi Power Capital Trust I.............................................................................Delaware Mississippi Power Capital Trust II............................................................................Delaware Mississippi Power Capital Trust III...........................................................................Delaware Mississippi Power Services, Inc............................................................................Mississippi Savannah Electric and Power Company.................................................................................Georgia Savannah Electric Capital Trust I.............................................................................Delaware Southern Communications Services, Inc..............................................................................Delaware Southern Company Energy Solutions, Inc..............................................................................Georgia Southern Company Services, Inc......................................................................................Alabama Southern Electric Railroad Company.................................................................................Delaware - 2 - Mobile Energy Services Holdings, Inc................................................................................Alabama Mobile Energy Services Company, L.L.C........................................................................Alabama (99% - Mobile Energy Services Holdings, Inc.; 1% - Southern Energy Resources, Inc.) Southern Energy, Inc.........Delaware Southern Energy Resources, Inc................................................................................Delaware SEI Operadora de Argentina, S.A............................................................................Argentina (99.99% - Southern Energy Resources, Inc.; .01% - Holdings) Southern Electric International Asia, Inc...................................................................Delaware Southern Electric International, GmbH........................................................................Austria Asociados de Electricidad, S.A...............................................................................Argentina Southern Electric International, Inc..........................................................................Delaware Southern Electric, Inc....Delaware Southern Energy North America, Inc............................................................................Delaware SEI Michigan Holdings, Inc..................................................................................Delaware SEI Michigan, LLC Delaware Southern Energy North America Generating, Inc...............................................................Delaware SEI State Line, Inc. ....................................................................................Delaware State Line Holding Corporation..........................................................................Delaware State Line Energy, L.L.C..............................................................................Indiana (60% - SEI State Line, Inc.; 40% - State Line Holding Corporation) Southern Energy New York, G.P., Inc.......................................................................Delaware Southern Energy Hudson Valley Investments, Ltd............................................................Delaware Southern Energy Bowline, L.L.C..........................................................................Delaware (99% - Southern Energy Hudson Valley Investments, Inc.; 1% - Southern Energy New York, G.P., Inc.) Southern Energy Lovett, L.L.C...........................................................................Delaware (99% - Southern Energy Hudson Valley Investments, Inc.; 1% - Southern Energy New York, G.P., Inc.) Southern Energy NY-Gen, L.L.C...........................................................................Delaware (99% - Southern Energy Hudson Valley Investments, Inc.; 1% - Southern Energy New York, G.P., Inc.) Southern Energy Bay Area Investments, Inc.................................................................Delaware Southern Energy Golden State Holding Inc..................................................................Delaware Southern Energy California, L.L.C.......................................................................Delaware (50% - Southern Energy Bay Area Investments; 50% - Southern Energy Golden State Holdings, Inc.) Southern Energy Delta, L.L.C.........................................................................Delaware Southern Energy Potrero, L.L.C.......................................................................Delaware Southern Energy New England Investments, Inc..............................................................Delaware Southern Energy New England (G.P.), Inc...................................................................Delaware Southern Energy Canal, L.L.C............................................................................Delaware (99% - Southern Energy New England Investments, Inc.; 1% - Southern Energy New England (G.P.), Inc.) Southern Energy Kendall, L.L.C..........................................................................Delaware (99% - Southern Energy New England Investments, Inc.; 1% - Southern Energy New England (G.P.), Inc.) - 3 - Southern Energy Canal III, L.L.C........................................................................Delaware (99% - Southern Energy New England Investments, Inc.; 1% - Southern Energy New England (G.P.), Inc.) SEI Wisconsin Holdings, Inc...............................................................................Delaware SEI Wisconsin, L.L.C....................................................................................Delaware Southern Energy Texas (G.P.), Inc.........................................................................Delaware Southern Energy Southwest Investments, Inc................................................................Delaware Southern Energy Central Texas, L.P......................................................................Delaware (99% - Southern Energy Southwest Investments, Inc.; 1% Southern Energy Texas (G.P.), Inc.) SEI Texas, L.P......Delaware (99% - Southern Energy Southwest Investments, Inc.; 1% Southern Energy Texas (G.P.), Inc.) Mobile Development Company..................................................................................Delaware Southern Energy Ventures, Inc...............................................................................Delaware Southern Energy Trading and Marketing, Inc................................................................Delaware SC Energy Ventures, Inc..................................................................................Georgia Southern Company Energy Marketing L.P................................................................Delaware (59.4% - SC Energy Ventures, Inc.; 39.6% - Domestic Corporation; 1% - Southern Company Energy Marketing G.P., L.L.C.) Southern Company Retail Energy Marketing L.P.......................................................Delaware (99% - Southern Company Energy Marketing L.P.; 1% - Southern Company Energy Marketing G.P., L.L.C.) Southern Producer Services, LLP......................................................................Delaware (99% - SC Energy Ventures, Inc.; 1% - SC Ashwood Holdings, Inc.) Southern Energy Retail Trading and Marketing, Inc.......................................................Delaware SC Ashwood Holdings, Inc...................................................................................Georgia Southern Company Energy Marketing G.P., L.L.C...........................................................Delaware (60% - SC Ashwood Holdings, Inc.; 40% - Domestic Corporation) SEI Birchwood, Inc....Delaware Birchwood Power Partners, LP..............................................................................Delaware (50% - SEI Birchwood, Inc.; 50% - Domestic Corporation) Greenhost, Inc........Delaware (50% - SEI Birchwood, Inc.; 50% - Domestic Corporation) SEI Hawaiian Cogenerators, Inc..............................................................................Delaware Southern Energy-Cajun, Inc..................................................................................Delaware SEI New England Holding Corp................................................................................Delaware SEI New England, Inc. Delaware Southern Energy New England, L.L.C........................................................................Delaware (50% - SEI New England Holding Corp; 50% - SEI New England Inc.) Southern Energy Wichita Falls Management G.P., Inc..........................................................Delaware Southern Energy Wichita Falls Investment, Inc...............................................................Delaware Southern Energy Wichita Falls, L.P........................................................................Delaware (99% - Southern Energy Wichita Falls Investment, Inc.; 1% - Southern Energy Wichita Falls Management G.P., Inc.) Southern Energy International, Inc............................................................................Delaware - 4 - Southern Energy do Brazil Ltda................................................................................Brazil (99.99% - Southern Energy International, Inc.; .1% - Southern Energy Resources, Inc.) Southern Energy - Asia, Inc.................................................................................Delaware Southern Energy Asia Ventures, Inc........................................................................Delaware Consolidated Electric Power Asia Limited...................................................................Bermuda (90.0% - Southern Energy - Asia, Inc.; 10% Southern Energy Asia Ventures, Inc.) (NOTE 1) CEPA Pagbilao Limited..................................................................................Hong Kong Southern Energy Holdings Philippines, Inc.........................................................Philippines (71.94% - CEPA Pagbilao Limited; 18.08% - CEPA Mobile Power Systems (BVI) Corporation; 9.98% - Navotas II Holdings (BVI) Corp.; 0.000022% - CEPA Navotas I Limited) Southern Energy Quezon, Inc.....................................................................Philippines (87.22% - Southern Energy Holdings Philippines, Inc; 12.78% Third parties) Southern Energy Mobile, Inc.....................................................................Philippines CEPA Services Corp............................................................................Philippines Southern Energy Navotas II Power, Inc...........................................................Philippines Southern Energy China, Ltd................................................................British Virgin Islands CEPA Navotas I Limited.................................................................................Hong Kong Southern Energy Project Holdings Philippines, Inc.................................................Philippines Southern Energy Navotas, Inc......................................................................Philippines (60.1%- CEPA Navotas I Limited; 29.9% Southern Energy Holdings Philippines, Inc.; 10% -Third party) Navotas II Holdings (BVI) Corp............................................................British Virgin Islands CEPA Mobile Power Systems (BVI) Corporation...............................................British Virgin Islands CEPA Guangxi Energy Limited............................................................................Hong Kong CEPA Eastern Power Plant Limited..........................................................British Virgin Islands CEPA Construction (Hong Kong) Limited..................................................................Hong Kong Sual Construction Corporation.....................................................................Philippines Southern Energy Resources and Development Corporation.............................................Philippines (40% - CEPA Construction (Hong Kong) Limited; 60% - Edgardo Bautista) CEPA International Finance Corporation....................................................British Virgin Islands Stenus Limited Jersey Southern Energy (Shajiao C) Limited.................................................................Hong Kong (79.99% - CEPA International Finance Corporation; 0.01% - Stenus Limited; 20% - Third parties) Guangdong Guanghope Power Co., Ltd................................................Peoples Republic of China (40% - Southern Energy (Shajiao C) Limited; 60% - Third party) CEPA Pangasinan Electric Limited..........................................................British Virgin Islands Southern Energy Pangasinan, Inc...................................................................Philippines (91.91% - CEPA Pangasinan Electric Limited; 8.09% - Third parties) Southern Energy Sual Holdings, Inc................................................................Philippines CEPA Pakistan (BVI) Limited...............................................................British Virgin Islands CEPA Energy Pakistan Limited.........................................................................Pakistan - 5 - CEPA Nominee (BVI) Limited................................................................British Virgin Islands Tranquil Star Corporation.................................................................British Virgin Islands CEPA Thailand (BVI) Limited............................................................British Virgin Islands CEPA India (BVI) Limited..................................................................British Virgin Islands CEPA Investment (Mauritius) Limited.................................................................Mauritius CEPA Operations, (Hong Kong) Limited...................................................................Hong Kong CEPA Operations (Philippines) Corp................................................................Philippines CEPA Project Management and Engineering (BVI) Limited.....................................British Virgin Islands CEPA Fuels Limited British Virgin Islands Marsford Investments Pte Ltd........................................................................Singapore Allied Queensland Coalfields Pty Ltd.)..............................................................Australia (95.17% - CEPA Fuels Limited; 4.83% - Marsford Investments Pte Ltd.) Aberdare Collieries Pty Ltd.......................................................................Australia New Whitwood Collieries Pty Ltd.................................................................Australia Riverview Coal Terminal Pty Ltd.................................................................Australia AQC (Kogan Creek) Pty Ltd.......................................................................Australia AQC (Wilkie Creek) Pty Ltd......................................................................Australia Baralaba Coal Pty Ltd.............................................................................Australia Lemon Grove Investments Pty Ltd...................................................................Australia Tiaro Coal Pty Ltd................................................................................Australia CEPA Australia (BVI) Limited...........................................................................Australia CEPA Holding Australia Pty Ltd......................................................................Australia CEPA (Kogan Creek) Holding Pty Ltd................................................................Australia CEPA (Kogan Creek) Leasing I Pty Ltd............................................................Australia CEPA (Kogan Creek) Leasing II Pty Ltd...........................................................Australia CEPA (Kogan Creek) Leasing III Pty Ltd..........................................................Australia CEPA (Kogan Creek) Leasing IV Pty Ltd...........................................................Australia Kogan Creek Power Project Joint Venture.......................................................Australia (12% - CEPA (Kogan Creek) Leasing I Pty Ltd.; 12% - CEPA (Kogan Creek) Leasing II Pty Ltd.; 25% - CEPA (Kogan Creek) Leasing III Pty Ltd.; 51% - CEPA (Kogan Creek) Leasing IV Pty Ltd.) Southern Electric International - Netherlands, BV........................................................Netherlands Southern Electric International Finance, Inc................................................................Delaware Southern Energy Europe, Inc.................................................................................Delaware Southern Energy UK Generation Limited..............................................................England & Wales Southern Energy Development - Europe Limited.......................................................England & Wales Southern Energy Development Hungaria, L.L.C................................................................Hungary The Southern Company - Europe, plc.................................................................England & Wales (99% - Southern Energy Europe, Inc., 1% - Southern Energy Inc.) Southern Energy Netherlands, Ltd..........................................................................Delaware Southern Energy Europe Investments, Ltd.................................................................Delaware Southern Energy Netherlands, B.V. ................................................................Netherlands (50% - Southern Energy Netherlands, Ltd.; 50% - Southern Energy Europe Investments Ltd.) Southern Energy - Europe B.V.........................................................................Netherlands Southern Energy Netherlands Management Company, Inc.....................................................Delaware Southern Electric International - Europe, Inc.............................................................Delaware - 6 - SEI Beteilligungs, GmbH..................................................................................Germany P.T. Tarahan Power Company..........................................................................Indonesia (55% - SEI Beteilligungs, GmbH; 2.5% - Domestic Corporation; 42.5% - Foreign Company) Southern Energy Europe Investments, Ltd.................................................................Delaware SEI Europe UK Limited.........................................................................England & Wales (50% - Southern Energy Europe Investments, Ltd.; 50%- Southern Electric International - Europe, Inc.) SWEB Holdings UK............................................................................England & Wales (49% - SEI Europe UK Limited; 51% - Domestic Corporation) SWEB Holdings Limited.....................................................................England & Wales Southern Investment UK plc..............................................................England & Wales SWEB Energy Purchasing Business Limited...............................................England & Wales South Western Electricity plc (NOTE 1)................................................England & Wales SWEB Investments Limited...........................................................England & Wales South Western Helicopters Limited..................................................England & Wales AZTEC Insurance Limited...................................................................Guernsey SWEB Insurance Limited....................................................................Guernsey SWEB Investments 1996 Limited......................................................England & Wales Croeso Systems Development Limited...............................................England & Wales (50% - SWEB Investments 1996 Limited) ebusiness South West Limited.....................................................England & Wales (45% - SWEB Investments 1996 Limited) SWEB Property Investments Limited..................................................England & Wales SWEB Property Developments Limited.................................................England & Wales Temple Back Developments Limited.................................................England & Wales (49.0% - SWEB Property Developments Limited) Weston-Super-Mare Developments Limited.........................................England & Wales South Western Power Limited........................................................England & Wales South Western Power Investments Limited..........................................England & Wales Teeside Power Limited..........................................................England & Wales (7.7% - South Western Power Investments Limited) Wind Electric Limited..........................................................England & Wales (11.7% - South Western Power Investments Limited) WindResources Limited..........................................................England & Wales (45% - South Western Power Investments Limited) Carland Cross Limited........................................................England & Wales Coal Clough Limited..........................................................England & Wales Winterton Power Limited........................................................England & Wales (25% - South Western Power Investments Limited) Green Electron Limited...........................................................England & Wales (90% - South Western Power Limited; 10% - Foreign Corporation) SWEB Data Collection Services Limited..............................................England & Wales Non-Fossil Purchasing Agency Limited...............................................England & Wales ElectraLink Limited................................................................England & Wales (6.19% - South Western Electricity plc) South Western Energy Limited.......................................................England & Wales - 7 - South Western Natural Gas Limited..................................................England & Wales SWEB Finance Limited...............................................................England & Wales SWEB Gas Limited...................................................................England & Wales REC Collect Limited................................................................England & Wales (25% - South Western Electricity plc) South Western Electricity Share Scheme Trustees Limited............................England & Wales Electricity Pensions Trustee Limited...............................................England & Wales (5% - South Western Electricity plc) St. Clements Services Limited......................................................England & Wales (9.1% - South Western Electricity plc) Electricity Pensions Limited.......................................................England & Wales (Limited by Guarantee - South Western Electricity plc) ESN Holdings Limited...............................................................England & Wales (4.5% - South Western Electricity plc) Electricity Association Limited....................................................England & Wales (5.9% - South Western Electricity plc) Northmere Limited..................................................................England & Wales (Limited by Guarantee - South Western Electricity plc) SWEB Limited.......................................................................England & Wales SWEB Retail Limited................................................................England & Wales SWEB Natural Gas Limited...........................................................England & Wales SWEB Pension Trustee Limited.......................................................England & Wales SWEB Telecom Limited...............................................................England & Wales UK Data Collection Service Limited.................................................England & Wales (8.33% - South Western Electricity plc) Western Natural Gas Limited........................................................England & Wales SEI Brazil Holdings, Inc....................................................................................Delaware SEI South America, Inc. Delaware Southern Energy Caribe, Ltd.................................................................................Delaware Southern Energy - Newco2, Inc...............................................................................Delaware SEI Chile, SA.........Chile (99.99% - Southern Energy - Newco2, Inc., .001% - Southern Energy, Inc.) Energia del Pacifico Limitada..........................................................................Argentina (99.9% - SEI Chile, SA, .1% - Southern Energy International, Inc.) Gasoducto Nor Andino Argentina, S.A.....................................................................Chile (33.33% - Energia del Limitada,; 66.67% - Tractebel) Gasoducto Nor Andino S.A.............................................................................Chile (33.33% - Energia del Limitada; 66.67% - Tractebel) Empressa Electrica del Norte Grande, SA....................................................................Chile (82.34034% - SEI Chile, SA; 8.81% - Foreign Government; 8.850% - Natural Persons) Sitranor S.A.....Chile (60% - Empressa Electrica del Norte Grande, SA; 20% - CODELCO; 20% ELECTROANDINA) Southern Electric Bahamas Holdings, Limited................................................................Bahamas Southern Electric Bahamas, Ltd ..........................................................................Bahamas ICD Utilities Limited.................................................................................Bahamas (25% - Southern Electric Bahamas, Ltd; 75% - Foreign Company) - 8 - Freeport Power Company Limited........................................................................Bahamas (50% - Southern Electric Bahamas, Ltd; 50% - ICD Utilities Limited) Cayman Energy Traders Cayman Islands (27.59% - Southern Energy International, Inc.; 72.41% - Domestic Corporation) Southern Electric do Brasil Participacoes, Limitada.........................................................Brazil (90.6% - Cayman Energy Traders; 9.4% - Foreign Pension Fund) Companhia Energetica de Minas Gerais (CEMIG)..............................................................Brazil (14.41% - Southern Electric do Brasil Participacoes, Limitada; 24.3% - Foreign Government; 20.99% - General Public; 40.30% - Foreign Companies) Southern Energy E Associados Particpacoes, S.A................................................................Brazil SEI Germany - BEWAG, Inc....................................................................................Delaware SEI Worldwide Holdings, Inc.................................................................................Delaware SEI Worldwide Holdings (Germany) GmbH......................................................................Germany (50% - SEI Germany - BEWAG, Inc.; 50% - SEI Worldwide Holdings, Inc.) Southern Energy Holding Beteiligungsgesellschaft GmbH....................................................Germany BEWAG, AG.............................................................................................Germany (26% - Southern Energy Holding Beteiligungsgesellschaft GmbH, 74% Other Foreign Persons ) Southern Energy Development-Europa GmbH..................................................................Germany SEI y Asociados de Argentina, S.A......................................................................Argentina (45.79% - SEI Worldwide Holdings GmbH; 7.14%- Asociados de Electricidad, S.A.; 40.52% - Holdings: 5.55% - Foreign Corporation; 1% - Domestic Company) Hidroelectrica Alicura, S.A.........................................................................Argentina (59% - SEI y Asociados de Argentina, S.A.; 41% - Foreign Government) Southern Electric International Trinidad, Inc...............................................................Delaware The Power Generation Company of Trinidad & Tobago Limited.......................................Trinidad & Tobago (39% - Southern Electric International Trinidad, Inc.; 51% - Foreign Government; 10% - Domestic Corporation) SE China Investments....Delaware Southern Energy Mauritius Limited........................................................................Mauritius SEMAR Limited.....Mauritius Southern Energy Newco Limited............................................................................Mauritius SE Finance Capital Corporation................................................................................Delaware Southern Energy Finance Company, Inc........................................................................Delaware EPZ Lease, Inc........Delaware EPZ Lease, LLC....Delaware (99% EPZ Lease, Inc.; 1% Southern Energy Finance Company, Inc.) EPZ Lease Holding A, LLC.............................................................................Delaware (99% EPZ Lease, LLC; 1% EPZ Lease, Inc.) EPZ Lease Trust A..................................................................................Delaware EPZ Lease Holding B, LLC.............................................................................Delaware (99% EPZ Lease, LLC; 1% EPZ Lease, Inc.) EPZ Lease Trust B..................................................................................Delaware EPZ Lease Holding C, LLC.............................................................................Delaware (99% EPZ Lease, LLC; 1% EPZ Lease, Inc.) EPZ Lease Trust C..................................................................................Delaware - 9 - Southern Energy Clairton, Inc.............................................................................Delaware Southern Energy Clairton, L.L.C.........................................................................Delaware (85% - Southern Energy Clairton, Inc.; 15% Southern Energy Clairton2, Inc.) Clairton 1314 B Partnership, L.P.....................................................................Delaware (27% - Southern Energy Clairton, L.L.C.; 73% - Domestic Corporations) Southern Energy Clairton2, Inc............................................................................Delaware Southern Energy Carbontronics, Inc........................................................................Delaware Southern Energy Carbontronics, L.L.C....................................................................Delaware (99% - Southern Energy Carbontronics,Inc.; 1% - Southern Energy Finance Company) Carbontronics Synfuels Investors, L.P................................................................Delaware (24.75% - Southern Energy Clairton, L.L.C.; 75.25% - Domestic Corporations) Dutch Gas Lease, Inc. Delaware Dutch Gas Lease, L.L.C..................................................................................Delaware Dutch Gas Lease Holding A, L.L.C.....................................................................Delaware Dutch Gas Lease Trust A............................................................................Delaware Dutch Gas Lease Holding B, L.L.C.....................................................................Delaware (99% - Dutch Gas Lease, L.L.C; 1% - Dutch Gas Lease, Inc.) Dutch Gas Lease Trust B............................................................................Delaware Dutch Gas Lease Holding C, L.L.C.....................................................................Delaware (99% - Dutch Gas Lease, L.L.C; 1% - Dutch Gas Lease, Inc.) Dutch Gas Lease Trust C ...........................................................................Delaware SEI Gamog Lease, Inc. Delaware SEI Gamog Lease Holding A, L.L.C..........................................................................Delaware SEI Gamog Lease Trust A.................................................................................Delaware SEI Gamog Lease Holding B, LLC............................................................................Delaware SEI Gamog Lease Trust B.................................................................................Delaware SEI Gamog Lease Holding C, LLC............................................................................Delaware SEI Gamog Lease Trust C.................................................................................Delaware Nuon Lease, Inc.............................................................................................Delaware Nuon Lease Holding D, L.L.C...............................................................................Delaware Nuon Lease Trust D Delaware Nuon Lease Holding E, L.L.C...............................................................................Delaware Nuon Lease Trust E Delaware Nuon Lease Holding F, L.L.C...............................................................................Delaware Nuon Lease Trust F Delaware Southern Company Capital Funding, Inc.........................................................................Delaware Southern Company Capital Trust I............................................................................Delaware Southern Company Capital Trust II...........................................................................Delaware Southern Company Capital Trust III..........................................................................Delaware Southern Company Capital Trust IV...........................................................................Delaware Southern Company Capital Trust V............................................................................Delaware Southern Company Capital Trust VI...........................................................................Delaware - 10 - Southern Company Capital Trust VII..........................................................................Delaware Southern Company Capital Trust VIII.........................................................................Delaware Southern Company Capital Trust IX...........................................................................Delaware Energia de Neuvo Leon, SA De CV......................................................................................Mexico (33 1/3% - The Southern Company; 33 1/3% Foreign Corporations; 33 1/3% - Foreign Government) PowerCall, Inc. Delaware Southern Telecom, Inc..............................................................................................Delaware Southern Information 1, Inc...................................................................................Delaware Southern Information 2, Inc...................................................................................Delaware Southern Telecom 1, Inc.......................................................................................Delaware Southern Telecom 2, Inc.......................................................................................Delaware Southern Nuclear Operating Company Inc.............................................................................Delaware Footnotes: NOTE 1 - Certain of CEPA's holdings in the Philippines were reorganized through a series of agreements that were dated and executed on or before December 31, 1997. However, these agreements are awaiting the approval of certain governmental authorities in the Philippines and are not yet effective.
EX-21.2 26 21(B) Exhibit 21(b) Subsidiaries of Alabama Power Company Name of Company Jurisdiction of Organization Alabama Energy Providers, Inc...................................Alabama Alabama Power Capital Trust I..................................Delaware Alabama Power Capital Trust II.................................Delaware Alabama Power Capital Trust III................................Delaware Alabama Power Capital Trust IV.................................Delaware Alabama Power Capital Trust V..................................Delaware Alabama Property Company........................................Alabama Southern Electric Generating Company............................Alabama (50% - Alabama Power Company; 50% - Georgia Power Company) EX-21.3 27 21(C) Exhibit 21(c) Subsidiaries of Georgia Power Company The voting stock of each company shown indented is owned by the company immediately above which is not indented to the same degree. Subsidiaries not indented are directly owned by Georgia Power Company. Name of Company Jurisdiction of Organization Georgia Power Capital Trust I...............................Delaware Georgia Power Capital Trust II..............................Delaware Georgia Power Capital Trust III.............................Delaware Georgia Power Capital Trust IV..............................Delaware Georgia Power Capital Trust V...............................Delaware Georgia Power Capital Trust VI..............................Delaware Georgia Power L.P. Holdings Corp.............................Georgia Georgia Power Capital, L.P.............................Delaware Piedmont-Forrest Corporation.................................Georgia Southern Electric Generating Company.........................Alabama (50% - Alabama Power Company; 50% - Georgia Power Company) EX-21.4 28 21(D) Exhibit 21(d) Subsidiaries of Gulf Power Company Name of Company Jurisdiction of Organization Gulf Power Capital Trust I......................................Delaware Gulf Power Capital Trust II.....................................Delaware Gulf Power Capital Trust III....................................Delaware EX-21.5 29 21(E) Exhibit 21(e) Subsidiaries of Mississippi Power Company Name of Company Jurisdiction of Organization Mississippi Power Capital Trust I.......................Delaware Mississippi Power Capital Trust II......................Delaware Mississippi Power Capital Trust III.....................Delaware Mississippi Power Services, Inc......................Mississippi EX-21.6 30 21(F) Exhibit 21(f) Subsidiaries of Savannah Electric and Power Company Name of Company Jurisdiction of Organization Savannah Electric Capital Trust I.............................Delaware EX-24.1 31 24(A) Exhibit 24(a) February 21, 2000 A. W. Dahlberg, W. L. Westbrook, Tommy Chisholm, and Wayne Boston Dear Sirs: The Southern Company proposes to file or join in the filing of reports under the Securities Exchange Act of 1934, as amended, with the Securities and Exchange Commission with respect to the following: (1) the filing of this Company's Annual Report on Form 10-K for the year ended December 31, 1999 and (2) the filing of Quarterly Reports on Form 10-Q and Current Reports on Form 8-K during 2000. The Southern Company and the undersigned directors and officers of said Company, individually as a director and/or as an officer of the Company, hereby make, constitute and appoint each of you our true and lawful Attorney for each of us and in each of our names, places and steads to sign and cause to be filed with the Securities and Exchange Commission in connection with the foregoing said Annual Report on Form 10-K, said Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any necessary or appropriate amendment or amendments to any such reports, to be accompanied in each case by any necessary or appropriate exhibits or schedules thereto. Yours very truly, THE SOUTHERN COMPANY By /s/ A. W. Dahlberg A. W. Dahlberg Chairman, President and Chief Executive Officer - 2 - /s/Dorrit J. Bern /s/Donald M. James Dorrit J. Bern Donald M. James /s/Thomas F. Chapman /s/David J. Lesar Thomas F. Chapman David J. Lesar /s/A. D. Correll /s/Zack T. Pate A. D. Correll Zack T. Pate /s/A. W. Dahlberg /s/Gerald J. St. Pe' A. W. Dahlberg Gerald J. St. Pe' /s/H. Allen Franklin /s/Stephen A. Wakefield H. Allen Franklin Stephen A. Wakefield /s/W. L. Westbrook ________________________________ W. L. Westbrook Bruce S. Gordon /s/L. G. Hardman III /s/Tommy Chisholm L. G. Hardman III Tommy Chisholm /s/Elmer B. Harris /s/W. Dean Hudson Elmer B. Harris W. Dean Hudson Extract from minutes of meeting of the board of directors of The Southern Company. - - - - - - - - - - RESOLVED: That for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1999, 2000 Form 10-Q's and Form 8-K's, and of remedying any deficiencies with respect thereto by appropriate amendment or amendments, this Company, the members of its board of directors, and its officers, are authorized to give their several powers of attorney to A. W. Dahlberg, W. L. Westbrook, Tommy Chisholm, and Wayne Boston. - - - - - - - - - - The undersigned officer of The Southern Company does hereby certify that the foregoing is a true and correct copy of a resolution duly and regularly adopted at a meeting of the board of directors of The Southern Company, duly held on February 21, 2000, at which a quorum was in attendance and voting throughout, and that said resolution has not since been rescinded but is still in full force and effect. Dated March 24, 2000 THE SOUTHERN COMPANY By /s/ Tommy Chisholm Tommy Chisholm Secretary EX-24.2 32 24(B) Exhibit 24(b) January 21, 2000 W. L. Westbrook Wayne Boston 270 Peachtree Street, N.W. 241 Ralph McGill Blvd. NE Atlanta, Georgia 30303 Atlanta, Georgia 30308-3374 Dear Sirs: Alabama Power Company proposes to file with the Securities and Exchange Commission, under the Securities Exchange Act of 1934, (1) its Annual Report on Form 10-K for the year ended December 31, 1999, and (2) its quarterly reports on Form 10-Q during 2000. Alabama Power Company and the undersigned directors and officers of said Company, individually as a director and/or as an officer of the Company, hereby make, constitute and appoint W. L. Westbrook and Wayne Boston our true and lawful Attorneys for each of us and in each of our names, places and steads to sign and cause to be filed with the Securities and Exchange Commission in connection with the foregoing said Annual Report on Form 10-K, quarterly reports on Form 10-Q, and any appropriate amendment or amendments thereto and any necessary exhibits. Yours very truly, ALABAMA POWER COMPANY By /s/Elmer B. Harris Elmer B. Harris President and Chief Executive Officer - 2 - /s/ Whit Armstrong /s/ Mayer Mitchell Whit Armstrong Mayer Mitchell /s/ David J. Cooper /s/ William V. Muse David J. Cooper William V. Muse /s/ H. Allen Franklin /s/ John T. Porter H. Allen Franklin John T. Porter /s/ Elmer B. Harris /s/ Robert D. Powers Elmer B. Harris Robert D. Powers /s/ R. Kent Henslee ______________________________ R. Kent Henslee Andreas Renschler /s/ Carl E. Jones, Jr. /s/ C. Dowd Ritter Carl E. Jones, Jr. C. Dowd Ritter /s/ Patricia M. King /s/ James H. Sanford Patricia M. King James H. Sanford /s/ James K. Lowder /s/ John Cox Webb, IV James K. Lowder John Cox Webb, IV /s/ Wallace D. Malone, Jr. /s/ William B. Hutchins, III Wallace D. Malone, Jr. William B. Hutchins, III /s/ Thomas C. Meredith /s/ Art P. Beattie Thomas C. Meredith Art P. Beattie Extract from minutes of meeting of the board of directors of Alabama Power Company. - - - - - - - - - - RESOLVED: That for the purpose of signing and filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, Alabama Power Company's annual report on Form 10-K for the year ended December 31, 1999, and of remedying any deficiencies with respect thereto by appropriate amendment or amendments, and also filing quarterly reports on Form 10-Q, Alabama Power Company, the members of its Board of Directors, and its officers are authorized to give their several powers of attorney to W. L. Westbrook and Wayne Boston, in substantially the form of power of attorney presented to this meeting. - - - - - - - - - - The undersigned officer of Alabama Power Company does hereby certify that the foregoing is a true and correct copy of resolution duly and regularly adopted at a meeting of the board of directors of Alabama Power Company, duly held on January 21, 2000, at which a quorum was in attendance and voting throughout, and that said resolution has not since been rescinded but is still in full force and effect. Dated March 24, 2000 ALABAMA POWER COMPANY By /s/Wayne Boston Wayne Boston Assistant Secretary EX-24.3 33 24(C) Exhibit 24(c) February 16, 2000 W. L. Westbrook and Wayne Boston Dear Sirs: Georgia Power Company proposes to file or join in the filing of reports under the Securities Exchange Act of 1934 with the Securities and Exchange Commission with respect to the following: (1) the filing of its Annual Report on Form 10-K for the year ended December 31, 1999, and (2) the filing of its quarterly reports on Form 10-Q during 2000. Georgia Power Company and the undersigned directors and officers of said Company, individually as a director and/or as an officer of the Company, hereby make, constitute and appoint each of you our true and lawful Attorney for each of us and in each of our names, places and steads to sign and cause to be filed with the Securities and Exchange Commission in connection with the foregoing said Annual Report on Form 10-K, quarterly reports on Form 10-Q and any appropriate amendment or amendments thereto and any necessary exhibits. Yours very truly, GEORGIA POWER COMPANY By /s/ David M. Ratcliffe David M. Ratcliffe President and Chief Executive Officer - 2 - /s/ Daniel P. Amos /s/ Herman J. Russell Daniel P. Amos Herman J. Russell /s/ Juanita P. Baranco /s/ David M. Ratcliffe Juanita P. Baranco David M. Ratcliffe /s/ William A. Fickling, Jr. /s/ William Jerry Vereen William A. Fickling, Jr. William Jerry Vereen /s/ H. Allen Franklin /s/ Carl Ware H. Allen Franklin Carl Ware /s/ L. G. Hardman III /s/ Thomas A. Fanning L. G. Hardman III Thomas A. Fanning /s/ James R. Lientz, Jr. /s/ Judy M. Anderson James R. Lientz, Jr. Judy M. Anderson /s/ Zell Miller /s/ Cliff S. Thrasher Zell Miller Cliff S. Thrasher /s/ G. Joseph Prendergast G. Joseph Prendergast Extract from minutes of meeting of the board of directors of Georgia Power Company. - - - - - - - - - - RESOLVED: That for the purpose of signing reports under the Securities Exchange Act of 1934 to be filed with the Securities and Exchange Commission with respect to (a) the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and (b) quarterly filings on Form 10-Q during 2000; and of remedying any deficiencies with respect thereto by appropriate amendment or amendments, this Company and the members of its Board of Directors authorize their several powers of attorney to W. L. Westbrook and Wayne Boston. - - - - - - - - - - The undersigned officer of Georgia Power Company does hereby certify that the foregoing is a true and correct copy of resolution duly and regularly adopted at a meeting of the board of directors of Georgia Power Company, duly held on February 16, 2000, at which a quorum was in attendance and voting throughout, and that said resolution has not since been rescinded but is still in full force and effect. Dated March 24, 2000 GEORGIA POWER COMPANY By /s/Wayne Boston Wayne Boston Assistant Secretary EX-24.4 34 24(D) Exhibit 24(d) February 25, 2000 Mr. W. L. Westbrook Mr. Wayne Boston The Southern Company Southern Company Services, Inc. 270 Peachtree Street, N.W. 241 Ralph McGill Blvd. NE Atlanta GA 30303 Atlanta GA 30308-3374 Dear Sirs: Re: Forms 10-K and 10-Q Gulf Power Company proposes to file or join in the filing of reports under the Securities Exchange Act of 1934 with the Securities and Exchange Commission with respect to the following: (1) its Annual Report on Form 10-K for the year ended December 31, 1999, and (2) its 2000 quarterly reports on Form 10-Q. Gulf Power Company and the undersigned Directors and Officers of said Company, individually as a Director and/or as an Officer of the Company, hereby make, constitute and appoint each of you our true and lawful Attorney for each of us and in each of our names, places and steads to sign and cause to be filed with the Securities and Exchange Commission in connection with the foregoing said Annual Report on Form 10-K, quarterly reports on Form 10-Q and any appropriate amendment or amendments thereto and any necessary exhibits. Sincerely, By /s/Travis J. Bowden Travis J. Bowden President and Chief Executive Officer - 2 - /s/ Travis J. Bowden /s/ Barbara H. Thames Travis J. Bowden Barbara H. Thames /s/ Fred C. Donovan /s/ Arlan E. Scarbrough Fred C. Donovan Arlan E. Scarbrough /s/ H. Allen Franklin /s/ Ronnie R. Labrato H. Allen Franklin Ronnie R. Labrato /s/ W. D. Hull, Jr. /s/ Warren E. Tate W. D. Hull, Jr. Warren E. Tate /s/ Joseph K. Tannehill Joseph K. Tannehill Extract from minutes of meeting of the board of directors of Gulf Power Company. - - - - - - - - - - RESOLVED, That for the purpose of signing the reports under the Securities Exchange Act of 1934 to be filed with the Securities and Exchange Commission with respect to the filing of this Company's Annual Report on Form 10-K for the year ended December 31, 1999, and its 2000 quarterly reports on Form 10-Q, and of remedying any deficiencies with respect thereto by appropriate amendment or amendments, this Company, the members of its Board of Directors, and its Officers, are authorized to give their several powers of attorney to W. L. Westbrook and Wayne Boston. - - - - - - - - - - The undersigned officer of Gulf Power Company does hereby certify that the foregoing is a true and correct copy of resolution duly and regularly adopted at a meeting of the board of directors of Gulf Power Company, duly held on February 25, 2000, at which a quorum was in attendance and voting throughout, and that said resolution has not since been rescinded but is still in full force and effect. Dated March 24, 2000 GULF POWER COMPANY By /s/Wayne Boston Wayne Boston Assistant Secretary EX-24.5 35 24(E) Exhibit 24(e) February 23, 2000 W. L. Westbrook and Wayne Boston Dear Sirs: Mississippi Power Company proposes to file or join in the filing of reports under the Securities Exchange Act of 1934 with the Securities and Exchange Commission with respect to the following: (1) the filing of its Annual Report on Form 10-K for the year ended December 31, 1999, and (2) the filing of its quarterly reports on Form 10-Q during 2000. Mississippi Power Company and the undersigned directors and officers of said Company, individually as a director and/or as an officer of the Company, hereby make, constitute and appoint each of you our true and lawful Attorney for each of us and in each of our names, places and steads to sign and cause to be filed with the Securities and Exchange Commission in connection with the foregoing said Annual Report on Form 10-K, quarterly reports on Form 10-Q and any appropriate amendment or amendments thereto and any necessary exhibits. Yours very truly, MISSISSIPPI POWER COMPANY By /s/Dwight H. Evans Dwight H. Evans President and Chief Executive Officer - 2 - /s/ Edwin E. Downer /s/ George A. Schloegel Edwin E. Downer George A. Schloegel /s/ Dwight H. Evans /s/ Philip J. Terrell Dwight H. Evans Philip J. Terrell /s/ Robert S. Gaddis /s/ Gene Warr Robert S. Gaddis Gene Warr /s/ Linda T. Howard /s/ Michael W. Southern Linda T. Howard Michael W. Southern /s/ Aubrey K. Lucas /s/ Frances V. Turnage Aubrey K. Lucas Frances V. Turnage /s/ Malcolm Portera Malcolm Portera Extract from minutes of meeting of the board of directors of Mississippi Power Company. - - - - - - - - - - RESOLVED: That this Company, the members of this Company's Board of Directors and its officers are authorized to give their several powers of attorney to W. L. Westbrook and Wayne Boston for the purpose of signing the reports under the Securities Exchange Act of 1934 to be filed with the Securities and Exchange Commission with respect to the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and the filing of this Company's quarterly reports to the Securities and Exchange Commission on Form 10-Q for the year 2000. - - - - - - - - - - The undersigned officer of Mississippi Power Company does hereby certify that the foregoing is a true and correct copy of resolution duly and regularly adopted at a meeting of the board of directors of Mississippi Power Company, duly held on February 23, 2000, at which a quorum was in attendance and voting throughout, and that said resolution has not since been rescinded but is still in full force and effect. Dated March 27, 2000 MISSISSIPPI POWER COMPANY By /s/Wayne Boston Wayne Boston Assistant Secretary EX-24.6 36 24(F) Exhibit 24(f) February 24, 2000 W. L. Westbrook and Wayne Boston Dear Sirs: Savannah Electric and Power Company proposes to file with the Securities and Exchange Commission, under the Securities Exchange Act of 1934, (1) its Annual Report on Form 10-K for the year ended December 31, 1999, and (2) its quarterly reports on Form 10-Q during 2000. Savannah Electric and Power Company and the undersigned directors and officers of said Company, individually as a director and/or as an officer of the Company, hereby make, constitute and appoint W. L. Westbrook and Wayne Boston our true and lawful Attorneys for each of us and in each of our names, places and steads to sign and cause to be filed with the Securities and Exchange Commission in connection with the foregoing said Annual Report on Form 10-K, quarterly reports on Form 10-Q, and any appropriate amendment or amendments thereto and any necessary exhibits. Yours very truly, SAVANNAH ELECTRIC AND POWER COMPANY By /s/ G. Edison Holland, Jr. G. Edison Holland, Jr. President and Chief Executive Officer - 2 - /s/ Gus H. Bell, III /s/ Robert B. Miller, III Gus H. Bell, III Robert B. Miller, III /s/ Archie H. Davis /s/ Arnold M. Tenenbaum Archie H. Davis Arnold M. Tenenbaum /s/ Walter D. Gnann /s/ K. R. Willis Walter D. Gnann K. R. Willis /s/ G. Edison Holland, Jr. /s/ Nancy E. Frankenhauser G. Edison Holland, Jr. Nancy E. Frankenhauser Extract from minutes of meeting of the board of directors of Savannah Electric and Power Company. - - - - - - - - - - RESOLVED: That for the purpose of signing reports required to be filed by the Company under the Securities Exchange Act of 1934 to be filed with the Securities and Exchange Commission including (a) the filing of this Company's Annual Report on Form 10-K for the year ended December 31, 1999, and (b) quarterly reports on Form 10-Q during calendar year 2000; and of remedying any deficiencies with respect thereto by appropriate amendment or amendments, this Company and the members of its Board of Directors, and its officers, be and they are hereby authorized to give their several powers of attorney to W. L. Westbrook and Wayne Boston for the purposes set out above. - - - - - - - - - - The undersigned officer of Savannah Electric and Power Company does hereby certify that the foregoing is a true and correct copy of resolution duly and regularly adopted at a meeting of the board of directors of Savannah Electric and Power Company, duly held on February 24, 2000, at which a quorum was in attendance and voting throughout, and that said resolution has not since been rescinded but is still in full force and effect. Dated March 24, 2000 SAVANNAH ELECTRIC AND POWER COMPANY By /s/Wayne Boston Wayne Boston Assistant Secretary -----END PRIVACY-ENHANCED MESSAGE-----