-----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, JQebw8olYedPflTj0eYqtvGfp3CmM5UC+uL84X7bsg1tHC5TFEmV5ZB/v3KVGLTE Yn1IyXFJkcZhfC4wNbmaXQ== 0000092122-03-000188.txt : 20030813 0000092122-03-000188.hdr.sgml : 20030813 20030813154012 ACCESSION NUMBER: 0000092122-03-000188 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 30 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALABAMA POWER CO CENTRAL INDEX KEY: 0000003153 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 630004250 STATE OF INCORPORATION: AL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03164 FILM NUMBER: 03841125 BUSINESS ADDRESS: STREET 1: 600 N 18TH ST STREET 2: P O BOX 2641 CITY: BIRMINGHAM STATE: AL ZIP: 35291 BUSINESS PHONE: 2052571000 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEORGIA POWER CO CENTRAL INDEX KEY: 0000041091 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 580257110 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06468 FILM NUMBER: 03841124 BUSINESS ADDRESS: STREET 1: 241 RALPH MCGILL BOULEVARD CITY: ATLANTA STATE: GA ZIP: 30308 BUSINESS PHONE: 4045066526 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MISSISSIPPI POWER CO CENTRAL INDEX KEY: 0000066904 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 640205820 STATE OF INCORPORATION: MS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11229 FILM NUMBER: 03841122 BUSINESS ADDRESS: STREET 1: 2992 W BEACH CITY: GULFPORT STATE: MS ZIP: 39501 BUSINESS PHONE: 2288641211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAVANNAH ELECTRIC & POWER CO CENTRAL INDEX KEY: 0000086940 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 580418070 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05072 FILM NUMBER: 03841121 BUSINESS ADDRESS: STREET 1: 600 BAY ST EAST CITY: SAVANNAH STATE: GA ZIP: 31401 BUSINESS PHONE: 9122327171 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GULF POWER CO CENTRAL INDEX KEY: 0000044545 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 590276810 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-31737 FILM NUMBER: 03841123 BUSINESS ADDRESS: STREET 1: ONE ENERGY PLACE CITY: PENSACOLA STATE: FL ZIP: 32520-0102 BUSINESS PHONE: 8504446111 MAIL ADDRESS: STREET 1: ONE ENERGY PLACE CITY: PENSACOLA STATE: FL ZIP: 32520-0102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN CO CENTRAL INDEX KEY: 0000092122 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 580690070 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03526 FILM NUMBER: 03841119 BUSINESS ADDRESS: STREET 1: 270 PEACHTREE ST CITY: ATLANTA STATE: GA ZIP: 30303 BUSINESS PHONE: 4045065000 MAIL ADDRESS: STREET 1: 270 PEACHTREE STREET CITY: ATLANTA STATE: GA ZIP: 30303 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN POWER CO CENTRAL INDEX KEY: 0001160661 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 582598670 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-98553 FILM NUMBER: 03841120 BUSINESS ADDRESS: STREET 1: 600 N 18TH ST. CITY: BIRMINGHAM STATE: AL ZIP: 35291 BUSINESS PHONE: 4045067146 MAIL ADDRESS: STREET 1: 241 RALPH MCGILL BLVD STREET 2: NE BIN 10116 CITY: ATLANTA STATE: GA ZIP: 30308 10-Q 1 form10q.txt SOUTHERN COMPANY FORM 10-Q SECOND QUARTER 2003 ============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------- FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended June 30, 2003 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from _____to_____ Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address and Telephone Number Identification No. - ------------- ------------------------------------- ------------------ 1-3526 The Southern Company 58-0690070 (A Delaware Corporation) 270 Peachtree Street, N.W. Atlanta, Georgia 30303 (404) 506-5000 1-3164 Alabama Power Company 63-0004250 (An Alabama Corporation) 600 North 18th Street Birmingham, Alabama 35291 (205) 257-1000 1-6468 Georgia Power Company 58-0257110 (A Georgia Corporation) 241 Ralph McGill Boulevard, N.E. Atlanta, Georgia 30308 (404) 506-6526 0-2429 Gulf Power Company 59-0276810 (A Maine Corporation) One Energy Place Pensacola, Florida 32520 (850) 444-6111 001-11229 Mississippi Power Company 64-0205820 (A Mississippi Corporation) 2992 West Beach Gulfport, Mississippi 39501 (228) 864-1211 1-5072 Savannah Electric and Power Company 58-0418070 (A Georgia Corporation) 600 East Bay Street Savannah, Georgia 31401 (912) 644-7171 333-98553 Southern Power Company 58-2598670 (A Delaware Corporation) 270 Peachtree Street, N.W. Atlanta, Georgia 30303 (404) 506-5000 =============== =========================================== ================== Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No____ Indicate by check mark whether the registrants are accelerated filers as defined by Rule 12b-2 of the Securities Exchange Act of 1934. Yes X (except for Southern Power Company) No ___ Description of Shares Outstanding Registrant Common Stock at July 31, 2003 - ---------- --------------- ----------------- The Southern Company Par Value $5 Per Share 728,512,169 Alabama Power Company Par Value $40 Per Share 6,625,000 Georgia Power Company No Par Value 7,761,500 Gulf Power Company No Par Value 992,717 Mississippi Power Company Without Par Value 1,121,000 Savannah Electric and Power Company Par Value $5 Per Share 10,844,635 Southern Power Company Par Value $0.01 Per Share 1,000 This combined Form 10-Q is separately filed by The Southern Company, Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, Savannah Electric and Power Company and Southern Power Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes no representation as to information relating to the other companies. 2
INDEX TO QUARTERLY REPORT ON FORM 10-Q June 30, 2003 Page Number DEFINITIONS........................................................................................................ 5 PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition The Southern Company and Subsidiary Companies Condensed Consolidated Statements of Income........................................................ 8 Condensed Consolidated Statements of Cash Flows.................................................... 9 Condensed Consolidated Balance Sheets.............................................................. 10 Condensed Consolidated Statements of Comprehensive Income and Accumulated Other Comprehensive Income......................................................... 12 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 13 Alabama Power Company Condensed Statements of Income..................................................................... 24 Condensed Statements of Cash Flows................................................................. 25 Condensed Balance Sheets........................................................................... 26 Condensed Statements of Comprehensive Income and Accumulated Other Comprehensive Income......................................................... 28 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 29 Georgia Power Company Condensed Statements of Income..................................................................... 38 Condensed Statements of Cash Flows................................................................. 39 Condensed Balance Sheets........................................................................... 40 Condensed Statements of Comprehensive Income and Accumulated Other Comprehensive Income......................................................... 42 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 43 Gulf Power Company Condensed Statements of Income..................................................................... 52 Condensed Statements of Cash Flows................................................................. 53 Condensed Balance Sheets........................................................................... 54 Condensed Statements of Comprehensive Income and Accumulated Other Comprehensive Income......................................................... 56 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 57 Mississippi Power Company Condensed Statements of Income..................................................................... 65 Condensed Statements of Cash Flows................................................................. 66 Condensed Balance Sheets........................................................................... 67 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 69 Savannah Electric and Power Company Condensed Statements of Income..................................................................... 77 Condensed Statements of Cash Flows................................................................. 78 Condensed Balance Sheets........................................................................... 79 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 81 Southern Power Company Condensed Statements of Income..................................................................... 88 Condensed Statements of Cash Flows................................................................. 89 Condensed Balance Sheets........................................................................... 90 Condensed Statements of Comprehensive Income and Accumulated Other Comprehensive Income......................................................... 92 Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 93 Notes to the Condensed Financial Statements........................................................... 101 Item 3. Quantitative and Qualitative Disclosures about Market Risk............................................ 22 Item 4. Controls and Procedures............................................................................... 22
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INDEX TO QUARTERLY REPORT ON FORM 10-Q June 30, 2003 Page Number PART II - OTHER INFORMATION Item 1. Legal Proceedings......................................................................................... 116 Item 2. Changes in Securities and Use of Proceeds................................................................. Inapplicable Item 3. Defaults Upon Senior Securities........................................................................... Inapplicable Item 4. Submission of Matters to a Vote of Security Holders....................................................... 116 Item 5. Other Information......................................................................................... Inapplicable Item 6. Exhibits and Reports on Form 8-K.......................................................................... 119 Signatures ............................................................................................... 124
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DEFINITIONS TERM MEANING Alabama Power............................... Alabama Power Company Clean Air Act .............................. Clean Air Act Amendments of 1990 Dynegy...................................... Dynegy, Inc. ECO Plan.................................... Environmental Compliance Overview Plan Energy Act.................................. Energy Policy Act of 1992 EPA......................................... U. S. Environmental Protection Agency FASB........................................ Financial Accounting Standards Board FERC........................................ Federal Energy Regulatory Commission Form 10-K................................... Combined Annual Report on Form 10-K of Southern Company, Alabama Power, Georgia Power, Gulf Power, Mississippi Power, Savannah Electric and Southern Power for the year ended December 31, 2002 Georgia Power............................... Georgia Power Company Gulf Power.................................. Gulf Power Company IRS......................................... Internal Revenue Service LIBOR....................................... London Interbank Offered Rate Mirant...................................... Mirant Corporation Mississippi Power........................... Mississippi Power Company Mobile Energy............................... Mobile Energy Services Company, L.L.C. and Mobile Energy Services Holdings, Inc. Moody's..................................... Moody's Investors Service, Inc. NRC......................................... Nuclear Regulatory Commission operating companies......................... Alabama Power, Georgia Power, Gulf Power, Mississippi Power and Savannah Electric PEP......................................... Performance Evaluation Plan PPA......................................... Purchase Power Agreement PSC......................................... Public Service Commission PUHCA....................................... Public Utility Holding Company Act of 1935, as amended RTO......................................... Regional Transmission Organization S&P......................................... Standard and Poor's, a division of The McGraw-Hill Companies Savannah Electric........................... Savannah Electric and Power Company SCS......................................... Southern Company Services, Inc. SEC......................................... Securities and Exchange Commission SeTrans..................................... A proposed regional transmission organization consisting of public and private companies, including Southern Company, located in eight southeastern states Southern Company............................ The Southern Company Southern Company GAS........................ Southern Company Gas LLC Southern Company system..................... Southern Company, the operating companies, Southern Power and other subsidiaries Southern LINC............................... Southern Communications Services, Inc. Southern Power.............................. Southern Power Company Super Southeast............................. Southern Company's traditional service territory, Alabama, Florida, Georgia and Mississippi plus the surrounding states of Kentucky, Louisiana, North Carolina, South Carolina, Tennessee and Virginia TVA......................................... Tennessee Valley Authority
5 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION This Quarterly Report on Form 10-Q contains forward-looking and historical information. Forward-looking information includes, among other things, statements concerning capital requirements, expected capacity payments, the Atlanta one-hour ozone nonattainment classification and Southern Power's commercial paper balances and scheduled completion of new generating facilities. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "could," "should," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential" or "continue" or the negative of these terms or other comparable terminology. The registrants caution that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include the impact of recent and future federal and state regulatory change, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry and also changes in environmental and other laws and regulations to which Southern Company and its subsidiaries are subject, as well as changes in application of existing laws and regulations; current and future litigation, including the pending EPA civil actions against certain Southern Company subsidiaries; the effects, extent and timing of the entry of additional competition in the markets in which Southern Company's subsidiaries operate; the impact of fluctuations in commodity prices, interest rates and customer demand; state and federal rate regulations; political, legal and economic conditions and developments in the United States; the performance of projects undertaken by the non-traditional business and the success of efforts to invest in and develop new opportunities; internal restructuring or other restructuring options that may be pursued; potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot be assured to be completed or beneficial to Southern Company or its subsidiaries; the ability of counterparties of Southern Company and its subsidiaries to make payments as and when due; the effects of, and changes in, economic conditions in the areas in which Southern Company's subsidiaries operate, including the current soft economy; the direct or indirect effects on Southern Company's business resulting from the terrorist incidents on September 11, 2001, or any similar such incidents or responses to such incidents; financial market conditions and the results of financing efforts; the timing and acceptance of Southern Company's new product and service offerings; the ability of Southern Company and its subsidiaries to obtain additional generating capacity at competitive prices; weather and other natural phenomena; and other factors discussed elsewhere herein and in other reports (including the Form 10-K) filed from time to time with the SEC. 6 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES 7
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) For the Three Months For the Six Months Ended June 30, Ended June 30, --------------------- --------------------- 2003 2002 2003 2002 ------ ------ ------ ------ (in thousands) (in thousands) Operating Revenues: Retail sales $2,175,706 $2,185,048 $4,149,550 $4,028,767 Sales for resale 338,071 293,475 677,232 526,154 Other electric revenues 227,921 84,447 319,798 149,258 Other revenues 117,525 67,802 265,545 140,181 ---------- ---------- ---------- ---------- Total operating revenues 2,859,223 2,630,772 5,412,125 4,844,360 ---------- ---------- ---------- ---------- Operating Expenses: Fuel 732,245 686,544 1,442,572 1,260,737 Purchased power 135,575 123,644 272,677 191,261 Other operations 570,193 522,704 1,064,059 967,956 Maintenance 238,954 247,019 468,664 475,809 Depreciation and amortization 258,297 254,271 503,285 499,906 Taxes other than income taxes 142,737 137,877 291,563 277,724 ---------- ---------- ---------- ---------- Total operating expenses 2,078,001 1,972,059 4,042,820 3,673,393 ---------- ---------- ---------- ---------- Operating Income 781,222 658,713 1,369,305 1,170,967 Other Income and (Expense): Allowance for equity funds used during construction 4,173 3,505 12,024 10,592 Interest income 20,589 4,141 25,087 8,944 Equity in losses of unconsolidated subsidiaries (26,276) (25,751) (53,443) (41,655) Leveraged lease income 15,698 14,753 33,413 29,454 Interest expense, net of amounts capitalized (134,188) (123,219) (257,949) (243,772) Distributions on capital and preferred securities of subsidiaries (39,951) (43,649) (79,537) (86,176) Preferred dividends of subsidiaries (5,472) (4,396) (10,222) (8,777) Other income (expense), net 1,855 2,176 (2,428) (17,880) ---------- ---------- ---------- ---------- Total other income and (expense) (163,572) (172,440) (333,055) (349,270) ---------- ---------- ---------- ---------- Earnings Before Income Taxes 617,650 486,273 1,036,250 821,697 Income taxes 185,763 154,881 306,931 266,019 ---------- ---------- ---------- ---------- Earnings Before Cumulative Effect of Accounting Change 431,887 331,392 729,319 555,678 Cumulative effect of accounting change -- less income taxes of $231 - - 367 - ---------- ---------- ---------- ---------- Consolidated Net Income $ 431,887 $ 331,392 $ 729,686 $ 555,678 ========== ========== ========== ========== Common Stock Data: Consolidated basic earnings per share $0.60 $0.47 $1.01 $0.79 Consolidated diluted earnings per share $0.59 $0.46 $1.00 $0.78 Average number of basic shares of common stock outstanding (in thousands) 724,627 706,181 721,785 703,596 Average number of diluted shares of common stock outstanding (in thousands) 730,286 712,165 727,139 709,137 Cash dividends paid per share of common stock $0.343 $0.335 $0.685 $0.670 The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.
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THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended June 30, 2003 2002 ------ ----- (in thousands) Operating Activities: Consolidated net income $729,686 $555,678 Adjustments to reconcile consolidated net income to net cash provided from operating activities -- Depreciation and amortization 585,381 551,663 Deferred income taxes and investment tax credits 199,776 22,729 Equity in losses of unconsolidated subsidiaries 53,443 41,655 Leveraged lease income (33,413) (29,454) Pension, postretirement, and other employee benefits (13,540) (29,632) Other, net 21,791 15,952 Changes in certain current assets and liabilities -- Receivables, net (30,305) (38,478) Fossil fuel stock (28,952) 20,027 Materials and supplies (13,401) 12,806 Other current assets (117,251) (70,190) Accounts payable (251,300) (78,416) Taxes accrued 160,320 92,725 Other current liabilities (110,334) (25,671) ---------- ---------- Net cash provided from operating activities 1,151,901 1,041,394 ---------- ---------- Investing Activities: Gross property additions (1,071,142) (1,409,984) Cost of removal net of salvage (35,941) (56,779) Change in construction payables (66,025) (65,109) Other (21,309) (49,871) ---------- ---------- Net cash used for investing activities (1,194,417) (1,581,743) ---------- ---------- Financing Activities: Increase (decrease) in notes payable, net 477,254 (247,899) Proceeds -- Senior notes 1,970,000 1,473,992 Other long-term debt 75,495 3,299 Capital and preferred securities - 475,000 Preferred stock 125,000 - Common stock 291,076 247,830 Redemptions -- First mortgage bonds (33,350) (7,444) Long-term senior notes (1,617,465) (381,030) Other long-term debt (526,605) (160,662) Capital and preferred securities (240,000) (35,000) Payment of common stock dividends (493,069) (470,426) Other (48,213) (36,618) ---------- ---------- Net cash provided from (used for) financing activities (19,877) 861,042 ----------- ---------- Net Change in Cash and Cash Equivalents (62,393) 320,693 Cash and Cash Equivalents at Beginning of Period 273,032 354,015 ---------- ---------- Cash and Cash Equivalents at End of Period $ 210,639 $ 674,708 ========== ========== Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of $31,176 and $28,108 capitalized for 2003 and 2002, respectively) $247,444 $213,496 Income taxes (net of refunds) ($1,680) $241,385 The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements. 9
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) At June 30, At December 31, Assets 2003 2002 - ------ ------------- --------------- (in thousands) Current Assets: Cash and cash equivalents $ 210,639 $ 273,032 Receivables Customer accounts receivable 745,372 709,878 Unbilled revenues 294,924 277,105 Under recovered regulatory clause revenues 167,717 174,362 Other accounts and notes receivable 365,861 370,021 Accumulated provision for uncollectible accounts (35,941) (25,546) Fossil fuel stock, at average cost 327,906 298,955 Materials and supplies, at average cost 552,860 539,459 Other 328,957 299,743 ----------- ----------- Total current assets 2,958,295 2,917,009 ----------- ----------- Property, Plant, and Equipment: In service 39,617,006 37,485,853 Less accumulated depreciation 15,254,464 15,448,850 ----------- ----------- 24,362,542 22,037,003 Nuclear fuel, at amortized cost 196,637 222,676 Construction work in progress 1,403,638 2,382,287 ----------- ----------- Total property, plant, and equipment 25,962,817 24,641,966 ----------- ----------- Other Property and Investments: Nuclear decommissioning trusts, at fair value 725,987 639,167 Leveraged leases 806,908 790,767 Other 225,199 243,353 ----------- ----------- Total other property and investments 1,758,094 1,673,287 ----------- ----------- Deferred Charges and Other Assets: Deferred charges related to income taxes 889,272 897,777 Prepaid pension costs 841,318 786,115 Unamortized debt issuance expense 127,705 121,008 Unamortized premium on reacquired debt 329,189 313,057 Other 426,604 398,581 ----------- ----------- Total deferred charges and other assets 2,614,088 2,516,538 ----------- ----------- Total Assets $33,293,294 $31,748,800 =========== =========== The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements. 10
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) At June 30, At December 31, Liabilities and Stockholders' Equity 2003 2002 - ------------------------------------ ------------ ---------------- (in thousands) Current Liabilities: Securities due within one year $ 698,846 $ 1,679,489 Notes payable 1,443,369 972,459 Accounts payable 657,820 985,660 Customer deposits 177,036 168,952 Taxes accrued -- Income taxes 202,149 62,571 Other 207,230 218,967 Interest accrued 174,085 158,196 Vacation pay accrued 128,463 130,015 Other 456,410 592,531 ------------ ----------- Total current liabilities 4,145,408 4,968,840 ------------ ----------- Long-term debt 9,525,874 8,692,962 ------------ ----------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 4,398,899 4,214,471 Deferred credits related to income taxes 431,602 449,816 Accumulated deferred investment tax credits 593,072 606,779 Employee benefits provisions 645,229 614,239 Asset retirement obligations 839,643 - Other 892,831 813,464 ------------ ----------- Total deferred credits and other liabilities 7,801,276 6,698,769 ------------ ----------- Company or subsidiary obligated mandatorily redeemable capital and preferred securities 2,180,000 2,380,000 ------------ ----------- Cumulative preferred stock of subsidiaries 423,126 298,126 ------------ ----------- Common Stockholders' Equity: Common stock, par value $5 per share -- Authorized -- 1 billion shares Issued -- June 30, 2003: 727,821,192 shares; -- December 31, 2002: 716,548,526 shares 3,639,106 3,582,743 Paid-in capital 572,734 337,670 Treasury, at cost -- June 30, 2003: 160,935 shares; -- December 31, 2002: 147,021 shares (3,409) (2,815) Retained earnings 5,110,814 4,874,375 Accumulated other comprehensive loss (101,635) (81,870) ------------ ----------- Total common stockholders' equity 9,217,610 8,710,103 ------------ ----------- Total Liabilities and Stockholders' Equity $ 33,293,294 $31,748,800 ============ =========== The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements. 11
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) For the Three Months For the Six Months Ended June 30, Ended June 30, -------------------------- -------------------------- 2003 2002 2003 2002 -------- ------- -------------------------- (in thousands) (in thousands) Consolidated Net Income $ 431,887 $ 331,392 $ 729,686 $ 555,678 Other comprehensive loss: Changes in fair value of marketable securities (16) 431 96 291 Changes in fair value of qualifying hedges, net of tax of $(9,458), $(22,990), ($14,962), $(18,945), respectively (12,351) (35,941) (20,692) (29,692) Less: Reclassification adjustment for amounts included in net income, net of tax of $29, $24, $195, $24, respectively 574 38 831 38 ------------ ---------- --------- --------- Total other comprehensive loss $ (11,793) $ (35,472) $ (19,765) $ (29,363) ------------ ---------- ---------- --------- CONSOLIDATED COMPREHENSIVE INCOME $ 420,094 $ 295,920 $ 709,921 $ 526,315 ============ ========== ========= ========= THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS (UNAUDITED) At June 30, At December 31, 2003 2002 ------------ --------------- (in thousands) Balance at beginning of period $ (81,870) $ 7,148 Change in current period (19,765) (89,018) ---------- --------- BALANCE AT END OF PERIOD $ (101,635) $ (81,870) ---------- --------- The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements. 12
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SECOND QUARTER 2003 vs. SECOND QUARTER 2002 AND YEAR-TO-DATE 2003 vs. YEAR-TO-DATE 2002 RESULTS OF OPERATIONS Southern Company is focusing on three main businesses in the Southeast: its traditional business, represented by its five operating companies providing regulated retail electric service in four states; a growing competitive generation business in the Super Southeast; and energy-related products and services for its retail customers. For additional information on these businesses, see Item 1 - BUSINESS - "Operating Companies," "Southern Power" and "Other Business" in the Form 10-K. Earnings Southern Company's second quarter and year-to-date 2003 earnings were $432 million ($0.60 per share) and $730 million ($1.01 per share), respectively, compared with $331 million ($0.47 per share) and $556 million ($0.79 per share) in the second quarter and year-to-date 2002. The second quarter and year-to-date 2003 earnings include a one-time after-tax gain of $88 million associated with the termination in May 2003 of all PPAs between Southern Company subsidiaries, Mississippi Power and Southern Power, and subsidiaries of Dynegy. Reference is made to Note (M) to the Condensed Financial Statements herein for additional information. Earnings in the second quarter 2003 increased despite mild weather. As a result of the mild weather, second quarter demand for electricity in the retail service territory declined; however, the availability of low-cost generation for the wholesale market resulted in increased sales to other utilities and strong performance by Southern Company's competitive generation business. Year-to-date 2003 earnings were also positively impacted by increased demand for electricity in the first quarter 2003 and the overall impact of regulatory rate proceedings in Alabama and Florida.
Significant income statement items appropriate for discussion include the following: Increase (Decrease) ------------------------------- ------------------------------- Second Quarter Year-To-Date ------------------------------- ------------------------------- (in thousands) % (in thousands) % Retail sales..................................... $ (9,342) (0.4) $ 120,783 3.0 Sales for resale................................. 44,596 15.2 151,078 28.7 Other electric revenues.......................... 143,474 169.9 170,540 114.3 Other revenues................................... 49,723 73.3 125,364 89.4 Fuel expense..................................... 45,701 6.7 181,835 14.4 Purchased power expense.......................... 11,931 9.6 81,416 42.6 Other operations expense......................... 47,489 9.1 96,103 9.9 Equity in losses of unconsolidated subsidiaries.................................. 525 2.0 11,788 28.3 Interest income.................................. 16,448 N/M 16,143 180.5 Interest expense, net of amounts capitalized................................... 10,969 8.9 14,177 5.8 N/M Not meaningful
13 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Retail sales. Excluding fuel revenues, which generally do not affect net income, retail sales revenue decreased by $17.5 million, or 1.1%, in the second quarter 2003 and increased by $40 million, or 1.4%, year-to-date 2003 when compared to the same periods in 2002. Kilowatt-hour energy sales to residential, commercial and industrial customers were down 4.1%, 1.3% and 1.1%, respectively, for the second quarter 2003 primarily due to milder-than-normal temperatures and the sluggish economy in the service territory. Year-to-date 2003 earnings increased due to colder weather in the first quarter 2003 and customer growth when compared to the corresponding periods in the prior year. Sales for resale. The second quarter and year-to-date 2003 increases are primarily attributed to increases of 27% and 33.3%, respectively, in wholesale capacity and energy sales to these customers due to commercial operation of new plants placed into service in June 2002 and June 2003 when compared to the same periods in 2002. In addition, milder-than-normal weather in the retail service territory resulted in additional available capacity for the wholesale markets. Increased demand for energy as well as higher sales prices also contributed to the increases in both of these reporting periods in 2003. Other electric revenues. Other electric revenues were higher in the second quarter and year-to-date 2003 when compared to the same periods in 2002 primarily due to $144 million in revenues recorded upon the termination of Dynegy's PPAs. See Note (M) to the Condensed Financial Statements herein for further information. Other revenues. The second quarter and year-to-date 2003 increases in other revenues are primarily attributed to revenues from Southern Company GAS, which began operations in August 2002, as well as increases in revenues from Southern LINC and from a subsidiary that provides services related to alternative fuel products, when compared to the same periods in 2002. Fuel expense. In the second quarter and year-to-date 2003, fuel expense increased as a result of an increase in the average cost of fuel; commercial operation of Southern Power's new units in June 2002 and June 2003 and fuel expenses associated with Southern Company GAS. Increases in fuel expense at the operating companies are generally offset by fuel revenues and do not affect net income. Purchased power expense. This expense increased in the second quarter and year-to-date 2003 mainly due to the availability of power at prices lower than the cost of self-generation and the Southern Company system power pool when compared to the same periods in 2002. Increases in purchased power expenses at the operating companies are generally offset by fuel revenues and do not affect net income. Other operations expense. The increases in other operation expense for the second quarter and year-to-date 2003 are primarily attributed to higher administrative and general expenses related to commercial operation of Southern Power's new units in June 2002 and June 2003; costs incurred in conjunction with restructuring Mississippi Power's lease agreement for the combined cycle generating units at Plant Daniel; property insurance and employee benefits and operations at Southern Company GAS. Southern Company GAS began operations in August 2002. Reference is made to Note (R) to the Condensed Financial Statements herein for additional information on Mississippi Power's restructured lease agreement. 14 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Equity in losses of unconsolidated subsidiaries. Losses from unconsolidated subsidiaries remained stable in the second quarter 2003 but increased year-to-date 2003 when compared to the corresponding period in the prior year due to higher operating losses from Southern Company's investments in entities that produce synthetic fuel. These losses are offset by income tax credits generated by such entities. See Note (D) to the Condensed Financial Statements herein for further information on Southern Company's investments in these entities and IRS reviews of the related tax credits. Interest income. The second quarter and year-to-date 2003 increases when compared to the same periods in 2002 are primarily a result of a favorable tax settlement related to IRS audits for the years 1988 through 1999, excluding 1993 through 1995. Interest expense, net of amounts capitalized. The increases in this expense in the second quarter and year-to-date 2003 are mainly attributed to issuances, net of redemptions, of $353 million in senior notes by the operating companies since the corresponding periods in 2002. Future Earnings Potential The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors. The two major factors are the ability of the operating companies to maintain a stable regulatory environment and achieve energy sales growth while containing costs and the profitability of the competitive market-based wholesale generating business. For additional information relating to these issues, see Item 1 - BUSINESS - "Risk Factors" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of Southern Company in the Form 10-K. Reference is made to Note 11 to the financial statements of Southern Company in Item 8 and MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" in Item 7 of the Form 10-K and to Note (B) to the Condensed Financial Statements herein for information relating to Mirant. On July 14, 2003, Mirant filed for voluntary reorganization under Chapter 11 of the Federal Bankruptcy Code. Southern Company has various contingent liabilities associated with Mirant, including guarantees, litigation and joint and several liabilities in connection with the consolidated federal income tax return, as well as related indemnifications under the separation agreement. The ultimate outcome of such contingent liabilities cannot now be determined. Furthermore, the impact of Mirant's bankruptcy filing on its related indemnity obligations, if any, cannot now be determined. On April 30, 2003, Mirant filed its Annual Report on Form 10-K for the year ended December 31, 2002, which included its restated financial statements for the years ended December 31, 2001 and 2000. The effect of these restatements on Southern Company's financial statements, if any, cannot be determined until Mirant's 2001 revised quarterly financial statements are filed. The impact of the bankruptcy filing on the timing of filing 2001 revised quarterly financial statements, if any, cannot now be determined. However, Southern Company's management does not currently anticipate that a reaudit of Southern Company's 2000 or 2001 financial statements will be necessary. Southern Company's business activities are subject to extensive governmental regulation related to public health and the environment. Litigation over environmental issues and claims of various types, including property damage, personal injury and citizen enforcement of environmental requirements, has increased generally throughout the United States. In particular, personal injury claims for damages caused by alleged exposure to hazardous materials have become more frequent. The ultimate outcome of such litigation currently 15 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION filed against Southern Company and its subsidiaries cannot be predicted at this time; however, after consultation with legal counsel, management does not anticipate that the liabilities, if any, arising from such proceedings would have a material adverse effect on Southern Company's financial position, results of operations or cash flows. Reference is made to Note (D) to the Condensed Financial Statements herein for information regarding Southern Company's investments in two entities that produce synthetic fuel and receive tax credits pursuant to Section 29 of the Internal Revenue Code. On June 30, 2003 the IRS issued an announcement that suspended the issuance of new private letter rulings upon its initiation of additional reviews of the significant chemical change requirement for such tax credits. The IRS has notified both of the entities in which Southern Company holds investments of related reviews. From the date of Southern Company's investments in these entities through June 30, 2003, Southern Company has recognized approximately $219 million of these synthetic fuel tax credits through income. The ultimate outcome of the IRS reviews cannot be determined at this time. Compliance costs related to the Clean Air Act and other environmental regulations could affect earnings if such costs cannot be recovered. For additional information about these issues, including the EPA litigation, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" and Note 3 to the financial statements of Southern Company in Item 8 of the Form 10-K. Reference is made to Note (E) to the Condensed Financial Statements herein for information regarding a recent ruling by the U.S. Court of Appeals for the Eleventh Circuit. Reference is made to MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" in Item 7 of the Form 10-K. The Atlanta area is currently classified as a "serious" nonattainment area for the one-hour ozone standard under Title I of the Clean Air Act. All "serious" areas were required to attain the one-hour ozone standard by November 1999. The EPA provided an extension of the area's compliance deadline to 2004, but on June 16, 2003, the Eleventh Circuit Court of Appeals held the EPA's extension policy to be invalid and remanded the matter back to the EPA. In response, the EPA is expected to re-classify Atlanta as a "severe" nonattainment area with respect to the one-hour standard. If the Atlanta area fails to comply with the one-hour standard by November 2005, all major sources of nitrogen oxides and volatile organic compounds located in the nonattainment area, including Georgia Power's Plants McDonough and Yates, could be subject to payment of emissions fees currently estimated at $7,800-$8,000 per ton, of nitrogen oxides emitted above 80% of the baseline period. Based on average emissions at these units over the past three years, such fees could potentially reach $23 million annually. However, Georgia Power does not anticipate exceeding 80% of the baseline and, therefore, does not anticipate incurring any such fees. The final outcome of this matter will depend on the development and implementation of applicable regulations. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - FERC Matters" of Southern Company in the Form 10-K for information on the formation of an RTO as ordered by the FERC and the notice of proposed rulemaking regarding open access transmission service and standard electricity market design. In April 2003, the FERC issued a White Paper related to its proposed rulemaking regarding open access transmission service and standard electricity market design in an effort to respond to certain of the public comments received on the standard market design proposal. Reactions to the White Paper by Southeastern state regulators reflect significant continuing differences in opinion between the FERC and various state regulatory commissions over questions of jurisdiction and protection of retail customers. These significant differences between state and federal regulators create substantial uncertainty related to the ultimate approval of SeTrans because state commission approval of the transfer of operational control of the transmission assets of Southern Company and its subsidiaries is a prerequisite to the formation of SeTrans. Pending energy legislation may also impact these issues. Any impact of the other FERC proposals on Southern Company and its subsidiaries 16 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION will depend on the form in which final rules may be ultimately adopted; however, Southern Company's revenues, expenses, assets and liabilities could be adversely affected by changes in the transmission regulatory structure in its regional power market. Reference is made to Note (M) to the Condensed Financial Statements herein for information regarding a one-time gain of $88 million upon the amendment and termination of PPAs between Dynegy and Mississippi Power and Southern Power. In accordance with the amended PPA, Mississippi Power will recognize capacity revenues totaling approximately $8.8 million for the period from June through October 2003. Under the original terms of the PPAs, Mississippi Power and Southern Power would have recognized revenue of approximately $1.8 million and $5.9 million, respectively, for the remaining period of 2003 following the terminations. Additionally, Mississippi Power and Southern Power are evaluating options for their existing capacity. Southern Power has suspended construction of Plant Franklin Unit 3. The final outcome of these matters cannot now be determined. Reference is made to Notes (A) through (I), (L) through (N) and (R) to the Condensed Financial Statements herein for discussion of various contingencies and other matters which may affect future earnings potential. Accounting Policies Critical Policy Southern Company's significant accounting policies are described in Note 1 to the financial statements of Southern Company in Item 8 of the Form 10-K. Southern Company's critical accounting policy involves rate regulation. The operating companies are subject to the provisions of FASB Statement No. 71, "Accounting for the Effects of Certain Types of Regulation." In the event that a portion of a company's operations is no longer subject to these provisions, the company would be required to write off related regulatory assets and liabilities that are not specifically recoverable and determine if any other assets, including plant, have been impaired. New Accounting Standards Reference is made to Note (J) to the Condensed Financial Statements herein for information regarding the adoption of FASB Statement No. 143, "Accounting for Asset Retirement Obligations" effective January 1, 2003. Statement No. 143 establishes new accounting and reporting standards for legal obligations associated with the ultimate cost of retiring long-lived assets. The present value of the ultimate costs for an asset's future retirement must be recorded in the period in which the liability is incurred. The cost must be capitalized as part of the related long-lived asset and depreciated over the asset's useful life. Additionally, Statement No. 143 does not permit non-regulated companies to continue accruing future retirement costs for long-lived assets that they do not have a legal obligation to retire. Prior to January 2003, Southern Company accrued for the ultimate cost of retiring most long-lived assets over the life of the related asset through depreciation expense. In May 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," which requires classification of certain financial instruments within its scope, including shares that are mandatorily redeemable, as liabilities. Statement No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise on July 1, 2003 for calendar year companies. In accordance with Statement No. 150, Southern Company and the operating companies reclassified $2.2 billion of mandatorily redeemable preferred securities as liabilities effective July 1, 2003. The implementation of Statement No. 150 did not have a material effect on Southern Company's Statements of Income and Cash Flows. 17 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" requires the primary beneficiary of a variable interest entity to consolidate the related assets and liabilities. On July 1, 2003, Southern Company adopted Interpretation No. 46 with no financial statement impact following completion of restructuring Mississippi Power's lease arrangement for the combined cycle generating units at Plant Daniel. See Financial Condition - "Off-Balance Sheet Financing Arrangements" below and Note (R) to the Condensed Financial Statements herein for further information on the lease restructuring. FINANCIAL CONDITION Overview Major changes in Southern Company's financial condition during the first six months of 2003 included $1.1 billion used for gross property additions to utility plant. The funds for these additions and other capital requirements were primarily obtained from operating activities, issuances of senior notes and other long-term debt. See Southern Company's Condensed Consolidated Statements of Cash Flows herein for further details. Off-Balance Sheet Financing Arrangements In May 2001, Mississippi Power began the initial 10-year term of an operating lease agreement with Escatawpa Funding, Limited Partnership ("Escatawpa"), a special purpose entity, to use a combined-cycle generating facility located at Mississippi Power's Plant Daniel. The facility cost approximately $370 million. Reference is made to Note 9 to the financial statements of Southern Company in Item 8 of the Form 10-K for additional information. In June 2003, Escatawpa sold its ownership interests in the facility to Juniper Capital L.P. ("Juniper"). Simultaneously, Juniper entered into a restructured lease agreement with Mississippi Power. The terms of the lease with Juniper are substantially the same as the lease with Escatawpa. In accordance with Interpretation No. 46, Mississippi Power is not required to consolidate the leased assets and related liabilities. Furthermore, the restructured lease agreement is an operating lease under FASB Statement No. 13, "Accounting for Leases." Reference is made to Note (R) to the Condensed Financial Statements herein for additional information. Credit Rating Risk Southern Company and its subsidiaries do not have any credit agreements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade. There are certain contracts that could require collateral -- but not accelerated payment -- in the event of a credit rating change to below investment grade. These contracts are primarily for physical electricity purchases and sales, fixed-price physical gas purchases and agreements covering interest rate swaps. At June 30, 2003, the maximum potential collateral requirements under the electricity purchase and sale contracts and financial instrument agreements were approximately $382 million. Generally, collateral may be provided for by a Southern Company guaranty, letter of credit or cash. At June 30, 2003, there were no material collateral requirements for the gas purchase contracts. 18 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Exposure to Market Risks Southern Company's market risk exposures relative to interest rate changes have not changed materially compared with the December 31, 2002 reporting period. In addition, Southern Company is not aware of any facts or circumstances that would significantly affect such exposures in the near term. Due to cost-based rate regulations, the operating companies have limited exposure to market volatility in interest rates, commodity fuel prices and prices of electricity. To mitigate residual risks relative to movements in electricity prices, the operating companies and Southern Power enter into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market and, to a lesser extent, similar contracts for gas purchases. Also, the operating companies have each implemented fuel-hedging programs at the instruction of their respective PSCs. The fair value of derivative energy contracts at June 30, 2003 was as follows: Second Quarter 2003 Year-to-Date Changes Changes ---------------------------------- ---------------------------------------- Fair Value ---------------------------------- ---------------------------------------- (in thousands) Contracts beginning of period $47,228 $47,335 Contracts realized or settled (23,235) (37,955) New contracts at inception - - Changes in valuation techniques - - Current period changes 2,690 17,303 ---------------------------------- ------------------------ --------------- Contracts at June 30, 2003 $26,683 $26,683 ================================== ======================== =============== Source of June 30, 2003 Valuation Prices -------------------------------- ------------ --------------------------- Total Maturity ---------------------------- Fair Value Year 1 1-3 Years -------------------------------- -------------------------------------- (in thousands) Actively quoted $26,683 $32,620 $(5,937) External sources - - - Models and other methods - - - -------------------------------- ------------ -------------- ------------- Contracts at June 30, 2003 $26,683 $32,620 $(5,937) ================================ ============ ============== ============= Unrealized gains and losses from mark to market adjustments on contracts related to the PSC-approved fuel hedging programs are recorded as regulatory assets and liabilities. Realized gains and losses from these programs are included in fuel expense and are recovered through the operating companies' fuel cost recovery clauses. In addition, unrealized gains and losses on electric and gas contracts used to hedge anticipated purchases and sales are deferred in Other Comprehensive Income. Gains and losses on contracts that do not represent hedges are recognized in the Statements of Income as incurred. At June 30, 2003, the fair value of derivative energy contracts reflected in the financial statements was as follows: 19 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Amounts --------------------------------------- ------------------------- (in thousands) Regulatory liabilities, net $24,110 Other comprehensive income 862 Net income 1,711 --------------------------------------- ------------------------- Total fair value $26,683 ======================================= ========================= For the three months and six months ended June 30, 2003, approximately $1 million and $0.5 million, respectively, of gains were recognized in income, compared to $3.7 million and $(6.1) million, respectively, of gains (losses) recognized in income during the three months and six months ended June 30, 2002. Southern Company is exposed to market price risk in the event of nonperformance by the parties to the derivative energy contracts. Southern Company's policy is to enter into agreements with counterparties that have investment grade credit ratings by Moody's and S&P or that provide adequate collateral; therefore, Southern Company does not anticipate nonperformance by the counterparties. For additional information, reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Market Price Risk" of Southern Company in the Form 10-K, Note 1 to the financial statements of Southern Company in Item 8 of the Form 10-K and Note (L) to the Condensed Financial Statements herein. Financing Activities During the first half of 2003, Southern Company subsidiaries issued $1,970 million of senior notes, $125 million of preferred stock and $75 million of other long-term debt. The issuances were used to refund long-term senior notes and other long-term debt. The remainder was used to reduce short-term debt and fund ongoing construction programs. Reference is made to Southern Company's Condensed Consolidated Statements of Cash Flows herein for further details on financing activities during the first half of 2003. In July 2003, Gulf Power issued $60 million of Series G 4.35% Senior Notes due July 15, 2013 and $60 million of Series H 5.25% Senior Notes due July 15, 2033. The proceeds of the Series G Senior Notes were used to pay at maturity the $60 million outstanding principal amount of Series C 4.69% Senior Notes due August 1, 2003. The proceeds of the Series H Senior Notes will be used to redeem in August 2003 the $46.7 million outstanding principal amount of the Series A 6.70% Senior Insured Quarterly Notes due June 30, 2038. The remainder will be used to repay a portion of Gulf Power's short-term indebtedness. In July 2003, Southern Power issued $575 million of 4.875% Senior Notes, Series C due July 15, 2015. The proceeds from the sale were used to repay a substantial portion of existing short-term indebtedness; to settle interest rate hedges associated with this financing; and for general corporate purposes. In July 2003, Alabama Power entered into swaps to hedge interest payments associated with an anticipated debt issuance planned in December 2003. The swaps are for a notional amount of $250 million at a fixed interest rate of 2.35% and mature in December 2006. 20 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION In July 2003, Georgia Power entered swaps to hedge interest payments associated with variable rate pollution control bonds. The swaps are for a notional amount of $873.3 million at an average fixed interest rate of 1.388% and mature in December 2004. Also in July 2003, Georgia Power entered a swap to hedge interest payments associated with a variable rate note with a coupon of LIBOR plus 10 basis points. The swap is for a notional amount of $50 million at a fixed interest rate of 1.5625% and matures in January 2005. Further in July 2003, Georgia Power entered a U.S. Treasury lock to hedge interest payments associated with a 10-year debt issuance planned in August 2003. The swap is for a notional amount of $100 million at a fixed interest rate of 4.465%. In July 2003, Savannah Electric entered a swap to hedge interest payments associated with an anticipated debt issuance planned in December 2003. The swap is for a notional amount of $25 million at a fixed interest rate of 5.025% and matures in December 2013. The market price of Southern Company's common stock at June 30, 2003 was $31.16 per share and the book value was $12.67 per share, representing a market-to-book ratio of 246%, compared to $28.39, $12.16 and 233%, respectively, at the end of 2002. The dividend for the second quarter 2003 was $0.343 per share compared to $0.335 per share in the second quarter 2002. In July 2003, Southern Company increased the dividend to $0.35 per share for the third quarter 2003. Capital Requirements Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Capital Requirements for Construction," "Other Capital Requirements" and "Environmental Matters" of Southern Company in the Form 10-K for a description of the Southern Company system's capital requirements for its construction program, sinking fund requirements, maturing debt and environmental compliance efforts. Approximately $699 million will be required by June 30, 2004 for redemptions and maturities of long-term debt. Also, Southern Company and its subsidiaries plan to continue, to the extent possible, a program to retire higher-cost debt and replace these securities with lower-cost capital. Sources of Capital In addition to the financing activities previously described, Southern Company may require additional equity capital over the next several years. The amounts and timing of additional equity capital to be raised will be contingent on Southern Company's investment opportunities. The operating companies and Southern Power plan to obtain the funds required for construction and other purposes from sources similar to those used in the past, which were primarily internal sources and the issuances of new debt and preferred equity securities, term loans and short-term borrowings. However, the amount, type and timing of any financings -- if needed -- will depend upon market conditions and regulatory approval. See Item 1 - BUSINESS - "Financing Programs" of Southern Company in the Form 10-K for additional information. Southern Company's current liabilities exceed current assets because of the continued use of short-term debt as a funding source to meet cash needs as well as scheduled maturities of long-term debt. 21 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION To meet short-term cash needs and contingencies, the Southern Company system had at June 30, 2003 approximately $211 million of cash and cash equivalents and approximately $3.2 billion of unused credit arrangements with banks, of which $76 million expire in 2003, $2.5 billion expire in 2004 and $665 million expire in 2005 and beyond. Of the facilities maturing in 2003 and 2004, $2.2 billion contain provisions allowing two-year term loans executable at the expiration date. These unused credit arrangements also provide liquidity support to variable rate pollution control bonds and commercial paper programs. Due to a reduction of commercial paper and variable rate pollution bonds requiring liquidity support, the Southern Company system reduced its credit arrangements from $4.3 billion at March 2003 to $3.2 billion by the end of June 2003. The operating companies may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper and extendible commercial notes at the request and for the benefit of each of the operating companies. At June 30, 2003, the Southern Company system had extendible commercial notes outstanding of zero, short-term notes payable outstanding of $32 million and commercial paper outstanding of $1.4 billion. Management believes that the need for working capital can be adequately met by utilizing lines of credit without maintaining large cash balances. PART I Item 3. Quantitative And Qualitative Disclosures About Market Risk. Reference is made to MANAGEMENT'S DISCUSSION AND ANALYSIS - "Market Price Risk" herein for each registrant and Note 1 to the financial statements of each registrant in Item 8 of the Form 10-K. Reference is also made to Note (L) to the Condensed Financial Statements herein for information relating to derivative instruments. Item 4. Controls and Procedures. (a) Evaluation of disclosure controls and procedures. As of the end of the period covered by this quarterly report, Southern Company, the operating companies and Southern Power conducted separate evaluations under the supervision and with the participation of each company's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the disclosure controls and procedures (as defined in Sections 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based upon those evaluations, the Chief Executive Officer and the Chief Financial Officer, in each case, concluded that the disclosure controls and procedures are effective in alerting them in a timely manner to material information relating to each company (including its consolidated subsidiaries) required to be included in periodic filings with the SEC. (b) Changes in internal controls. There have been no significant changes in Southern Company's, the operating companies' or Southern Power's internal controls or in other factors that could significantly affect these internal controls subsequent to the date each company carried out its evaluation. 22 ALABAMA POWER COMPANY 23
ALABAMA POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) For the Three Months For the Six Months Ended June 30, Ended June 30, 2003 2002 2003 2002 ------ ------ ------ ------ (in thousands) (in thousands) Operating Revenues: Retail sales $748,906 $736,174 $1,419,735 $1,368,071 Sales for resale -- Non-affiliates 130,621 119,540 254,343 214,163 Affiliates 54,741 42,497 116,728 97,174 Other revenues 30,288 26,132 68,311 47,184 --------- -------- ---------- --------- Total operating revenues 964,556 924,343 1,859,117 1,726,592 --------- -------- ---------- --------- Operating Expenses: Operation -- Fuel 234,988 233,536 474,732 443,833 Purchased power -- Non-affiliates 41,886 20,413 75,156 36,184 Affiliates 58,416 41,913 99,912 74,643 Other 159,642 141,510 294,185 261,572 Maintenance 81,646 77,701 156,221 154,515 Depreciation and amortization 104,505 98,934 204,716 197,209 Taxes other than income taxes 56,482 54,103 116,567 111,603 --------- --------- ---------- --------- Total operating expenses 737,565 668,110 1,421,489 1,279,559 --------- --------- ---------- --------- Operating Income 226,991 256,233 437,628 447,033 Other Income and (Expense): Allowance for equity funds used during construction 3,062 2,869 7,799 5,876 Interest income 4,270 3,190 7,546 6,352 Interest expense, net of amounts capitalized (58,941) (58,568) (113,514) (114,217) Distributions on preferred securities of subsidiary (3,939) (5,995) (7,380) (12,014) Other income (expense), net (4,315) (4,461) (10,034) (16,026) --------- --------- --------- -------- Total other income and (expense) (59,863) (62,965) (115,583) (130,029) --------- ------- --------- -------- Earnings Before Income Taxes 167,128 193,268 322,045 317,004 Income taxes 55,758 73,884 114,831 121,424 --------- ---------- ---------- --------- Net Income 111,370 119,384 207,214 195,580 Dividends on Preferred Stock 4,747 3,671 8,772 7,327 ---------- ---------- ---------- --------- Net Income After Dividends on Preferred Stock $ 106,623 $ 115,713 $ 198,442 $ 188,253 ========== ========== ========== ========== The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
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ALABAMA POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended June 30, 2003 2002 ------ -------- (in thousands) Operating Activities: Net income $ 207,214 $ 195,580 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 236,633 232,518 Deferred income taxes and investment tax credits, net 32,712 (19,574) Pension, postretirement, and other employee benefits (18,924) (18,521) Other, net 6,116 29,684 Changes in certain current assets and liabilities -- Receivables, net (24,466) 6,172 Fossil fuel stock (7,857) 13,166 Materials and supplies (2,899) 4,950 Other current assets (50,549) (61,860) Accounts payable (65,279) (60,648) Taxes accrued 60,963 57,455 Other current liabilities (13,840) 16,920 ----------- --------- Net cash provided from operating activities 359,824 395,842 ----------- --------- Investing Activities: Gross property additions (359,735) (345,823) Cost of removal net of salvage (17,752) (15,287) Other 16,488 (8,902) ----------- --------- Net cash used for investing activities (360,999) (370,012) ----------- --------- Financing Activities: Increase in notes payable, net 33,940 134,651 Proceeds -- Senior notes 1,065,000 350,000 Preferred stock 125,000 - Common stock 25,000 - Capital contributions from parent company 8,162 2,396 Redemptions -- First mortgage bonds - (4,498) Senior notes (1,000,800) (840) Other long-term debt (472) (434) Payment of preferred stock dividends (8,659) (7,219) Payment of common stock dividends (215,100) (215,500) Other (24,524) 4,959 ----------- --------- Net cash provided from financing activities 7,547 263,515 ----------- --------- Net Change in Cash and Cash Equivalents 6,372 289,345 Cash and Cash Equivalents at Beginning of Period 22,685 35,756 ----------- --------- Cash and Cash Equivalents at End of Period $ 29,057 $ 325,101 =========== ========= Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of $3,953 and $3,531 capitalized for 2003 and 2002, respectively) $85,222 $86,015 Income taxes (net of refunds) $48,385 $121,615 The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
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ALABAMA POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At June 30, At December 31, Assets 2003 2002 - ---- ------------- ----------------- (in thousands) Current Assets: Cash and cash equivalents $ 29,057 $ 22,685 Receivables -- Customer accounts receivable 266,581 240,052 Unbilled revenues 95,757 89,336 Other accounts and notes receivable 44,107 47,535 Affiliated companies 69,043 74,099 Accumulated provision for uncollectible accounts (4,142) (4,827) Fossil fuel stock, at average cost 81,600 73,742 Materials and supplies, at average cost 190,494 187,596 Other 131,245 110,035 ------------ ----------- Total current assets 903,742 840,253 ------------- ----------- Property, Plant, and Equipment: In service 14,057,392 13,506,170 Less accumulated provision for depreciation 5,390,833 5,543,416 ------------ ----------- 8,666,559 7,962,754 Nuclear fuel, at amortized cost 84,130 103,088 Construction work in progress 335,200 478,652 ------------ ----------- Total property, plant, and equipment 9,085,889 8,544,494 ------------ ----------- Other Property and Investments: Equity investments in subsidiaries 47,378 45,553 Nuclear decommissioning trusts, at fair value 338,386 292,297 Other 16,717 16,477 ------------ ----------- Total other property and investments 402,481 354,327 ------------ ----------- Deferred Charges and Other Assets: Deferred charges related to income taxes 328,308 327,276 Prepaid pension costs 415,768 389,793 Unamortized debt issuance expense 7,946 4,361 Unamortized premium on reacquired debt 115,137 103,819 Department of Energy assessments 17,144 17,144 Other 111,465 104,539 ------------- ------------ Total deferred charges and other assets 995,768 946,932 ------------- ------------ Total Assets $ 11,387,880 $ 10,686,006 ============= ============ The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
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ALABAMA POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At June 30, At December 31, Liabilities and Stockholder's Equity 2003 2002 - ------------------------------------ ------------- ---------------- (in thousands) Current Liabilities: Securities due within one year $ 507,177 $ 1,117,945 Notes payable 70,931 36,991 Accounts payable -- Affiliated 106,946 109,790 Other 86,921 150,195 Customer deposits 46,202 44,410 Taxes accrued -- Income taxes 80,948 80,438 Other 59,698 20,561 Interest accrued 49,915 36,344 Vacation pay accrued 33,901 33,901 Other 80,729 114,870 ------------ ------------- Total current liabilities 1,123,368 1,745,445 ------------ ------------- Long-term debt 3,536,617 2,851,562 ------------ ------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 1,502,600 1,436,559 Deferred credits related to income taxes 166,446 177,205 Accumulated deferred investment tax credits 221,789 227,270 Employee benefits provisions 148,200 141,149 Deferred capacity revenues 29,165 33,924 Asset retirement obligations 346,809 - Asset retirement obligation regulatory liability 96,369 - Other 150,356 147,640 ------------ ------------- Total deferred credits and other liabilities 2,661,734 2,163,747 ------------ ------------- Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding company junior subordinated notes 300,000 300,000 ------------ ------------- Cumulative preferred stock 372,512 247,512 ------------ ------------- Common stockholder's equity: Common stock, par value $40 per share -- Authorized - 15,000,000 shares Outstanding - 6,625,000 shares Par value 265,000 240,000 Paid-in capital 1,908,626 1,900,464 Premium on preferred stock 99 99 Retained earnings 1,232,291 1,250,594 Accumulated other comprehensive loss (12,367) (13,417) ------------ ------------- Total common stockholder's equity 3,393,649 3,377,740 ------------ ------------- Total Liabilities and Stockholder's Equity $ 11,387,880 $ 10,686,006 ============ ============= The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
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ALABAMA POWER COMPANY CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) For the Three Months For the Six Months Ended June 30, Ended June 30, ---------------------------------- --------------------------- 2003 2002 2003 2002 ---------------- ----------- -------- -------- (in thousands) (in thousands) Net Income After Dividends on Preferred Stock $ 106,623 $ 115,713 $ 198,442 $ 188,253 Other comprehensive income (loss): Changes in fair value of qualifying hedges, net of tax of $265, $(312), $221, $(312), respectively 1,122 (514) 1,050 (514) ---------- ---------- ---------- ---------- COMPREHENSIVE INCOME $ 107,745 $ 115,199 $ 199,492 $ 187,739 ========== =========== =========== =========== ALABAMA POWER COMPANY CONDENSED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS (UNAUDITED) At June 30, At December 31, 2003 2002 ------------ ----------------- (in thousands) Balance at beginning of period $ (13,417) $ - Change in current period 1,050 (13,417) ----------- ------------- BALANCE AT END OF PERIOD $ (12,367) $ (13,417) ============ ============= The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
28 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SECOND QUARTER 2003 vs. SECOND QUARTER 2002 AND YEAR-TO-DATE 2003 vs. YEAR-TO-DATE 2002 RESULTS OF OPERATIONS Earnings Alabama Power's net income after dividends on preferred stock for the second quarter and year-to-date 2003 was $106.6 million and $198.4 million, respectively, compared to $115.7 million and $188.3 million, respectively, for the corresponding periods of 2002. Earnings decreased $9.1 million, or 7.9%, in the second quarter of 2003 primarily due to higher operating expenses that were partially offset by the favorable settlement of income tax audits. Earnings year-to-date 2003 increased by $10.1 million, or 5.4%, principally due to the effect of increased market based prices in sales for resale - non-affiliates and the favorable effect of the settlement of income tax audits. Significant income statement items appropriate for discussion include the following:
Increase (Decrease) --------------------------------------------------------------- Second Quarter Year-To-Date ------------------------------- ------------------------------- (in thousands) % (in thousands) % Retail sales..................................... $ 12,732 1.7 $ 51,664 3.8 Sales for resale - non-affiliates................ 11,081 9.3 40,180 18.8 Sale for resale - affiliates..................... 12,244 28.8 19,554 20.1 Other revenues................................... 4,156 15.9 21,127 44.8 Fuel expense..................................... 1,452 0.6 30,899 7.0 Purchased power - non-affiliates................. 21,473 105.2 38,972 107.7 Purchased power - affiliates..................... 16,503 39.4 25,269 33.9 Other operation expense.......................... 18,132 12.8 32,613 12.5 Depreciation and amortization.................... 5,571 5.6 7,507 3.8 Distributions on preferred securities of subsidiary.................................. (2,056) (34.3) (4,634) (38.6) Income taxes..................................... (18,126) (24.5) (6,593) (5.4)
Retail sales. Excluding energy cost recovery revenues and revenues from Rate CNP, Certificated New Plant, associated with PPAs certificated by the Alabama PSC which generally do not affect net income, retail sales revenues decreased by $7.6 million, or 1.4%, for the second quarter 2003, but increased $12.9 million, or 1.2%, year-to-date 2003, when compared to the same periods in the prior year. Reference is made to Note (F) to the Condensed Financial Statements herein for additional information. During the second quarter 2003, retail energy sales were impacted by milder-than-normal temperatures and as a result decreased slightly when compared to the corresponding period in 2002. The year-to-date 2003 increase can primarily be attributed to favorable weather conditions and slight sales growth in the first three months of this year, as well as a 2 percent increase in retail base rates that went into effect in April 2002 as a result of Rate RSE, Rate Stabilization and Equalization. 29 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Sales for resale - non-affiliates. During the second quarter 2003, the revenues associated with sales for resale to non-affiliates increased due to an 11.8% increase in market based prices even though overall sales of energy for the quarter decreased 2.4% when compared to the corresponding period in 2002. The year-to-date increase in sales for resale to non-affiliates in 2003 is due to a 7.6% increase in energy sold and a 10.3% increase in price when compared to the corresponding period in 2002. Sales of energy will vary depending on demand, market based prices and the availability of Southern Company system generation. Sales for resale - affiliates and Purchased power - affiliates. Revenues from sales for resale to affiliated companies within the Southern Company system, as well as purchases of energy, will vary depending on demand and the availability and cost of generating resources at each company. These transactions did not have a significant impact on earnings since the related energy is sold at marginal cost, and energy purchases are generally offset by energy revenues through Alabama Power's energy cost recovery clause. Other revenues. During the second quarter 2003, other revenues increased primarily due to a $3.8 million increase in revenues from Alabama PSC-approved fees charged to customers for connection, reconnection and collection when compared to the same period in 2002. The year-to-date 2003 increase is primarily due to an $11.7 million increase in revenues from cogeneration steam facilities due to higher gas prices, a $7.3 million increase in revenues from fees charged to customers for connection, reconnection and collection and a $5.7 million increase in revenues from transmission for others when compared to the same period in 2002. Since cogeneration steam revenues are generally offset by fuel expenses, these revenues do not have a significant impact on earnings. Fuel expense. During the second quarter 2003, fuel expense remained flat because generation decreased 8.5% compared to the corresponding period in 2002 while the price of fuel increased 9.9%. However, year-to-date 2003 fuel expense increased when compared to the corresponding period in 2002 mainly due to a 10.3% increase in fuel prices while generation remained relatively flat. Since energy expenses are generally offset by energy revenues, these expenses did not have a significant impact on earnings. Purchased power - non-affiliates. In the second quarter and year-to-date 2003, purchased power from non-affiliates increased when compared to the same periods in the prior year. The second quarter and year-to-date 2003 increases are primarily attributed to a 103.9% and 119.1% increase in price, respectively. These expenses do not have a significant impact on earnings since energy expenses are generally offset by energy revenues through Alabama Power's energy cost recovery clause. Other operation expense. The increase in other operation expense for the second quarter 2003 is mainly a result of a $10.9 million increase in administrative and general expenses. The increase in administrative and general expenses primarily relates to a $5.5 million increase in property insurance and a $3.4 million increase in employee benefits. The year-to-date 2003 increase in other operation expense when compared to the same period in 2002 is primarily due to a $20.3 million increase in administrative and general expenses, a $3.4 million increase in nuclear expense and a $2.9 million increase in steam expense. The increase in administrative and general expenses mainly relates to a $7.7 million increase in property insurance, a $7.3 million increase in employee benefits and a $2.2 million increase in injuries and damages expense. Depreciation and amortization. The increases for the second quarter and year-to-date 2003 are attributed to an increase in utility plant-in-service when compared to the same periods in 2002. 30 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Distributions on preferred securities of subsidiary. Refinancing of higher distribution rate trust preferred securities in the fourth quarter 2002 led to decreases in this item in the second quarter and year-to-date 2003. Income taxes. The second quarter and year-to-date 2003 decreases in income tax expenses are primarily attributed to the tax settlement related to tax audits covering the years 1988 through 1999, excluding the years 1993 through 1995, which increased net income by $4.7 million. Future Earnings Potential The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors including Alabama Power's ability to achieve energy sales growth while containing costs and maintaining a stable regulatory environment. Growth in energy sales is subject to a number of factors. These factors include weather, competition, new short- and long-term contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand and the rate of economic growth in Alabama Power's service area. For additional information relating to these issues, see Item 1 - BUSINESS - "Risk Factors" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of Alabama Power in the Form 10-K. Alabama Power's business activities are subject to extensive governmental regulation related to public health and the environment. Litigation over environmental issues and claims of various types, including property damage, personal injury and citizen enforcement of environmental requirements, has increased generally throughout the United States. In particular, personal injury claims for damages caused by alleged exposure to hazardous materials have become more frequent. Compliance costs related to the Clean Air Act and other environmental regulations could affect earnings if such costs cannot be recovered. For additional information about these issues, including the EPA litigation, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" and Note 3 to the financial statements of Alabama Power in Item 8 of the Form 10-K. Reference is made to Note (E) to the Condensed Financial Statements herein for information regarding a recent ruling by the U.S. Court of Appeals for the Eleventh Circuit. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "FERC Matters" of Alabama Power in the Form 10-K for information on the formation of an RTO as ordered by the FERC and the notice of proposed rulemaking regarding open access transmission service and standard electricity market design. In April 2003, the FERC issued a White Paper related to its proposed rulemaking regarding open access transmission service and standard electricity market design in an effort to respond to certain of the public comments received on the standard market design proposal. Reactions to the White Paper by Southeastern state regulators reflect significant continuing differences in opinion between the FERC and various state regulatory commissions over questions of jurisdiction and protection of retail customers. These significant differences between state and federal regulators create substantial uncertainty related to the ultimate approval of SeTrans because state commission approval of the transfer of operational control of the transmission assets of Southern Company and its subsidiaries is a prerequisite to the formation of SeTrans. Pending energy legislation may also impact these issues. Any impact of the other FERC proposals on Southern Company and its subsidiaries will depend on the form in which final rules may be ultimately adopted; however, Alabama Power's revenues, expenses, assets and liabilities could be adversely affected by changes in the transmission regulatory structure in its regional power market. 31 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION In June 2003, during a special session of the State of Alabama Legislature, a tax reform package was passed subject to approval by the voters of Alabama on September 9, 2003. If the tax reform package passes, the impact to Alabama Power's overall tax liability should not be significant. Reference is also made to Notes (A), (E), (F), (H), (L) and (N) to the Condensed Financial Statements herein for discussion of various contingencies and other matters which may affect future earnings potential. Accounting Policies Critical Policy Alabama Power's significant accounting policies are described in Note 1 to the financial statements of Alabama Power in Item 8 of the Form 10-K. Alabama Power's critical accounting policy involves rate regulation. Alabama Power is subject to the provisions of FASB Statement No. 71, "Accounting for the Effects of Certain Types of Regulation." In the event that a portion of Alabama Power's operations is no longer subject to these provisions, Alabama Power would be required to write off related regulatory assets and liabilities that are not specifically recoverable and determine if any other assets, including plant, have been impaired. New Accounting Standards Reference is made to Note (J) to the Condensed Financial Statements herein for information regarding the adoption of FASB Statement No. 143, "Accounting for Asset Retirement Obligations" effective January 1, 2003. Statement No. 143 establishes new accounting and reporting standards for legal obligations associated with the ultimate cost of retiring long-lived assets. The present value of the ultimate costs for an asset's future retirement must be recorded in the period in which the liability is incurred. The cost must be capitalized as part of the related long-lived asset and depreciated over the asset's useful life. Additionally, Statement No. 143 does not permit non-regulated companies to continue accruing future retirement costs for long-lived assets that they do not have a legal obligation to retire. Prior to January 2003, Alabama Power accrued for the ultimate cost of retiring most long-lived assets over the life of the related asset through depreciation expense. In May 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," which requires classification of certain financial instruments within its scope, including shares that are mandatorily redeemable, as liabilities. Statement No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise on July 1, 2003 for calendar year companies. In accordance with Statement No. 150, Alabama Power reclassified $300 million of mandatorily redeemable preferred securities as liabilities effective July 1, 2003. The implementation of Statement No. 150 did not have a material effect on Alabama Power's Statements of Income and Cash Flows. 32 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FINANCIAL CONDITION Overview Major changes in Alabama Power's financial condition during the first six months of 2003 included the addition of approximately $360 million to utility plant. The funds for these additions and other capital requirements were derived primarily from operating activities. See Alabama Power's Condensed Statements of Cash Flows herein for further details. Credit Rating Risk Alabama Power does not have any credit agreements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade. Exposure to Market Risks Alabama Power's market risk exposures relative to interest rate changes have not changed materially compared with the December 31, 2002 reporting period. In addition, Alabama Power is not aware of any facts or circumstances that would significantly affect such exposures in the near term. Due to cost-based rate regulations, Alabama Power has limited exposure to market volatility in interest rates, commodity fuel prices and prices of electricity. To mitigate residual risks relative to movements in electricity prices, Alabama Power enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market and, to a lesser extent, similar contracts for gas purchases. Alabama Power has also implemented a retail fuel hedging program at the instruction of the Alabama PSC. The fair value of derivative energy contracts at June 30, 2003 was as follows: Second Quarter 2003 Year-to-Date Changes Changes ------------------------------------------------------------------------- Fair Value -------------------------------- ---------------------------------------- (in thousands) Contracts beginning of period $24,276 $21,402 Contracts realized or settled (11,624) (18,780) New contracts at inception - - Changes in valuation techniques - - Current period changes 3,035 13,065 -------------------------------- ------------------------ --------------- Contracts at June 30, 2003 $15,687 $15,687 ========================================================= =============== 33 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Source of June 30, 2003 Valuation Prices ------------------------------- ------------ ---------------------------- Total Maturity ---------------------------- Fair Value Year 1 1-3 Years ------------------------------- ----------------------------------------- (in thousands) Actively quoted $15,687 $20,487 $(4,800) External sources - - - Models and other methods - - - ------------------------------- ------------ -------------- ------------- Contracts at June 30, 2003 $15,687 $20,487 $(4,800) =============================== ============ ============== ============= Unrealized gains and losses from mark to market adjustments on contracts related to the retail fuel hedging programs are recorded as regulatory assets and liabilities. Realized gains and losses from these programs are included in fuel expense and are recovered through Alabama Power's fuel cost recovery clause. Gains and losses on contracts that do not represent hedges are recognized in the Statements of Income as incurred. At June 30, 2003, the fair value of derivative energy contracts reflected in the financial statements was as follows: Amounts --------------------------------------- -------------------- (in thousands) Regulatory liabilities, net $15,892 Other comprehensive income - Net loss (205) --------------------------------------- --------------------- Total fair value $15,687 ======================================= ===================== For the three months ended June 30, 2003 and 2002, approximately $(0.1) million and $1 million, respectively, of (losses) gains were recognized in income. For the six months ended June 30, 2003 and 2002, approximately $0.3 million and $2.4 million, respectively, of losses were recognized in income. For additional information, reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Exposure to Market Risk" of Alabama Power in the Form 10-K and Note 1 to the financial statements of Alabama Power in Item 8 of the Form 10-K and to Note (L) to the Condensed Financial Statements herein. Financing Activities Alabama Power issued a total of $620 million of Senior Notes in the first quarter 2003. The proceeds of these issues were used to redeem $557 million of Senior Notes and for other general corporate purposes. In addition, Alabama Power redeemed $194 million of Senior Notes in the first quarter 2003 from proceeds obtained from a December 2002 issuance of $200 million of Senior Notes. Also in the first quarter 2003, Alabama Power issued 1,250 shares ($125 million) of Preferred Stock. The proceeds of this issue were used to repay a portion of Alabama Power's outstanding short-term indebtedness and for other general corporate purposes. 34 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION In April 2003, Alabama Power issued $195 million of Series W Floating Rate Extendible Senior Notes due April 23, 2006, the initial maturity date, unless the maturity of all or a portion of the principal amount is extended by investors to April 23, 2007. The proceeds from the sale were used by Alabama Power for general corporate purposes, including Alabama Power's continuous construction program. In May 2003, Alabama Power issued $250 million of Series X 3.125% Senior Notes due May 1, 2008. The proceeds from this sale were used to repay at maturity $250 million in aggregate principal amount of the Series M 7.85% Senior Notes due May 15, 2003. In the second quarter 2003, Alabama Power issued a total of 625,000 shares of common stock to Southern Company at $40.00 a share ($25,000,000 aggregate purchase price). The proceeds from the sale were used by Alabama Power for general corporate purposes. In July 2003, Alabama Power entered into swaps to hedge interest payments associated with an anticipated debt issuance planned in December 2003. The swaps are for a notional amount of $250 million at a fixed interest rate of 2.35% and mature in December 2006. Alabama Power plans to continue, when economically feasible, a program to retire higher-cost debt and replace these obligations with lower-cost capital if market conditions permit. Capital Requirements Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of Alabama Power under "Capital Requirements," "Other Capital Requirements" and "Environmental Matters" in the Form 10-K for a description of Alabama Power's capital requirements for its construction program, maturing debt and environmental compliance efforts. Sources of Capital In addition to the financing activities previously described herein, Alabama Power plans to obtain the funds required for construction and other purposes from sources similar to those used in the past. The amount, type and timing of any financings -- if needed -- will depend upon maintenance of adequate earnings, regulatory approval, prevailing market conditions and other factors. See Item 1 - BUSINESS - "Financing Programs" in the Form 10-K for additional information. Alabama Power's current liabilities exceed current assets because of scheduled maturities of long-term debt. To meet short-term cash needs and contingencies, Alabama Power had at June 30, 2003 approximately $29.1 million of cash and cash equivalents, unused committed lines of credit of approximately $619 million (including $454 million of such lines which are dedicated to funding purchase obligations relating to variable rate pollution control bonds) and an extendible commercial note program. These lines of credit, unless extended, will expire at various times during 2004. Alabama Power may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper and extendible commercial notes at the request and for the benefit of Alabama 35 ALABAMA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Power and other Southern Company subsidiaries. Alabama Power has regulatory authority for up to $1 billion of short-term borrowings. At June 30, 2003, Alabama Power had $59 million outstanding in commercial paper and $12 million outstanding in notes payable to banks. Management believes that the need for working capital can be adequately met by utilizing lines of credit without maintaining large cash balances. 36 GEORGIA POWER COMPANY 37
GEORGIA POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) For the Three Months For the Six Months Ended June 30, Ended June 30, 2003 2002 2003 2002 ------ ------ ------ ------ (in thousands) (in thousands) Operating Revenues: Retail sales $ 1,041,604 $ 1,062,070 $ 2,007,311 $ 1,966,984 Sales for resale -- Non-affiliates 59,452 72,322 133,438 122,372 Affiliates 46,365 25,282 93,851 41,789 Other revenues 42,672 44,811 81,931 80,103 ----------- ----------- ----------- ----------- Total operating revenues 1,190,093 1,204,485 2,316,531 2,211,248 ----------- ----------- ----------- ----------- Operating Expenses: Operation -- Fuel 271,428 255,792 513,931 483,169 Purchased power -- Non-affiliates 62,052 65,280 134,088 103,070 Affiliates 121,605 98,716 235,448 157,496 Other 199,487 204,694 385,477 378,514 Maintenance 107,628 108,461 218,572 212,315 Depreciation and amortization 86,003 101,206 171,745 197,003 Taxes other than income taxes 49,290 49,857 102,465 99,432 ----------- ----------- ----------- ----------- Total operating expenses 897,493 884,006 1,761,726 1,630,999 ----------- ----------- ----------- ----------- Operating Income 292,600 320,479 554,805 580,249 Other Income and (Expense): Interest expense, net of amounts capitalized (47,925) (41,453) (92,288) (82,048) Distributions on preferred securities of subsidiaries (14,919) (15,647) (29,838) (30,423) Other income (expense), net 25,169 8,519 31,152 6,158 ----------- ----------- ----------- ----------- Total other income and (expense) (37,675) (48,581) (90,974) (106,313) ----------- ----------- ----------- ----------- Earnings Before Income Taxes 254,925 271,898 463,831 473,936 Income taxes 96,231 100,933 171,699 176,058 ----------- ----------- ----------- ----------- Net Income 158,694 170,965 292,132 297,878 Dividends on Preferred Stock 167 167 335 335 ----------- ----------- ----------- ----------- Net Income After Dividends on Preferred Stock $ 158,527 $ 170,798 $ 291,797 $ 297,543 =========== =========== =========== =========== The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
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GEORGIA POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended June 30, 2003 2002 ------ ------- (in thousands) Operating Activities: Net income $ 292,132 $ 297,878 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 204,286 195,235 Deferred income taxes and investment tax credits, net 108,809 22,448 Pension, postretirement, and other employee benefits (17,372) (27,239) Other, net 8,167 15,817 Changes in certain current assets and liabilities -- Receivables, net 33,395 56,317 Fossil fuel stock (22,658) 19,988 Materials and supplies (8,000) 7,625 Other current assets 31,641 9,869 Accounts payable (141,009) (75,937) Taxes accrued 16,600 26,551 Other current liabilities 2,201 6,829 ----------- ---------- Net cash provided from operating activities 508,192 555,381 ----------- ---------- Investing Activities: Gross property additions (370,727) (434,403) Cost of removal net of salvage (10,786) (32,826) Sales of property - 387,212 Change in construction payables (63,893) (30,131) Other 2,104 8,606 ----------- ---------- Net cash used for investing activities (443,302) (101,542) ----------- ---------- Financing Activities: Increase (decrease) in notes payable, net (17,633) 85,407 Proceeds -- Senior notes 700,000 - Preferred securities - 440,000 Capital contributions from parent company 9,748 5,397 Redemptions -- First mortgage bonds - (1,860) Pollution control bonds - (7,800) Senior notes (465,000) (300,000) Capital distributions to parent company - (200,000) Payment of preferred stock dividends (393) (344) Payment of common stock dividends (282,900) (271,450) Other (14,786) (15,276) ----------- ---------- Net cash used for financing activities (70,964) (265,926) ----------- ---------- Net Change in Cash and Cash Equivalents (6,074) 187,913 Cash and Cash Equivalents at Beginning of Period 16,873 23,260 ----------- ---------- Cash and Cash Equivalents at End of Period $ 10,799 $ 211,173 =========== ========== Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of $2,852 and $5,344 capitalized for 2003 and 2002, respectively) $107,940 $79,084 Income taxes (net of refunds) ($21,958) $95,482 The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
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GEORGIA POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At June 30, At December 31, Assets 2003 2002 - ------ -------------- ----------------- (in thousands) Current Assets: Cash and cash equivalents $ 10,799 $ 16,873 Receivables -- Customer accounts receivable 279,288 302,995 Unbilled revenues 132,307 104,454 Under recovered regulatory clause revenues 125,052 117,580 Other accounts and notes receivable 74,943 122,585 Affiliated companies 38,691 40,501 Accumulated provision for uncollectible accounts (5,825) (5,825) Fossil fuel stock, at average cost 142,705 120,048 Materials and supplies, at average cost 271,364 263,364 Other 62,396 96,922 ------------ ------------ Total current assets 1,131,720 1,179,497 ------------ ------------ Property, Plant, and Equipment: In service 17,894,675 17,222,661 Less accumulated provision for depreciation 7,183,011 7,333,529 ------------ ------------ 10,711,664 9,889,132 Nuclear fuel, at amortized cost 112,508 119,588 Construction work in progress 403,677 667,581 ------------ ------------ Total property, plant, and equipment 11,227,849 10,676,301 ------------ ------------ Other Property and Investments: Equity investments in unconsolidated subsidiaries 38,095 36,167 Nuclear decommissioning trusts, at fair value 387,601 346,870 Other 29,480 28,612 ------------ ------------ Total other property and investments 455,176 411,649 ------------ ------------ Deferred Charges and Other Assets: Deferred charges related to income taxes 516,618 524,510 Prepaid pension costs 370,464 341,944 Unamortized debt issuance expense 75,344 67,362 Unamortized premium on reacquired debt 177,496 178,590 Asset retirement obligation regulatory asset 11,901 - Other 151,220 162,686 ------------ ------------ Total deferred charges and other assets 1,303,043 1,275,092 ------------ ------------ Total Assets $ 14,117,788 $ 13,542,539 ============ ============ The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
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GEORGIA POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At June 30, At December 31, Liabilities and Stockholder's Equity 2003 2002 - ------------------------------------ ------------- ---------------- (in thousands) Current Liabilities: Securities due within one year $ 2,215 $ 322,125 Notes payable 340,044 357,677 Accounts payable -- Affiliated 115,804 135,260 Other 259,774 445,220 Customer deposits 99,418 94,859 Taxes accrued -- Income taxes 104,794 20,245 Other 91,031 134,269 Interest accrued 65,900 59,608 Vacation pay accrued 40,844 42,442 Other 102,134 112,131 ------------ ------------ Total current liabilities 1,221,958 1,723,836 ------------ ------------ Long-term debt 3,663,476 3,109,619 ------------ ------------ Deferred Credits and Other Liabilities: Accumulated deferred income taxes 2,238,686 2,176,438 Deferred credits related to income taxes 200,822 208,410 Accumulated deferred investment tax credits 318,750 324,994 Employee benefits provisions 247,634 236,486 Asset retirement obligations 484,323 - Other 336,897 373,740 ------------ ------------ Total deferred credits and other liabilities 3,827,112 3,320,068 ------------ ------------ Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding company junior subordinated notes 940,000 940,000 ------------ ------------ Preferred stock 14,569 14,569 ------------ ------------ Common Stockholder's Equity: Common stock, without par value-- Authorized - 15,000,000 shares Outstanding - 7,761,500 shares 344,250 344,250 Paid-in capital 2,165,789 2,156,040 Premium on preferred stock 40 40 Retained earnings 1,954,417 1,945,520 Accumulated other comprehensive loss (13,823) (11,403) ------------ ------------ Total common stockholder's equity 4,450,673 4,434,447 ------------ ------------ Total Liabilities and Stockholder's Equity $ 14,117,788 $ 13,542,539 ============ ============ The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
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GEORGIA POWER COMPANY CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) For the Three Months For the Six Months Ended June 30, Ended June 30, ------------------------- ---------------------- 2003 2002 2003 2002 ----------- ----------- --------- -------- (in thousands) (in thousands) Net Income After Dividends on Preferred Stock $ 158,527 $ 170,798 $ 291,797 $ 297,543 Other comprehensive income (loss): Changes in fair value of qualifying hedges, net of tax of $(380), $(37), $(1,346), $120, respectively (1,015) (58) (2,547) 190 Less: Reclassification adjustment for amounts included in net income, net of tax of $79, $0, $79, $0, respectively 134 - 127 - ---------- ----------- ---------- ---------- COMPREHENSIVE INCOME $ 157,646 $ 170,740 $ 289,377 $ 297,733 ========== =========== ========== ========== GEORGIA POWER COMPANY CONDENSED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS (UNAUDITED) At June 30, At December 31, 2003 2002 ------------ ----------------- (in thousands) Balance at beginning of period $ (11,403) $ (153) Change in current period (2,420) (11,250) ---------- ---------- BALANCE AT END OF PERIOD $ (13,823) $ (11,403) ========== ========= The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
42 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS AND FINANCIAL CONDITION SECOND QUARTER 2003 vs. SECOND QUARTER 2002 AND YEAR-TO-DATE 2003 vs. YEAR-TO-DATE 2002 RESULTS OF OPERATIONS Earnings Georgia Power's net income after dividends on preferred stock for the second quarter and year-to-date 2003 was $158.5 million and $291.8 million, respectively, compared to $170.8 million and $297.5 million for the corresponding periods in 2002. Earnings were down by $12.3 million, or 7.2%, for the second quarter 2003 primarily due to lower operating revenues. Year-to-date 2003 earnings were down slightly by $5.7 million, or 1.9%, as a result of higher non-fuel operating expenses and lower retail base revenues. Significant income statement items appropriate for discussion include the following:
Increase (Decrease) --------------------------------------------------------------- Second Quarter Year-To-Date ------------------------------- ------------------------------- (in thousands) % (in thousands) % Retail sales..................................... $ (20,466) (1.9) $ 40,327 2.1 Sales for resale - non-affiliates................ (12,870) (17.8) 11,066 9.0 Sale for resale - affiliates..................... 21,083 83.4 52,062 124.6 Fuel expense..................................... 15,636 6.1 30,762 6.4 Purchased power - non-affiliates................. (3,228) (4.9) 31,018 30.1 Purchased power - affiliates..................... 22,889 23.2 77,952 49.5 Depreciation and amortization.................... (15,203) (15.0) (25,258) (12.8) Interest expense, net of amounts capitalized..... 6,472 15.6 10,240 12.5 Other income (expense), net...................... 16,650 195.4 24,994 N/M N/M Not meaningful
Retail sales. Excluding fuel revenues, which generally do not affect net income, retail sales revenue decreased by $30 million, or 4%, in the second quarter 2003 and $7.3 million, or 0.5%, year-to-date 2003 when compared to the corresponding periods in 2002. During the second quarter 2003, energy sales to residential, commercial and industrial customers were down by 6%, 1.5% and 3.5%, respectively, when compared to the same period in the prior year. Milder-than-normal temperatures and a sluggish economy during the second quarter 2003 are the primary causes for these reductions in energy sales. Year-to-date 2003, energy sales to residential, commercial and industrial customers remained relatively flat. Sales for resale - non-affiliates. The decrease in the second quarter 2003 and the increase year-to-date 2003 in sales for resale to non-affiliates is related to the demand for energy by these customers. In the second quarter 2003, the demand for energy by non-affiliates was down by 17.8%. Year-to-date 2003, the demand for energy by non-affiliates was up by 9.0%. These transactions did not have a significant impact on earnings since the energy is usually sold at variable cost. 43 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS AND FINANCIAL CONDITION Sales for resale - affiliates. Revenues from sales for resale to affiliated companies within the Southern Company system will vary depending on demand and the availability and cost of generating resources at each company. During the second quarter and year-to-date 2003, energy sales to affiliates increased 83.4% and 124.6%, respectively, when compared to the corresponding periods in 2002. These transactions did not have a significant impact on earnings since this energy is generally sold at marginal cost. Fuel expense. In the second quarter and year-to-date 2003, fuel expense was higher primarily due to increases of 9.1% and 7.1%, respectively, in the average cost of fuel. These expenses do not have a significant impact on earnings since energy expenses are generally offset by energy revenues through Georgia Power's fuel cost recovery clause. Purchased power - non-affiliates. Purchased power from non-affiliates was down in the second quarter 2003 when compared to the same period in the prior year principally due to lower demand for energy. Year-to-date 2003, these purchases were higher due mainly to increased demand for energy and the higher average unit cost of energy purchased by Georgia Power. These expenses do not have a significant impact on earnings since energy expenses are generally offset by energy revenues through Georgia Power's fuel cost recovery clause. Purchased power - affiliates. During the second quarter and year-to-date 2003, purchased power from affiliates increased as a direct result of PPAs between Georgia Power and Southern Power that began in June 2002 and June 2003. The capacity component of these transactions increased $13.2 million in the second quarter 2003 and $36.8 million year-to-date 2003 as compared to the same periods in 2002. The energy component of power purchased from affiliated companies within the Southern Company system will vary depending on demand and the availability and cost of generating resources at each company and will have no significant impact on earnings since energy expenses are generally offset by energy revenues through Georgia Power's fuel cost recovery clause. Depreciation and amortization. The decreases in the second quarter and year-to-date 2003 are attributed to lower regulatory charges necessary to levelize purchased power costs under the terms of the retail rate order effective January 1, 2002. These decreases are offset by an increase in purchased power costs discussed above. All purchased power costs will be reflected in rates evenly from 2002 through 2004 under the retail rate order effective January 1, 2002. Interest expense, net of amounts capitalized. This item increased during the second quarter and year-to-date 2003 mainly as a result of the issuances of $1.2 billion in senior notes since the same periods in 2002. Other income (expense), net. The second quarter and year-to-date 2003 increases are primarily attributed to increased income related to a new electricity pricing program and $14.5 million of interest on a favorable tax settlement as compared to the same periods in 2002. The new electricity pricing program contributed $7.2 million and $10.1 million to the increase for the second quarter and year-to-date 2003, respectively. 44 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Future Earnings Potential The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors including regulatory matters and the effect of weather and the economy on energy sales. For additional information relating to these issues, see Item 1 - - BUSINESS - "Risk Factors" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of Georgia Power in the Form 10-K. In January 2002, Georgia Power began operating under a three-year retail rate order. Under the terms of the order, earnings will be evaluated annually against a retail return on common equity range of 10 percent to 12.95 percent. Two-thirds of any earnings above the 12.95 percent return will be applied to rate refunds, with the remaining one-third retained by Georgia Power. Retail rates were decreased by $118 million effective January 1, 2002. Purchases under PPAs will be reflected in rates evenly over the next three years under the retail rate order effective January 1, 2002. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" and Note 3 to the financial statements of Georgia Power in Item 8 of the Form 10-K for additional information. On May 23, 2003, Georgia Power filed for a fuel cost recovery rate increase. Reference is made to Note (G) to the Condensed Financial Statements herein for additional information. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - FERC Matters" of Georgia Power in the Form 10-K for information on the formation of an RTO as ordered by the FERC and the notice of proposed rulemaking regarding open access transmission service and standard electricity market design. In April 2003, the FERC issued a White Paper related to its proposed rulemaking regarding open access transmission service and standard electricity market design in an effort to respond to certain of the public comments received on the standard market design proposal. Reactions to the White Paper by Southeastern state regulators reflect significant continuing differences in opinion between the FERC and various state regulatory commissions over questions of jurisdiction and protection of retail customers. These significant differences between state and federal regulators create substantial uncertainty related to the ultimate approval of SeTrans because state commission approval of the transfer of operational control of the transmission assets of Southern Company and its subsidiaries is a prerequisite to the formation of SeTrans. Pending energy legislation may also impact these issues. Any impact of the other FERC proposals on Southern Company and its subsidiaries will depend on the form in which final rules may be ultimately adopted; however, Georgia Power's revenues, expenses, assets and liabilities could be adversely affected by changes in the transmission regulatory structure in its regional power market. In June 2002, Georgia Power entered into a fifteen-year PPA beginning in June 2005 with Southern Power to purchase 1,040 megawatts of capacity from the planned combined-cycle plant at Plant McIntosh to be built and owned by Southern Power. The annual capacity cost is expected to be approximately $72 million. Reference is made to Note (P) to the Condensed Financial Statements herein for information regarding the FERC approval process for this PPA. Additionally, Georgia Power has entered into a seven-year PPA beginning in June 2005 with Duke Energy Trading & Marketing to purchase 620 megawatts with an average annual capacity cost of approximately $48 million. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" and Note 4 under "Purchased Power Commitments" to the financial statements of Georgia Power in Item 8 of the Form 10-K. 45 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Compliance costs related to the Clean Air Act and other environmental regulations could affect earnings if such costs cannot be recovered. For additional information, including information on the EPA litigation, see Item 7 - - MANAGEMENT'S DISCUSSION AND Analysis - "Environmental Matters" of Georgia Power and Note 3 to the financial statements of Georgia Power in Item 8 of the Form 10-K. Reference is made to Note (E) to the Condensed Financial Statements herein for information regarding a recent ruling by the U.S. Court of Appeals for the Eleventh Circuit. Reference is made to MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" in Item 7 of the Form 10-K. The Atlanta area is currently classified as a "serious" nonattainment area for the one-hour ozone standard under Title I of the Clean Air Act. All "serious" areas were required to attain the one-hour ozone standard by November 1999. The EPA provided an extension of the area's compliance deadline to 2004, but on June 16, 2003, the Eleventh Circuit Court of Appeals held the EPA's extension policy to be invalid and remanded the matter back to the EPA. In response, the EPA is expected to re-classify Atlanta as a "severe" nonattainment area with respect to the one-hour standard. If the Atlanta area fails to comply with the one-hour standard by November 2005, all major sources of nitrogen oxides and volatile organic compounds located in the nonattainment area, including Georgia Power's Plants McDonough and Yates, could be subject to payment of emissions fees currently estimated at $7,800-$8,000 per ton, of nitrogen oxides emitted above 80% of the baseline period. Based on average emissions at these units over the past three years, such fees could potentially reach $23 million annually. However, Georgia Power does not anticipate exceeding 80% of the baseline and, therefore, does not anticipate incurring any such fees. The final outcome of this matter will depend on the development and implementation of applicable regulations. Georgia Power's business activities are subject to extensive governmental regulation related to public health and the environment. Litigation over environmental issues and claims of various types, including property damage, personal injury and citizen enforcement of environmental requirements, has increased generally throughout the United States. In particular, personal injury claims for damages caused by alleged exposure to hazardous materials have become more frequent. The ultimate outcome of such litigation currently filed against Georgia Power cannot be predicted at this time; however, after consultation with legal counsel, management does not anticipate that the liabilities, if any, arising from such proceedings would have a material adverse effect on Georgia Power's financial statements. Reference is made to Notes (A), (E), (G) through (I), (L) and (P) to the Condensed Financial Statements herein for discussion of various contingencies and other matters which may affect future earnings potential. Accounting Policies Critical Policy Georgia Power's significant accounting policies are described in Note 1 to the financial statements of Georgia Power in Item 8 of the Form 10-K. Georgia Power's critical accounting policy involves rate regulation. Georgia Power is subject to the provisions of FASB Statement No. 71, "Accounting for the Effects of Certain Types of Regulation." In the event that a portion of Georgia Power's operations is no longer subject to these provisions, Georgia Power would be required to write off related regulatory assets and liabilities that are not specifically recoverable and determine if any other assets, including plant, have been impaired. 46 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION New Accounting Standards Reference is made to Note (J) to the Condensed Financial Statements herein for information regarding the adoption of FASB Statement No. 143, "Accounting for Asset Retirement Obligations" effective January 1, 2003. Statement No. 143 establishes new accounting and reporting standards for legal obligations associated with the ultimate cost of retiring long-lived assets. The present value of the ultimate costs for an asset's future retirement must be recorded in the period in which the liability is incurred. The cost must be capitalized as part of the related long-lived asset and depreciated over the asset's useful life. Additionally, Statement No. 143 does not permit non-regulated companies to continue accruing future retirement costs for long-lived assets that they do not have a legal obligation to retire. Prior to January 2003, Georgia Power accrued for the ultimate cost of retiring most long-lived assets over the life of the related asset through depreciation expense. In May 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," which requires classification of certain financial instruments within its scope, including shares that are mandatorily redeemable, as liabilities. Statement No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise on July 1, 2003 for calendar year companies. In accordance with Statement No. 150, Georgia Power reclassified $940 million of mandatorily redeemable preferred securities as liabilities effective July 1, 2003. The implementation of Statement No. 150 did not have a material effect on Georgia Power's Statements of Income and Cash Flows. FINANCIAL CONDITION Overview The major change in Georgia Power's financial condition during the first six months of 2003 was the addition of approximately $371 million to utility plant. The funds for these additions and other capital requirements were derived primarily from operations. See Georgia Power's Condensed Statements of Cash Flows herein for further details. Credit Rating Risk Georgia Power does not have any credit agreements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade. There are certain physical electricity sales contracts that could require collateral -- but not termination -- in the event of a credit rating change to below investment grade. Generally, collateral may be provided for by a Southern Company guaranty, letter of credit or cash. At June 30, 2003, the maximum potential collateral requirements were approximately $228 million. Exposure to Market Risks Georgia Power's market risk exposures relative to interest rate changes have not changed materially compared with the December 31, 2002 reporting period. In addition, Georgia Power is not aware of any facts or circumstances that would significantly affect such exposures in the near term. 47 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Due to cost-based rate regulations, Georgia Power has limited exposure to market volatility in interest rates, commodity fuel prices and prices of electricity. To mitigate residual risks relative to movements in electricity prices, Georgia Power enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market and, to a lesser extent, similar contracts for gas purchases. Georgia Power has also implemented a retail fuel hedging program at the instruction of the Georgia PSC. The fair value of derivative energy contracts at June 30, 2003 was as follows: Second Quarter 2003 Year-to-Date Changes Changes --------------------------------- ---------------------------------------- Fair Value --------------------------------- ---------------------------------------- (in thousands) Contracts beginning of period $ (839) $ 89 Contracts realized or settled (4) (4) New contracts at inception - - Changes in valuation techniques - - Current period changes (1,191) (2,119) --------------------------------- ------------------------ -------------- Contracts at June 30, 2003 $ (2,034) $ (2,034) ================================= ======================== ================ All of these contracts are actively quoted and mature within one year. At June 30, 2003, the fair value of derivative energy contracts reflected in the financial statements was as follows: Amounts --------------------------------------- ------------------------- (in thousands) Regulatory assets, net $(1,785) Other comprehensive income - Net loss (249) --------------------------------------- ------------------------- Total fair value $(2,034) ======================================= ========================= Realized gains and losses are recognized in the Statements of Income as incurred. For the three months ended June 30, 2003 and 2002, approximately $(0.1) million and $1.3 million of (losses) gains, respectively, were recognized in income. For the six months ended June 30, 2003 and 2002, approximately $0.3 million and $1.2 million of losses, respectively, were recognized in income. For additional information, reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Exposure to Market Risks" of Georgia Power in the Form 10-K and Note 1 to the financial statements of Georgia Power in Item 8 of the Form 10-K. Financing Activities In February 2003, Georgia Power issued $250 million of Series L Floating Rate Senior Notes due February 18, 2005. The proceeds from this issuance were used to repay a portion of Georgia Power's outstanding short-term indebtedness. Also in February 2003, Georgia Power issued $150 million of Series M 5.40% Senior Insured Quarterly Notes due March 1, 2033. A portion of the proceeds was used to redeem in March 2003 the $145 million outstanding principal amount of Georgia 48 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Power's Series A 6 7/8% SeniorPublic Income Notes due December 31, 2047 and the balance of the proceeds was used for general corporate purposes. During March 2003, Georgia Power elected to change the interest rate mode on $316 million of variable rate pollution control bonds. Georgia Power changed $255 million of the bonds from the "daily rate mode," which required backup bank credit facilities, to the "auction rate mode." In addition, Georgia Power changed $61 million of the bonds from the "daily rate mode" to the "long-term interest rate mode." In April 2003, Georgia Power issued $100 million of Series N 5.750% Senior Notes due April 15, 2023, $150 million of Series O 5.90% Senior Notes due April 15, 2033 and $50 million of Series P Floating Rate Senior Notes due April 15, 2005. The proceeds from these sales were used to repay a portion of Georgia Power's outstanding short-term indebtedness and to repay at maturity all of Georgia Power's Series I 5.25% Senior Notes due May 8, 2003. In July 2003, Georgia Power entered swaps to hedge interest payments associated with variable rate pollution control bonds. The swaps are for a notional amount of $873.3 million at an average fixed interest rate of 1.388% and mature in December 2004. Also in July 2003, Georgia Power entered a swap to hedge interest payments associated with a variable rate note with a coupon of LIBOR plus 10 basis points. The swap is for a notional amount of $50 million at a fixed interest rate of 1.5625% and matures in January 2005. Further in July 2003, Georgia Power entered a U.S. Treasury lock to hedge interest payments associated with a 10-year debt issuance planned in August 2003. The swap is for a notional amount of $100 million at a fixed interest rate of 4.465%. Georgia Power plans to continue, when economically feasible, a program to retire higher-cost debt and replace these obligations with lower-cost capital if market conditions permit. Capital Requirements Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of Georgia Power under "Financing Activities," "Liquidity and Capital Requirements" and "Environmental Matters" in the Form 10-K for a description of Georgia Power's capital requirements for its construction program, maturing debt and environmental compliance efforts. Sources of Capital Georgia Power plans to obtain the funds required for construction and other purposes from sources similar to those used in the past. The amount, type and timing of any financings -- if needed -- will depend upon maintenance of adequate earnings, regulatory approval, prevailing market conditions and other factors. See Item 1 - BUSINESS - "Financing Programs" in the Form 10-K for additional information. Georgia Power's current liabilities exceed current assets because of the continued use of short-term debt as a funding source to meet cash needs. 49 GEORGIA POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION To meet short-term cash needs and contingencies, Georgia Power had at June 30, 2003 approximately $10.8 million of cash and cash equivalents and approximately $725 million of unused credit arrangements with banks. These credit arrangements expire in June 2004 and contain provisions allowing two-year term loans executable at the expiration date and represent a reduction in the previous level of credit arrangements due to reduced liquidity support requirements as outlined in "Financing Activities" above. The credit arrangements provide liquidity support to Georgia Power's obligations with respect to variable rate pollution control bonds and commercial paper. Georgia Power may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper and extendible commercial notes at the request and for the benefit of Georgia Power and other Southern Company subsidiaries. At June 30, 2003, Georgia Power had outstanding $340 million of commercial paper. Management believes that the need for working capital can be adequately met by utilizing lines of credit without maintaining large cash balances. 50 GULF POWER COMPANY 51
GULF POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) For the Three Months For the Six Months Ended June 30, Ended June 30, 2003 2002 2003 2002 ------- ------ ------ -------- (in thousands) (in thousands) Operating Revenues: Retail sales $175,669 $172,781 $335,462 $306,275 Sales for resale -- Non-affiliates 17,908 18,684 36,633 36,118 Affiliates 12,414 7,514 22,631 10,095 Other revenues 9,218 11,008 18,321 18,432 -------- -------- -------- -------- Total operating revenues 215,209 209,987 413,047 370,920 -------- -------- -------- -------- Operation -- Fuel 77,798 70,142 141,065 106,897 Purchased power -- Non-affiliates 3,929 6,848 9,885 12,652 Affiliates 5,079 13,130 17,666 30,191 Other 33,426 30,985 63,437 57,910 Maintenance 17,257 23,749 33,837 41,938 Depreciation and amortization 20,324 19,083 40,576 36,374 Taxes other than income taxes 16,728 14,876 33,116 29,291 -------- -------- -------- -------- Total operating expenses 174,541 178,813 339,582 315,253 -------- -------- -------- -------- Operating Income 40,668 31,174 73,465 55,667 Other Income and (Expense): Interest expense, net of amounts capitalized (8,252) (8,146) (16,307) (15,132) Distributions on preferred securities of subsidiary (1,894) (2,103) (3,922) (4,206) Other income (expense), net (256) 185 (679) 1,961 --------- --------- -------- --------- Total other income and (expense) (10,402) (10,064) (20,908) (17,377) -------- -------- -------- -------- Earnings Before Income Taxes 30,266 21,110 52,557 38,290 Income taxes 11,427 7,569 19,692 12,978 -------- -------- -------- -------- Net Income 18,839 13,541 32,865 25,312 Dividends on Preferred Stock 54 54 108 108 -------- -------- -------- -------- Net Income After Dividends on Preferred Stock $ 18,785 $ 13,487 $ 32,757 $25,204 ======== ======== ======== ======== The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.
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GULF POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended June 30, 2003 2002 ------ -------- (in thousands) Operating Activities: Net income $ 32,865 $ 25,312 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 43,247 38,700 Deferred income taxes (112) (4,049) Other, net 917 (25) Changes in certain current assets and liabilities -- Receivables, net (7,598) (27,336) Fossil fuel stock (2,822) (12,757) Materials and supplies (2,797) (465) Other current assets 12,241 5,281 Accounts payable (19,713) 2,200 Taxes accrued 17,002 13,545 Other current liabilities 14,065 (144) --------- --------- Net cash provided from operating activities 87,295 40,262 --------- --------- Investing Activities: Gross property additions (40,654) (67,948) Cost of removal net of salvage (4,842) (1,672) Other (6,652) (16,305) --------- --------- Net cash used for investing activities (52,148) (85,925) --------- --------- Financing Activities: Increase (decrease) in notes payable, net 23,227 (3,187) Proceeds -- Pollution control bonds 61,625 - Senior notes 65,000 44,803 Capital contributions from parent company 11,612 37,782 Redemptions -- Pollution control bonds (61,625) - Senior notes (45,037) - Other long-term debt (20,000) - Preferred securities (40,000) - Payment of preferred stock dividends (108) (108) Payment of common stock dividends (35,100) (32,750) Other (4,504) (594) --------- --------- Net cash provided from (used for) financing activities (44,910) 45,946 --------- --------- Net Change in Cash and Cash Equivalents (9,763) 283 Cash and Cash Equivalents at Beginning of Period 13,278 2,244 --------- --------- Cash and Cash Equivalents at End of Period $ 3,515 $ 2,527 ========= ========= Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of $66 and $1,391 capitalized for 2003 and 2002, respectively) $18,525 $19,999 Income taxes (net of refunds) ($5,393) $2,503 The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.
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GULF POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At June 30, At December 31, Assets 2003 2002 - ------ ----------- ----------------- (in thousands) Current Assets: Cash and cash equivalents $ 3,515 $ 13,278 Receivables -- Customer accounts receivable 55,611 48,609 Unbilled revenues 32,171 28,077 Under recovered regulatory clause revenues 27,970 29,549 Other accounts and notes receivable 5,954 6,618 Affiliated companies 7,730 8,678 Accumulated provision for uncollectible accounts (1,197) (889) Fossil fuel stock, at average cost 40,013 37,191 Materials and supplies, at average cost 37,637 34,840 Prepaid taxes - 12,704 Prepaid service agreement 4,547 4,535 Other 10,051 9,599 ----------- ---------- Total current assets 224,002 232,789 ----------- ---------- Property, Plant, and Equipment: In service 2,280,852 2,248,156 Less accumulated provision for depreciation 974,598 946,408 ----------- ---------- 1,306,254 1,301,748 Construction work in progress 32,426 35,708 ----------- ---------- Total property, plant, and equipment 1,338,680 1,337,456 ----------- ---------- Other Property and Investments 11,318 10,157 ----------- ---------- Deferred Charges and Other Assets: Deferred charges related to income taxes 18,182 18,798 Prepaid pension costs 38,788 36,298 Unamortized debt issuance expense 4,947 3,900 Unamortized premium on reacquired debt 17,418 14,052 Other 24,037 20,379 ----------- ----------- Total deferred charges and other assets 103,372 93,427 ----------- ----------- Total Assets $ 1,677,372 $ 1,673,829 =========== =========== The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.
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GULF POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At June 30, At December 31, Liabilities and Stockholder's Equity 2003 2002 - ------------------------------------ ------------- --------------- (in thousands) Current Liabilities: Securities due within one year $ 60,000 $ 100,000 Notes payable 51,706 28,479 Accounts payable -- Affiliated 23,037 26,395 Other 17,707 39,685 Customer deposits 17,227 16,047 Taxes accrued -- Income taxes 19,671 10,718 Other 15,040 9,170 Interest accrued 7,055 7,875 Vacation pay accrued 5,044 5,044 Other 14,344 3,933 ------------ ----------- Total current liabilities 230,831 247,346 ------------ ----------- Long-term debt 453,345 452,040 ------------ ----------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 169,347 167,689 Deferred credits related to income taxes 27,808 29,692 Accumulated deferred investment tax credits 21,308 22,289 Employee benefits provisions 42,259 39,656 Other 56,735 46,376 ------------ ----------- Total deferred credits and other liabilities 317,457 305,702 ------------ ----------- Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding company junior subordinated notes 115,000 115,000 ------------ ----------- Preferred stock 4,236 4,236 ------------ ----------- Common Stockholder's Equity: Common stock, without par value-- Authorized - 992,717 shares Outstanding - 992,717 shares 38,060 38,060 Paid-in capital 361,380 349,769 Premium on preferred stock 12 12 Retained earnings 160,055 162,398 Accumulated other comprehensive loss (3,004) (734) ------------ ----------- Total common stockholder's equity 556,503 549,505 ------------ ----------- Total Liabilities and Stockholder's Equity $ 1,677,372 $ 1,673,829 ============ =========== The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.
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GULF POWER COMPANY CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) For the Three Months For the Six Months Ended June 30, Ended June 30, ---------------------- ------------------------ 2003 2002 2003 2002 --------- -------- ---------- ------- (in thousands) (in thousands) Net Income After Dividends on Preferred Stock $ 18,785 $ 13,487 $ 32,757 $ 25,204 Other comprehensive income: Changes in fair value of qualifying hedges, net of tax of $(1,426), $0, $(1,426), $0, respectively (2,270) - (2,270) - ---------- --------- ---------- --------- COMPREHENSIVE INCOME $ 16,515 $ 13,487 $ 30,487 $ 25,204 ========== ========= ========== ========= GULF POWER COMPANY CONDENSED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS (UNAUDITED) At At June 30, December 31, 2003 2002 ----------- --------------- (in thousands) Balance at beginning of period $ (734) $ - Change in current period (2,270) (734) -------- ------- BALANCE AT END OF PERIOD $ (3,004) $ (734) ======== ======= The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.
56 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SECOND QUARTER 2003 vs. SECOND QUARTER 2002 AND YEAR-TO-DATE 2003 vs. YEAR-TO-DATE 2002 RESULTS OF OPERATIONS Earnings Gulf Power's net income after dividends on preferred stock for the second quarter and year-to-date 2003 was $18.8 million and $32.8 million, respectively, compared to $13.5 million and $25.2 million for the corresponding periods in 2002. Earnings in the second quarter and year-to-date 2003 increased by $5.3 million, or 39.3%, and $7.6 million, or 30%, respectively, as a result of higher operating revenues that were only partially offset year-to-date 2003 with higher operating expenses. Significant income statement items appropriate for discussion include the following:
Increase (Decrease) -------------------------------------------------------------------- Second Quarter Year-To-Date ------------------------------------ ------------------------------- (in thousands) % (in thousands) % Retail sales........................ $2,888 1.7 $29,187 9.5 Sale for resale - affiliates........ 4,900 65.2 12,536 124.2 Other revenues...................... (1,790) (16.3) (111) (0.6) Fuel expense........................ 7,656 10.9 34,168 32.0 Purchased power - non-affiliates.... (2,919) (42.6) (2,767) (21.9) Purchased power - affiliates........ (8,051) (61.3) (12,525) (41.5) Other operation expense............. 2,441 7.9 5,527 9.5 Maintenance expense................. (6,492) (27.3) (8,101) (19.3) Depreciation and amortization....... 1,241 6.5 4,202 11.6 Taxes other than income taxes....... 1,852 12.4 3,825 13.1 Other income (expense), net......... (441) (238.4) (2,640) (134.6)
Retail sales. Excluding the recovery of fuel expense and certain other expenses that do not affect net income, retail sales increased by $8.3 million, or 8.7%, for the second quarter 2003 and by $21.3 million, or 12.2%, year-to-date 2003 when compared to the corresponding periods in 2002. For both of the above reporting periods, retail sales revenues were higher than the corresponding periods in 2002 primarily due to an increase in the number of customers and the retail rate increase which went into effect in June 2002. During the second quarter 2003, retail energy sales to residential and industrial customers increased by 1.2% and 8.1%, respectively, while energy sales to commercial customers decreased by 1% as compared to the same period in 2002. For year-to-date 2003 as compared to 2002, retail energy sales to residential, commercial and industrial customers increased by 0.2%, 0.6% and 8.2%, respectively. Sales for resale - affiliates and Purchased power - affiliates. Revenues from sales for resale to affiliated companies and purchases of energy within the Southern Company system will vary depending on demand and the availability and cost of generating resources at each company. Gulf Power increased its generating resources with commercial operation of Plant Smith in April 2002 and thus had greater generation resources to sell to affiliates. These 57 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION transactions do not have a significant impact on earnings since this energy is generally sold at marginal cost and energy purchases are generally offset by energy revenues through Gulf Power's fuel cost recovery mechanism. Other revenues. The second quarter 2003 decrease in other revenues when compared to the same period in 2002 is primarily due to a $1.7 million settlement, recorded in 2002, related to a PPA. Fuel expense. During the second quarter 2003, fuel expense increased from the corresponding period in the prior year mainly due to a 78.5% increase in natural gas prices and increased generation to meet demand. Year-to-date 2003, fuel expense was higher because of commercial operation of Plant Smith Unit 3 in April 2002, a 60.4% increase in natural gas prices and increased generation to meet additional demand for energy. Since energy expenses are generally offset by energy revenues through Gulf Power's fuel cost recovery mechanism, these expenses do not have a significant impact on net income. Purchased power - non-affiliates. The decreases in the second quarter and year-to-date 2003 when compared to the corresponding periods in 2002 are directly related to commercial operation of Plant Smith Unit 3 which began commercial operation in April 2002. Other operation expense. A number of factors caused the increases in other operation expense in the second quarter and year-to-date 2003 as compared to the same periods in the prior year. Customer accounts expenses increased $0.5 million and $1.3 million; distribution expenses increased $0.5 million and $0.6 million; and administrative and general expenses increased $0.5 million and $2.2 million, respectively, for the second quarter and year-to-date 2003. Increased relocation expenses and severance costs caused the change in the administrative and general expenses. Maintenance expense. The decreases in maintenance expense during the second quarter and year-to-date 2003 were primarily due to a decrease in planned turbine and boiler inspections and repairs in 2003 compared to the same periods in 2002. Depreciation and amortization. Depreciation and amortization was higher in the second quarter and year-to-date 2003 and was directly related to an increase in utility plant-in-service, including Plant Smith Unit 3, when compared to the corresponding periods in the prior year. Taxes other than income taxes. The increases in this item for the second quarter and year-to-date 2003 are primarily attributed to property taxes on Plant Smith Unit 3 and revenue taxes related to the 2002 base rate increase. Other income (expense), net. The decreases in this item during the second quarter and year-to-date 2003 as compared to the same periods in the prior year were primarily a result of reductions in Allowance for Equity Funds Used During Construction following the completion of Plant Smith Unit 3. Future Earnings Potential The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors. The major factors include regulatory matters and the ability to achieve energy sales growth. For additional information relating to these issues, see Item 1 - BUSINESS - "Risk Factors" and Item 7 - MANAGEMENT'S DISCUSSION AND 58 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION ANALYSIS - "Future Earnings Potential" of Gulf Power in the Form 10-K. Gulf Power is subject to certain claims and legal actions arising in the ordinary course of business. Gulf Power's business activities are subject to extensive governmental regulation related to public health and the environment. Litigation over environmental issues and claims of various types, including property damage, personal injury and citizen enforcement of environmental requirements, has increased generally throughout the United States. In particular, personal injury claims for damages caused by alleged exposure to hazardous materials have become more frequent. The ultimate outcome of such litigation currently filed against Gulf Power cannot be predicted at this time; however, after consultation with legal counsel, management does not anticipate that the liabilities, if any, arising from such proceedings would have a material adverse effect on Gulf Power's financial statements. Compliance costs related to the Clean Air Act and other environmental regulations could affect earnings if such costs are not fully recovered through Gulf Power's Environmental Cost Recovery Clause. For additional information about these issues, including the EPA litigation, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" and Note 3 to the financial statements of Gulf Power in the Form 10-K. Reference is made to Note (E) to the Condensed Financial Statements herein for information regarding a recent ruling by the U.S. Court of Appeals for the Eleventh Circuit. In 2002, the Florida PSC approved an annual base rate increase for Gulf Power of $53.2 million which became effective in June 2002. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of Gulf Power in the Form 10-K for additional information. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - FERC Matters" of Gulf Power in the Form 10-K for information on the formation of an RTO as ordered by the FERC and the notice of proposed rulemaking regarding open access transmission service and standard electricity market design. In April 2003, the FERC issued a White Paper related to its proposed rulemaking regarding open access transmission service and standard electricity market design in an effort to respond to certain of the public comments received on the standard market design proposal. Reactions to the White Paper by Southeastern state regulators reflect significant continuing differences in opinion between the FERC and various state regulatory commissions over questions of jurisdiction and protection of retail customers. These significant differences between state and federal regulators create substantial uncertainty related to the ultimate approval of SeTrans because state commission approval of the transfer of operational control of the transmission assets of Southern Company and its subsidiaries is a prerequisite to the formation of SeTrans. Pending energy legislation may also impact these issues. Any impact of the other FERC proposals on Southern Company and its subsidiaries will depend on the form in which final rules may be ultimately adopted; however, Gulf Power's revenues, expenses, assets and liabilities could be adversely affected by changes in the transmission regulatory structure in its regional power market. Reference is made to Notes (A), (E), (H), (I) and (L) to the Condensed Financial Statements herein for discussion of various contingencies and other matters which may affect future earnings potential. 59 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Accounting Policies Critical Policy Gulf Power's significant accounting policies are described in Note 1 to the financial statements of Gulf Power in Item 8 of the Form 10-K. Gulf Power's critical accounting policy involves rate regulation. Gulf Power is subject to the provisions of FASB Statement No. 71, "Accounting for the Effects of Certain Types of Regulation." In the event that a portion of Gulf Power's operations is no longer subject to these provisions, Gulf Power would be required to write off related regulatory assets and liabilities that are not specifically recoverable and determine if any other assets, including plant, have been impaired. New Accounting Standards Reference is made to Note (J) to the Condensed Financial Statements herein for information regarding the adoption of FASB Statement No. 143, "Accounting for Asset Retirement Obligations" effective January 1, 2003. Statement No. 143 establishes new accounting and reporting standards for legal obligations associated with the ultimate cost of retiring long-lived assets. The present value of the ultimate costs for an asset's future retirement must be recorded in the period in which the liability is incurred. The cost must be capitalized as part of the related long-lived asset and depreciated over the asset's useful life. Additionally, Statement No. 143 does not permit non-regulated companies to continue accruing future retirement costs for long-lived assets that they do not have a legal obligation to retire. Prior to January 2003, Gulf Power accrued for the ultimate cost of retiring most long-lived assets over the life of the related asset through depreciation expense. In May 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," which requires classification of certain financial instruments within its scope, including shares that are mandatorily redeemable, as liabilities. Statement No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise on July 1, 2003 for calendar year companies. In accordance with Statement No. 150, Gulf Power reclassified $115 million of mandatorily redeemable preferred securities as liabilities effective July 1, 2003. The implementation of Statement No. 150 did not have a material effect on Gulf Power's Statements of Income and Cash Flows. FINANCIAL CONDITION Overview Major changes in Gulf Power's financial condition during the first six months of 2003 included the addition of approximately $40.7 million to utility plant. The funds for these additions and other capital requirements were derived primarily from operations. See Gulf Power's Condensed Statements of Cash Flows herein for further details. Credit Rating Risk Gulf Power does not have any credit agreements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade. 60 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Exposure to Market Risks Gulf Power's market risk exposures relative to interest rate changes have not changed materially compared with the December 31, 2002 reporting period. In addition, Gulf Power is not aware of any facts or circumstances that would significantly affect such exposures in the near term. Due to cost-based rate regulations, Gulf Power has limited exposure to market volatility in interest rates, commodity fuel prices and prices of electricity. To mitigate residual risks relative to movements in electricity prices, Gulf Power enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market and, to a lesser extent, similar contracts for gas purchases. Gulf Power has received approval from the Florida PSC to recover prudently incurred costs related to its fuel hedging program through the fuel cost recovery mechanism. The fair value of derivative energy contracts at June 30, 2003 was as follows: Second Quarter 2003 Year-to-Date Changes Changes --------------------------------- ---------------------------------------- Fair Value --------------------------------- ---------------------------------------- (in thousands) Contracts beginning of period $3,955 $ 2,336 Contracts realized or settled (2,369) (2,860) New contracts at inception - - Changes in valuation techniques - - Current period changes (568) 1,542 --------------------------------- ------------------------ --------------- Contracts at June 30, 2003 $1,018 $1,018 ================================= ======================== =============== Source of June 30, 2003 Valuation Prices -------------------------------- --------------- ----------------------- Total Maturity ----------------------- Fair Value Year 1 1-3 Years -------------------------------- --------------------------------------- (in thousands) Actively quoted $1,018 $1,858 $(840) External sources - - - Models and other methods - - - -------------------------------- --------------- ----------------------- Contracts at June 30, 2003 $1,018 $1,858 $(840) ================================ =============== ======================= Unrealized gains and losses from mark to market adjustments on contracts related to fuel hedging programs are recorded as regulatory assets and liabilities. Realized gains and losses from these programs are included in fuel expense and are recovered through Gulf Power's fuel cost recovery clause. Gains and losses on contracts that do not represent hedges are recognized in the income statement as incurred. At June 30, 2003, the fair value of derivative energy contracts was reflected in the financial statements as follows: 61 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Amounts - ----------------------------------------------------------------------------- (in thousands) Regulatory liabilities, net $1,059 Other comprehensive income - Net income (41) - ----------------------------------------------------------------------------- Total fair value $1,018 ============================================================================= For the quarter and year-to-date periods ended June 30, 2003 and 2002, the realized gains and losses recognized in income were immaterial. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Exposure to Market Risks" of Gulf Power in the Form 10-K and Note 1 to the financial statements of Gulf Power in Item 8 of the Form 10-K for additional information. Financing Activities In January 2003, Gulf Power redeemed $40 million of 7.625% trust preferred securities using the proceeds of $40 million in trust preferred securities issued in December 2002 at a five-year initial fixed rate of 5.60%. In March 2003, Gulf Power issued $65 million of Series F Senior Insured Quarterly Notes due April 1, 2033. The proceeds from this issue were used to redeem, in April 2003, the $20 million Series B 7.50% Junior Subordinated Notes due June 30, 2037 and, in May 2003, the $45 million of Series E Senior Notes due January 30, 2012. In April 2003, Gulf Power sold through public authorities $29.075 million of variable rate pollution control revenue refunding bonds due February 1, 2026 and $32.55 million of variable rate pollution control refunding bonds due June 1, 2023. The proceeds were used to redeem (1) $7.875 million aggregate principal amount of water pollution control revenue refunding bonds, Series 1993; (2) $21.2 million of pollution control revenue refunding bonds, Series 1996 and (3) the outstanding amount of pollution control revenue refunding bonds, Series 1993. Both pollution control bonds issued in April 2003 will bear interest at a rate to be determined by the auction rate process. In July 2003, Gulf Power issued $60 million of Series G 4.35% Senior Notes due July 15, 2013 and $60 million of Series H 5.25% Senior Notes due July 15, 2033. The proceeds of the Series G Senior Notes were used to pay at maturity the $60 million outstanding principal amount of Series C 4.69% Senior Notes due August 1, 2003. The proceeds of the Series H Senior Notes will be used to redeem in August 2003 the $46.7 million outstanding principal amount of the Series A 6.70% Senior Insured Quarterly Notes due June 30, 2038. The remainder will be used to repay a portion of Gulf Power's short-term indebtedness. Gulf Power plans to continue, to the extent possible, a program to retire higher-cost securities and replace these obligations with lower-cost capital if market conditions permit. 62 GULF POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Capital Requirements Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of Gulf Power under "Capital Requirements for Construction," "Other Capital Requirements" and "Environmental Matters" in the Form 10-K for a description of Gulf Power's capital requirements for its construction program, maturing debt and environmental compliance efforts. Sources of Capital In addition to the financing activities previously described herein, Gulf Power plans to obtain the funds required for construction and other purposes from sources similar to those used in the past. The amount, type and timing of any financings -- if needed -- will depend upon maintenance of adequate earnings, regulatory approval, prevailing market conditions and other factors. See Item 1 - - BUSINESS - "Financing Programs" in the Form 10-K for additional information. To meet short-term cash needs and contingencies, Gulf Power had at June 30, 2003 approximately $3.5 million of cash and cash equivalents and $66.3 million of unused committed lines of credit with banks that expire in 2004. The credit arrangements provide liquidity support to Gulf Power's obligations with respect to variable rate pollution control bonds and commercial paper. Gulf Power may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper and extendible commercial notes at the request and for the benefit of Gulf Power and other Southern Company subsidiaries. At June 30, 2003, Gulf Power had outstanding $20 million of notes payable and $31.7 million of commercial paper. Management believes that the need for working capital can be adequately met by utilizing lines of credit without maintaining large cash balances. 63 MISSISSIPPI POWER COMPANY 64
MISSISSIPPI POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) For the Three Months For the Six Months Ended June 30, Ended June 30, 2003 2002 2003 2002 ------- ------ ------ ------ (in thousands) (in thousands) Retail sales $134,058 $138,601 $248,028 $257,068 Sales for resale -- Non-affiliates 59,320 52,182 129,745 104,334 Affiliates 5,665 10,456 11,888 20,069 Contract termination 62,111 - 62,111 - Other revenues 3,206 4,139 6,474 6,965 -------- -------- -------- -------- Total operating revenues 264,360 205,378 458,246 388,436 -------- -------- -------- -------- Operating Expenses: Operation -- Fuel 55,596 66,772 106,720 126,974 Purchased power -- Non-affiliates 4,511 4,416 11,328 7,257 Affiliates 17,755 10,387 38,087 17,793 Other 49,743 37,103 84,906 72,464 Maintenance 18,751 20,606 33,011 41,277 Depreciation and amortization 13,902 13,918 26,975 28,430 Taxes other than income taxes 13,716 13,719 27,083 26,911 -------- -------- -------- -------- Total operating expenses 173,974 166,921 328,110 321,106 -------- -------- -------- -------- Operating Income 90,386 38,457 130,136 67,330 Other Income and (Expense): Interest expense (3,767) (4,279) (7,537) (9,325) Distributions on preferred securities of subsidiary (630) (1,022) (1,260) (1,770) Other income (expense), net 753 1,152 765 1,345 -------- -------- -------- -------- Total other income and (expense) (3,644) (4,149) (8,032) (9,750) -------- -------- -------- -------- Earnings Before Income Taxes 86,742 34,308 122,104 57,580 Income taxes 33,179 13,016 46,642 21,803 -------- -------- -------- -------- Net Income 53,563 21,292 75,462 35,777 Dividends on Preferred Stock 504 504 1,007 1,007 -------- -------- -------- -------- Net Income After Dividends on Preferred Stock $ 53,059 $ 20,788 $ 74,455 $ 34,770 ======== ========= ======== ========= The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
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MISSISSIPPI POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended June 30, 2003 2002 ----- ----- (in thousands) Operating Activities: Net income $ 75,462 $ 35,777 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 31,046 30,486 Deferred income taxes and investment tax credits, net 1,623 (6,021) Other, net 12,676 5,953 Changes in certain current assets and liabilities -- Receivables, net 12,950 3,463 Fossil fuel stock (6,723) (1,768) Materials and supplies 143 (1,092) Other current assets (484) (5,487) Accounts payable (40,330) (13,723) Taxes accrued 14,463 7,666 Other current liabilities (16,025) 8,500 --------- --------- Net cash provided from operating activities 84,801 63,754 --------- --------- Investing Activities: Gross property additions (26,566) (36,813) Other (1,317) (10,713) --------- --------- Net cash used for investing activities (27,883) (47,526) --------- --------- Financing Activities: Increase (decrease) in notes payable, net - 9,922 Proceeds -- Senior notes 90,000 80,000 Preferred securities - 35,000 Capital contributions from parent company 1,956 682 Redemptions -- First mortgage bonds (33,350) (650) Pollution control bonds (850) - Senior notes (86,628) (80,190) Preferred securities - (35,000) Payment of preferred stock dividends (1,007) (1,007) Payment of common stock dividends (33,000) (31,750) Other (1,185) 106 --------- --------- Net cash used for financing activities (64,064) (22,887) --------- --------- Net Change in Cash and Cash Equivalents (7,146) (6,659) Cash and Cash Equivalents at Beginning of Period 62,695 18,950 --------- --------- Cash and Cash Equivalents at End of Period $ 55,549 $ 12,291 ========= ========= Supplemental Cash Flow Information: Cash paid during the period for -- Interest $10,413 $7,490 Income taxes (net of refunds) $6,073 $7,231 The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
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MISSISSIPPI POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At June 30, At December 31, Assets 2003 2002 - -------- ------------ --------------- (in thousands) Current Assets: Cash and cash equivalents $ 55,549 $ 62,695 Receivables -- Customer accounts receivable 38,151 31,136 Unbilled revenues 21,215 18,434 Under recovered regulatory clause revenues 14,695 27,233 Other accounts and notes receivable 6,112 8,056 Affiliated companies 12,596 20,674 Accumulated provision for uncollectible accounts (902) (718) Fossil fuel stock, at average cost 34,026 27,303 Materials and supplies, at average cost 21,920 22,063 Assets from risk management activities 9,568 13,061 Deferred income tax assets 15,174 18,675 Other 11,445 7,469 ----------- ----------- Total current assets 239,549 256,081 ----------- ----------- Property, Plant, and Equipment: In service 1,800,392 1,786,378 Less accumulated provision for depreciation 740,374 722,231 ----------- ----------- 1,060,018 1,064,147 Construction work in progress 37,246 34,065 ----------- ----------- Total property, plant, and equipment 1,097,264 1,098,212 ----------- ----------- Other Property and Investments 1,809 1,768 ----------- ----------- Deferred Charges and Other Assets: Deferred charges related to income taxes 12,332 12,617 Prepaid pension costs 16,243 14,993 Unamortized debt issuance expense 2,503 4,304 Unamortized premium on reacquired debt 10,617 7,776 Other 39,063 16,415 ----------- ----------- Total deferred charges and other assets 80,758 56,105 ----------- ----------- Total Assets $ 1,419,380 $ 1,412,166 =========== =========== The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
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MISSISSIPPI POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At June 30, At December 31, Liabilities and Stockholder's Equity 2003 2002 - ------------------------------------ ------------- ----------------- (in thousands) Current Liabilities: Securities due within one year $ 80,000 $ 69,200 Accounts payable -- Affiliated 17,679 22,396 Other 58,217 91,710 Customer deposits 7,307 6,855 Taxes accrued -- Income taxes 44,938 12,042 Other 23,031 41,464 Interest accrued 3,561 6,562 Vacation pay accrued 5,782 5,782 Regulatory clauses over recovery 24,397 35,680 Deferred revenue 14,052 - Other 8,607 8,504 ----------- ----------- Total current liabilities 287,571 300,195 ----------- ----------- Long-term debt 202,483 243,715 ----------- ----------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 144,937 146,631 Deferred credits related to income taxes 24,340 20,798 Accumulated deferred investment tax credits 20,448 21,054 Employee benefits provisions 51,076 49,869 Residual value guarantee 15,699 - Other 44,653 45,142 ----------- ----------- Total deferred credits and other liabilities 301,153 283,494 ----------- ----------- Company obligated mandatorily redeemable preferred securities of subsidiary trust holding company junior subordinated notes 35,000 35,000 ----------- ----------- Preferred stock 31,809 31,809 ----------- ----------- Common Stockholder's Equity: Common stock, without par value -- Authorized - 1,130,000 shares Outstanding - 1,121,000 shares 37,691 37,691 Paid-in capital 287,236 285,280 Premium on preferred stock 326 326 Retained earnings 237,375 195,920 Accumulated other comprehensive loss (1,264) (1,264) ----------- ----------- Total common stockholder's equity 561,364 517,953 ----------- ----------- Total Liabilities and Stockholder's Equity $ 1,419,380 $ 1,412,166 =========== =========== The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
68 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SECOND QUARTER 2003 vs. SECOND QUARTER 2002 AND YEAR-TO-DATE 2003 vs. YEAR-TO-DATE 2002 RESULTS OF OPERATIONS Earnings Mississippi Power's net income after dividends on preferred stock for the second quarter and year-to-date 2003 was $53.1 million and $74.5 million, respectively, compared to $20.8 million and $34.8 million for the corresponding periods of 2002. Earnings increased by $32.3 million, or 155.2%, in the second quarter 2003 and $39.7 million, or 114.1%, year-to-date 2003 due primarily to a pre-tax gain of $62 million related to the termination of a PPA with Dynegy. Reference is made to Note (M) to the Condensed Financial Statements herein for additional information regarding the termination of this PPA. Significant income statement items appropriate for discussion include the following:
Increase (Decrease) -------------------------------------------------------------------- Second Quarter Year-To-Date ------------------------------------ ------------------------------- (in thousands) % (in thousands) % Retail sales.................................. $ (4,543) (3.3) $ (9,040) (3.5) Sales for resale - non-affiliates............. 7,138 13.7 25,411 24.4 Sale for resale - affiliates.................. (4,791) (45.8) (8,181) (40.8) Contract termination.......................... 62,111 N/M 62,111 N/M Fuel expense.................................. (11,176) (16.7) (20,254) (16.0) Purchased power - non-affiliates.............. 95 2.2 4,071 56.1 Purchased power - affiliates.................. 7,368 70.9 20,294 114.1 Other operation expense....................... 12,640 34.1 12,442 17.2 Maintenance expense........................... (1,855) (9.0) (8,266) (20.0) N/M Not meaningful
Retail sales. Retail sales revenue decreased by $4.5 million, or 3.3%, in the second quarter 2003 and $9 million, or 3.5%, year-to-date 2003 when compared to the same periods in 2002. During the second quarter and year-to-date 2003, retail sales revenues were down due mainly to decreased energy sales to residential and industrial customers. The primary reasons for these decreases in energy sales were milder weather and the continued economic slowdown in Mississippi Power's service area. Sales for resale - non-affiliates. In the second quarter and year-to-date 2003, sales for resale to non-affiliates increased when compared to the same periods in 2002 mainly due to increased prices associated with non-territorial energy sales. 69 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Sales for resale - affiliates and Purchased power - affiliates. Revenues from sales for resale to affiliated companies, as well as purchases of energy, within the Southern Company system will vary depending on demand and the availability and cost of generating resources at each company. These transactions do not have a significant impact on earnings since the energy is generally sold at marginal cost and energy purchases are generally offset by energy revenues through Mississippi Power's retail and wholesale fuel cost recovery clauses. Contract termination. In the second quarter and year-to-date 2003, this item reflects the $62 million of revenues recorded upon the termination of a PPA with Dynegy. Reference is made to Note (M) to the Condensed Financial Statements herein for additional information. Fuel expense and Purchased power - non-affiliates. During the second quarter and year-to-date 2003, fuel expense decreased and purchased power from non-affiliates increased when compared to the same periods in 2002 due to opportunities to purchase some power more economically than to generate it and due to a 1.5% reduction in demand for energy on a year-to-date basis. Since energy expenses are generally offset by energy revenues through Mississippi Power's retail and wholesale fuel cost recovery clauses, these expenses do not have a significant impact on earnings. Other operation expense. The increases in this item during the second quarter and year-to-date 2003 when compared to the corresponding periods in 2002 were caused primarily by the costs incurred in conjunction with restructuring the lease agreement for the combined cycle generating units at Plant Daniel. Reference is made to Note (R) to the Condensed Financial Statements herein for additional information. Maintenance expense. In the second quarter and year-to-date 2003, maintenance expenses were down when compared to the same periods in 2002 primarily due to scheduled maintenance performed at Plant Watson and Plant Daniel in 2002. Future Earnings Potential The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors including regulatory matters and the effect of weather and the economy on energy sales. For additional information relating to these issues, see Item 1 - - BUSINESS - "Risk Factors" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of Mississippi Power in the Form 10-K. Mississippi Power's business activities are subject to extensive governmental regulation related to public health and the environment. Litigation over environmental issues and claims of various types, including property damage, personal injury and citizen enforcement of environmental requirements, has increased generally throughout the United States. In particular, personal injury claims for damages caused by alleged exposure to hazardous materials have become more frequent. The ultimate outcome of such litigation currently filed against Mississippi Power cannot be predicted at this time; however, after consultation with legal counsel, management does not anticipate that the liabilities, if any, arising from such proceedings would have a material adverse effect on Mississippi Power's financial statements. 70 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Mississippi Power's 2003 ECO Plan filing was approved, as filed, by the Mississippi PSC on March 18, 2003 and resulted in a slight increase in rates effective April 2003. Compliance costs related to the Clean Air Act and other environmental regulations could affect earnings if such costs cannot continue to be recovered. For additional information about these issues, including the EPA litigation, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" and Note 3 to the financial statements of Mississippi Power in the Form 10-K. Reference is made to Note (E) to the Condensed Financial Statements herein for information regarding a recent ruling by the U.S. Court of Appeals for the Eleventh Circuit. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - FERC Matters" of Mississippi Power in the Form 10-K for information on the formation of an RTO as ordered by the FERC and the notice of proposed rulemaking regarding open access transmission service and standard electricity market design. In April 2003, the FERC issued a White Paper related to its proposed rulemaking regarding open access transmission service and standard electricity market design in an effort to respond to certain of the public comments received on the standard market design proposal. Reactions to the White Paper by Southeastern state regulators reflect significant continuing differences in opinion between the FERC and various state regulatory commissions over questions of jurisdiction and protection of retail customers. These significant differences between state and federal regulators create substantial uncertainty related to the ultimate approval of SeTrans because state commission approval of the transfer of operational control of the transmission assets of Southern Company and its subsidiaries is a prerequisite to the formation of SeTrans. Pending energy legislation may also impact these issues. Any impact of the other FERC proposals on Southern Company and its subsidiaries will depend on the form in which final rules may be ultimately adopted; however, Mississippi Power's revenues, expenses, assets and liabilities could be adversely affected by changes in the transmission regulatory structure in its regional power market. Reference is made to Note (M) to the Condensed Financial Statements herein for information regarding a one-time gain of $38 million upon the amendment and termination of a PPA between Dynegy and Mississippi Power. In accordance with the amended PPA, Mississippi Power will recognize capacity revenues totaling approximately $8.8 million for the period from June through October 2003. Under the original terms of the PPAs, Mississippi Power would have recognized revenue of approximately $1.8 million for the remaining period of 2003 following the termination. Also as a result of this PPA termination, Mississippi Power continues to review alternatives for remarketing this capacity. The final outcome of this matter cannot now be determined. Reference is made to Notes (A), (E), (H), (M), (Q) and (R) to the Condensed Financial Statements herein for discussion of various contingencies and other matters which may affect future earnings potential. Accounting Policies Critical Policies Mississippi Power's significant accounting policies are described in Note 1 to the financial statements of Mississippi Power in Item 8 of the Form 10-K. Mississippi Power's critical accounting policies involve rate regulation and lease accounting. 71 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Mississippi Power is subject to the provisions of FASB Statement No. 71, "Accounting for the Effects of Certain Types of Regulation." In the event that a portion of Mississippi Power's operations is no longer subject to these provisions, Mississippi Power would be required to write off related regulatory assets and liabilities that are not specifically recoverable and determine if any other assets, including plant, have been impaired. Additionally, Mississippi Power accounts for its lease of two generating units at Plant Daniel totaling 1,064 megawatts of capacity as an operating lease. Reference is made to Note (R) of the Condensed Financial Statements herein for an explanation of the restructuring activity that took place during the second quarter of 2003 to allow for continued off-balance sheet accounting treatment. Effective July 1, 2003, FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" would have required Mississippi Power to consolidate the assets and liabilities of Escatawpa Funding, Limited Partnership ("Escatawpa"), the special purpose entity, from which Mississippi Power leased the units. Under the restructured lease with Juniper Capital, consolidation is not required. New Accounting Standards Reference is made to Note (J) to the Condensed Financial Statements herein for information regarding the adoption of FASB Statement No. 143, "Accounting for Asset Retirement Obligations" effective January 1, 2003. Statement No. 143 establishes new accounting and reporting standards for legal obligations associated with the ultimate cost of retiring long-lived assets. The present value of the ultimate costs for an asset's future retirement must be recorded in the period in which the liability is incurred. The cost must be capitalized as part of the related long-lived asset and depreciated over the asset's useful life. Additionally, Statement No. 143 does not permit non-regulated companies to continue accruing future retirement costs for long-lived assets that they do not have a legal obligation to retire. Prior to January 2003, Mississippi Power accrued for the ultimate cost of retiring most long-lived assets over the life of the related asset through depreciation expense. FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. This interpretation applies to guarantees issued or modified after December 31, 2002. In accordance with FASB Interpretation No. 45, Mississippi Power has recorded a $16 million liability for the fair value of its residual value guarantee associated with the lease of two generating units at Plant Daniel. FASB Interpretation No. 46 requires the primary beneficiary of a variable interest entity to consolidate the related assets and liabilities. On July 1, 2003, Mississippi Power adopted Interpretation No. 46 with no financial statement impact following the completion of restructuring the lease arrangement for the combined cycle generating units at Plant Daniel. See Financial Condition - - "Off-Balance Sheet Financing Arrangements" and Note (R) to the Condensed Financial Statements herein for further information on the lease restructuring. 72 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION In May 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," which requires classification of certain financial instruments within its scope, including shares that are mandatorily redeemable, as liabilities. Statement No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise on July 1, 2003 for calendar year companies. In accordance with Statement No. 150, Mississippi Power reclassified $35 million of mandatorily redeemable preferred securities as liabilities effective July 1, 2003. The implementation of Statement No. 150 did not have a material effect on Mississippi Power's Statements of Income and Cash Flows. FINANCIAL CONDITION Overview Major changes in Mississippi Power's financial condition during the first six months of 2003 included the addition of approximately $26.6 million to utility plant. The funds for these additions and other capital requirements were derived primarily from operating activities. See Mississippi Power's Condensed Statements of Cash Flows herein for further details. Off-Balance Sheet Financing Arrangements In May 2001, Mississippi Power began the initial 10-year term of an operating lease agreement with Escatawpa, a special purpose entity, to use a combined-cycle generating facility located at Mississippi Power's Plant Daniel. The facility cost approximately $370 million. Reference is made to Note 8 to the financial statements of Mississippi Power in Item 8 of the Form 10-K under "Lease Agreements", "Critical Policies" above and Note (R) to the Condensed Financial Statements herein for additional information. In June 2003, Escatawpa sold its ownership interests in the facility to Juniper Capital L.P. ("Juniper"). Simultaneously, Juniper entered into a restructured lease agreement with Mississippi Power. The terms of the lease with Juniper are substantially the same as the lease with Escatawpa. In accordance with FASB Interpretation No. 46, Mississippi Power is not required to consolidate the leased assets and related liabilities. Furthermore, the restructured lease agreement is an operating lease under FASB Statement No. 13, "Accounting for Leases." Accordingly, the lease is not reflected on the condensed balance sheet of Mississippi Power. Credit Rating Risk Mississippi Power does not have any credit agreements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade. There are certain fixed-price physical gas purchase contracts that could require collateral -- but not accelerated payment -- in the event of a credit rating change to below investment grade; however, at June 30, 2003, this exposure was immaterial. Exposure to Market Risks Mississippi Power's market risk exposures relative to interest rate changes have not changed materially compared with the December 31, 2002 reporting period. In addition, Mississippi Power is not aware of any facts or circumstances that would significantly affect such exposures in the near term. 73 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Due to cost-based rate regulation, Mississippi Power has limited exposure to market volatility in interest rates, commodity fuel prices and prices of electricity. To mitigate residual risks relative to movements in electricity prices, Mississippi Power enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market and, to a lesser extent, similar contracts for gas purchases. Mississippi Power has also implemented retail fuel hedging programs at the instruction of its PSC and wholesale fuel hedging programs under agreements with wholesale customers. The fair value of derivative, fuel and energy contracts was as follows: Second Quarter 2003 Year-to-Date Changes Changes ---------------------------------- ---------------------------------------- Fair Value ---------------------------------- ---------------------------------------- (in thousands) Contracts beginning of period $13,306 $12,864 Contracts realized or settled (5,176) (9,327) New contracts at inception - - Changes in valuation techniques - - Current period changes 579 5,172 ---------------------------------- ------------------------ --------------- Contracts at June 30, 2003 $8,709 $8,709 ================================== ======================== =============== Source of June 30, 2003 Valuation Prices --------------------------- --------------- --------------------------- Total Maturity --------------------------- Fair Value Year 1 1-3 Years --------------------------- ------------------------------------------- (in thousands) Actively quoted $8,709 $8,646 $63 External sources - - - Models and other methods - - - --------------------------- --------------- ------------- ------------- Contracts at June 30, 2003 $8,709 $8,646 $63 =========================== =============== ============= ============= Unrealized gains and losses from mark to market adjustments on contracts related to the retail and wholesale fuel hedging programs are recorded as regulatory assets and liabilities. Realized gains and losses from these programs are included in fuel expense and are recovered through Mississippi Power's energy cost management clauses. Reference is made to Note 1 to the financial statements of Mississippi Power under "Financial Instruments" in Item 8 of the Form 10-K regarding the respective approvals of the retail and wholesale energy cost management clauses. Gains and losses on contracts that do not represent hedges are recognized in the Statements of Income as incurred. At June 30, 2003, the fair value of derivative energy contracts reflected in the financial statements was as follows: Amounts --------------------------------------- -------------------- (in thousands) Regulatory liabilities, net $8,752 Other comprehensive income - Net loss (43) --------------------------------------- ------------------------- Total fair value $8,709 ======================================= ========================= 74 MISSISSIPPI POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION For the quarter and year-to-date periods ended June 30, 2003 and 2002, the realized gains and losses recognized in income were immaterial. For additional information, reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Market Price Risk" of Mississippi Power in the Form 10-K and Note 1 to the financial statements of Mississippi Power in Item 8 of the Form 10-K. Financing Activities In April 2003, Mississippi Power issued $90 million of Series E 5-5/8% Senior Notes due May 1, 2033. The proceeds from this sale were used to repay at maturity $35 million of Mississippi Power's Series B 6.05% Senior Notes due May 1, 2003, to redeem the $51.6 million outstanding principal amount of Mississippi Power's Series A 6.75% Senior Insured Quarterly Notes due June 30, 2038 and to repay a portion of Mississippi Power's outstanding short-term indebtedness. Mississippi Power plans to continue, to the extent possible, a program to retire higher-cost debt and replace these securities with lower-cost capital. Capital Requirements Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of Mississippi Power under "Capital Requirements for Construction," "Environmental Matters" and "Other Capital Requirements" and Note 3 to the financial statements in the Form 10-K for a description of Mississippi Power's capital requirements for its construction program, environmental compliance efforts and maturities of long-term debt. Sources of Capital In addition to the financing activities previously described herein, Mississippi Power plans to obtain the funds required for construction and other purposes from sources similar to those used in the past. The amount, type and timing of any financings -- if needed -- will depend upon maintenance of adequate earnings, regulatory approval, prevailing market conditions and other factors. See Item 1 - BUSINESS - "Financing Programs" in the Form 10-K for additional information. Mississippi Power's current liabilities exceed current assets due to scheduled maturities of long-term debt. To meet short-term cash needs and contingencies, Mississippi Power had at June 30, 2003 approximately $55.5 million of cash and cash equivalents and $99.5 million of unused committed credit arrangements with banks that expire in 2003 and 2004. Approximately $37 million of these credit arrangements contain provisions allowing two-year term loans executable at expiration date. The credit arrangements provide liquidity support to Mississippi Power's obligations with respect to variable rate pollution control bonds and commercial paper. Mississippi Power may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper and extendible commercial notes at the request and for the benefit of Mississippi Power and other Southern Company subsidiaries. At June 30, 2003, Mississippi Power had no outstanding commercial paper. Management believes that the need for working capital can be adequately met by utilizing lines of credit without maintaining large cash balances. 75 SAVANNAH ELECTRIC AND POWER COMPANY 76
SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) For the Three Months For the Six Months Ended June 30, Ended June 30, 2003 2002 2003 2002 ------- ------ ----- ------ (in thousands) (in thousands) Operating Revenues: Retail sales $75,468 $74,293 $139,014 $129,240 Sales for resale -- Non-affiliates 1,773 2,097 3,807 3,030 Affiliates 912 1,264 3,236 2,162 Other revenues 757 706 1,835 1,306 ------- ------- -------- -------- Total operating revenues 78,910 78,360 147,892 135,738 ------- ------- -------- -------- Operating Expenses: Operation -- Fuel 12,594 14,148 24,019 23,076 Purchased power -- Non-affiliates 1,390 2,067 3,402 3,134 Affiliates 22,080 17,396 41,093 29,523 Other 13,882 12,926 26,981 25,998 Maintenance 6,689 7,447 12,599 12,772 Depreciation and amortization 5,088 6,079 10,149 12,588 Taxes other than income taxes 3,652 3,703 7,099 7,188 ------- ------- -------- -------- Total operating expenses 65,375 63,766 125,342 114,279 ------- ------- -------- -------- Operating Income 13,535 14,594 22,550 21,459 Other Income and (Expense): Interest expense, net of amounts capitalized (2,473) (2,705) (5,094) (5,474) Distributions on preferred securities of subsidiary (685) (685) (1,370) (1,370) Other income (expense), net (361) 93 (570) (533) ------- ------- -------- -------- Total other income and (expense) (3,519) (3,297) (7,034) (7,377) ------- ------- -------- -------- Earnings Before Income Taxes 10,016 11,297 15,516 14,082 Income taxes 3,720 4,262 5,711 5,245 ------- --------- -------- -------- Net Income $ 6,296 $ 7,035 $ 9,805 $ 8,837 ======= ========= ======== ======== The accompanying notes as they relate to Savannah Electric are an integral part of these condensed financial statements.
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SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended June 30, 2003 2002 -------- -------- (in thousands) Operating Activities: Net income $ 9,805 $ 8,837 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 11,197 12,968 Deferred income taxes and investment tax credits, net 521 (6,056) Pension, postretirement, and other employee benefits 3,203 3,153 Other, net 4,085 (3,188) Changes in certain current assets and liabilities -- Receivables, net (3,986) 2,207 Fossil fuel stock (1,951) 1,056 Materials and supplies (278) 3,712 Other current assets 2,469 (3,150) Accounts payable (4,168) 4,120 Taxes accrued 2,044 (561) Other current liabilities (5,808) 2,067 --------- -------- Net cash provided from operating activities 17,133 25,165 --------- -------- Investing Activities: Gross property additions (19,557) (20,432) Other 298 510 --------- -------- Net cash used for investing activities (19,259) (19,922) --------- -------- Financing Activities: Increase in notes payable, net 29,054 4,351 Proceeds -- Pollution control bonds 13,870 - Other long-term debt - 159 Capital contributions from parent company 5,860 1,267 Redemptions -- First mortgage bonds - (436) Pollution control bonds (13,870) - Senior notes (20,000) - Other long-term debt (463) - Payment of common stock dividends (11,500) (11,350) Other (149) (25) --------- -------- Net cash provided from (used for) financing activities 2,802 (6,034) --------- -------- Net Change in Cash and Cash Equivalents 676 (791) Cash and Cash Equivalents at Beginning of Period 3,978 2,391 --------- -------- Cash and Cash Equivalents at End of Period $ 4,654 $ 1,600 ========= ======== Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of $113 and $148 capitalized for 2003 and 2002, respectively) $5,946 $5,536 Income taxes (net of refunds) $403 $15,148 The accompanying notes as they relate to Savannah Electric are an integral part of these condensed financial statements.
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SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At June 30, At December 31, Assets 2003 2002 - ------ ---------- --------------- (in thousands) Current Assets: Cash and cash equivalents $ 4,654 $ 3,978 Receivables -- Customer accounts receivable 24,264 22,631 Unbilled revenues 13,474 11,531 Other accounts and notes receivable 1,711 2,937 Affiliated companies 2,792 1,102 Accumulated provision for uncollectible accounts (735) (682) Fossil fuel stock, at average cost 10,280 8,328 Materials and supplies, at average cost 9,864 9,586 Prepaid taxes 22,385 24,414 Other 2,522 2,066 --------- --------- Total current assets 91,211 85,891 --------- --------- Property, Plant, and Equipment: In service 894,856 880,604 Less accumulated provision for depreciation 428,014 416,232 --------- --------- 466,842 464,372 Construction work in progress 11,722 6,082 --------- --------- Total property, plant, and equipment 478,564 470,454 --------- --------- Other Property and Investments 2,117 3,648 --------- --------- Deferred Charges and Other Assets: Deferred charges related to income taxes 10,886 11,692 Cash surrender value of life insurance for deferred compensation plans 22,147 21,943 Unamortized debt issuance expense 3,767 3,757 Unamortized premium on reacquired debt 7,835 8,103 Other 15,117 11,717 --------- --------- Total deferred charges and other assets 59,752 57,212 --------- --------- Total Assets $ 631,644 $ 617,205 ========= ========- The accompanying notes as they relate to Savannah Electric are an integral part of these condensed financial statements.
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SAVANNAH ELECTRIC AND POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At June 30, At December 31, Liabilities and Stockholder's Equity 2003 2002 - ------------------------------------ ------------ --------------- (in thousands) Current Liabilities: Securities due within one year $ 875 $ 20,892 Notes payable 31,951 2,897 Accounts payable -- Affiliated 11,172 7,889 Other 7,122 15,769 Customer deposits 6,882 6,781 Taxes accrued -- Income taxes 1,311 311 Other 4,361 3,317 Interest accrued 3,039 3,268 Vacation pay accrued 2,481 2,427 Other 9,499 15,233 --------- --------- Total current liabilities 78,693 78,784 --------- --------- Long-term debt 167,606 168,052 --------- --------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 80,933 78,970 Deferred credits related to income taxes 11,093 12,445 Accumulated deferred investment tax credits 8,957 9,289 Employee benefits provisions 36,821 33,619 Other 23,572 16,242 --------- --------- Total deferred credits and other liabilities 161,376 150,565 --------- --------- Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding company junior subordinated notes 40,000 40,000 --------- --------- Common Stockholder's Equity: Common stock, par value $5 per share -- Authorized - 16,000,000 shares Outstanding - 10,844,635 shares Par value 54,223 54,223 Paid-in capital 22,637 16,776 Retained earnings 108,353 110,049 Accumulated other comprehensive loss (1,244) (1,244) --------- --------- Total common stockholder's equity 183,969 179,804 --------- --------- Total Liabilities and Stockholder's Equity $ 631,644 $ 617,205 ========= ========= The accompanying notes as they relate to Savannah Electric are an integral part of these condensed financial statements.
80 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SECOND QUARTER 2003 vs. SECOND QUARTER 2002 AND YEAR-TO-DATE 2003 vs. YEAR-TO-DATE 2002 RESULTS OF OPERATIONS Earnings Savannah Electric's net income for the second quarter and year-to-date 2003 was $6.3 million and $9.8 million, respectively, compared to $7 million and $8.8 million for the corresponding periods of 2002. Earnings in the second quarter were down $0.7 million, or 10.5%, due primarily to higher operating expenses. Year-to-date 2003 earnings were up by $1 million, or 11%, as a result of higher operating revenues and lower interest expenses, which were partially offset by higher operating expenses. Significant income statement items appropriate for discussion include the following:
Increase (Decrease) -------------------------------------------------------------------- Second Quarter Year-To-Date ------------------------------------ ------------------------------- (in thousands) % (in thousands) % Retail sales.................................. $ 1,175 1.6 $ 9,774 7.6 Sales for resale - non-affiliates............. (324) (15.5) 777 25.6 Sale for resale - affiliates.................. (352) (27.8) 1,074 49.7 Fuel expense.................................. (1,554) (11.0) 943 4.1 Purchased power - non-affiliates.............. (677) (32.8) 268 8.6 Purchased power - affiliates.................. 4,684 26.9 11,570 39.2 Other operation expense....................... 956 7.4 983 3.8 Maintenance expense........................... (758) (10.2) (173) (1.4) Depreciation and amortization................. (991) (16.3) (2,439) (19.4) Interest expense, net of amounts capitalized................................ (232) (8.6) (380) (6.9)
Retail sales. Excluding fuel revenues, which do not affect net income, retail sales revenue decreased by $0.5 million, or 1.1%, in the second quarter 2003 and increased by $2.2 million, or 2.7%, year-to-date 2003 when compared to the corresponding periods in 2002. The second quarter 2003 decrease is primarily due to a 5.8% decrease in energy sales to retail customers. Residential and commercial energy sales were down by 8.8% and 6.4%, respectively, reflecting milder-than-normal temperatures and industrial energy sales were up 3.6% when compared to the same period in 2002. The year-to-date 2003 increase is primarily a result of the base rate increase that took effect in June 2002. Year-to-date 2003, energy sales to industrial customers were higher by 10.2% in contrast to energy sales to residential and commercial customers that were down by 0.3% and 2.5%, respectively. The increases in energy sales to the industrial sector are attributed to increased usage by several industrial customers. Residential and commercial energy sales were down slightly reflecting milder than normal weather. 81 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Sales for resale - non-affiliates. The decrease in the second quarter 2003 is mainly due to lower demand for energy by these non-affiliated customers when compared to the same period in 2002. Year-to-date 2003 sales for resale to non-affiliates increased when compared to the same period in 2002 primarily due to increased demand for energy by non-affiliates. These transactions do not have a significant impact on earnings since the energy is usually sold at marginal cost. Sales for resale - affiliates. Revenues from sales for resale to affiliated companies within the Southern Company system will vary depending on demand and the availability and cost of generating resources at each company. These transactions do not have a significant impact on earnings since the energy is generally sold at marginal cost. Fuel expense. The second quarter 2003 decrease in fuel expense is primarily due to lower demand as compared to the corresponding period in 2002. Fuel expense increased year-to-date 2003 due primarily to increased generation related to the higher demand for energy in the first quarter 2003. Since fuel expenses are generally offset by fuel revenues through Savannah Electric's fuel cost recovery clause, these expenses do not have a significant impact on net income. Purchased power - non-affiliates. In the second quarter 2003, purchased power from non-affiliates decreased due to reduced demand for energy from non-affiliates. Year-to-date 2003 purchased power from non-affiliates increased because of the opportunity to purchase this energy at a cost lower than self-generation in the first quarter 2003 as compared to the same period in 2002. These transactions do not have a significant impact on earnings, as energy costs are generally recovered through Savannah Electric's fuel cost recovery clause. Purchased power - affiliates. The increases in purchased power from affiliates in the second quarter and year-to-date 2003 were directly related to the new PPA with Southern Power which became effective June 2002. The annual capacity costs of this PPA are approximately $14.0 million. Capacity costs of purchased power are generally recovered through base rates and the energy component is recovered through the fuel cost recovery clause. Purchased power from affiliates also includes energy purchases which will vary depending on demand and cost of generation resources at each company. These energy costs are recovered through the fuel cost recovery clause and have no significant impact on earnings. Other operation expense. The increases for the second quarter and year-to-date 2003 are attributed to an increase in administrative and general expenses primarily relating to employee benefits and to new marketing programs when compared to the same periods in the prior year. Maintenance expense. The decreases in the second quarter and year-to-date 2003 are related to scheduled maintenance outages at one of Savannah Electric's steam plants. Depreciation and amortization. During the second quarter and year-to-date 2003, this item decreased mainly due to discontinued accelerated depreciation and the amortization of the related regulatory liability that began in June 2002, in accordance with the 2002 base rate order. Interest expense, net of amounts capitalized. This expense decreased in the second quarter and year-to-date 2003 as a result of a lower amount of debt outstanding and lower interest rates when compared to the corresponding periods in 2002. 82 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Future Earnings Potential The results of operations discussed above are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors which include maintaining a stable regulatory environment and achieving energy sales growth while containing costs. For additional information relating to these issues, reference is made to Item 1 - BUSINESS - "Risks Factors" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of Savannah Electric in the Form 10-K. Savannah Electric's business activities are subject to extensive governmental regulation related to public health and the environment. Litigation over environmental issues and claims of various types, including property damage, personal injury and citizen enforcement of environmental requirements, has increased generally throughout the United States. In particular, personal injury claims for damages caused by alleged exposure to hazardous materials have become more frequent. The ultimate outcome of such litigation currently filed against Savannah Electric cannot be predicted at this time; however, after consultation with legal counsel, management does not anticipate that the liabilities, if any, arising from such proceedings would have a material adverse effect on Savannah Electric's financial position, results of operations or cash flows. Compliance costs related to the Clean Air Act and other environmental regulations could affect earnings if such costs cannot be recovered. For additional information about these issues, including the EPA litigation, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" and Note 3 to the financial statements of Savannah Electric in the Form 10-K. Reference is made to Note (E) to the Condensed Financial Statements herein for information regarding a recent ruling by the U.S. Court of Appeals for the Eleventh Circuit. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - FERC Matters" of Savannah Electric in the Form 10-K for information on the formation of an RTO as ordered by the FERC and the notice of proposed rulemaking regarding open access transmission service and standard electricity market design. In April 2003, the FERC issued a White Paper related to its proposed rulemaking regarding open access transmission service and standard electricity market design in an effort to respond to certain of the public comments received on the standard market design proposal. Reactions to the White Paper by Southeastern state regulators reflect significant continuing differences in opinion between the FERC and various state regulatory commissions over questions of jurisdiction and protection of retail customers. These significant differences between state and federal regulators create substantial uncertainty related to the ultimate approval of SeTrans because state commission approval of the transfer of operational control of the transmission assets of Southern Company and its subsidiaries is a prerequisite to the formation of SeTrans. Pending energy legislation may also impact these issues. Any impact of the other FERC proposals on Southern Company and its subsidiaries will depend on the form in which final rules may be ultimately adopted; however, Savannah Electric's revenues, expenses, assets, and liabilities could be adversely affected by changes in the transmission regulatory structure in its regional power market. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of Savannah Electric in the Form 10-K for information on plans to retire a 102 megawatt peaking facility in May 2005 and a fifteen-year PPA with Southern Power to purchase 200 megawatts of capacity beginning in June 2005 from the planned combined-cycle plant at Plant McIntosh to be built and owned by Southern Power. The annual capacity cost is expected to be approximately $14.5 million. Reference is made to Note (P) to the Condensed Financial Statements herein for information regarding the FERC approval process for this PPA. 83 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Reference is made to Notes (A), (E), (H) and (P) to the Condensed Financial Statements herein for discussion of various contingencies and other matters which may affect future earnings potential. Accounting Policies Critical Policy Savannah Electric's significant accounting policies are described in Note 1 to the financial statements of Savannah Electric in Item 8 of the Form 10-K. Savannah Electric's critical accounting policy involves rate regulation. Savannah Electric is subject to the provisions of FASB Statement No. 71, "Accounting for the Effects of Certain Types of Regulation." In the event that a portion of Savannah Electric's operations is no longer subject to these provisions, Savannah Electric would be required to write off related regulatory assets and liabilities that are not specifically recoverable and determine if any other assets have been impaired. New Accounting Standards Reference is made to Note (J) to the Condensed Financial Statements herein for information regarding the adoption of FASB Statement No. 143, "Accounting for Asset Retirement Obligations" effective January 1, 2003. Statement No. 143 establishes new accounting and reporting standards for legal obligations associated with the ultimate cost of retiring long-lived assets. The present value of the ultimate costs for an asset's future retirement must be recorded in the period in which the liability is incurred. The cost must be capitalized as part of the related long-lived asset and depreciated over the asset's useful life. Additionally, Statement No. 143 does not permit non-regulated companies to continue accruing future retirement costs for long-lived assets that they do not have a legal obligation to retire. Prior to January 2003, Savannah Electric accrued for the ultimate cost of retiring most long-lived assets over the life of the related asset through depreciation expense. In May 2003, the FASB issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," which requires classification of certain financial instruments within its scope, including shares that are mandatorily redeemable, as liabilities. Statement No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise on July 1, 2003 for calendar year companies. In accordance with Statement No. 150, Savannah Electric reclassified $40 million of mandatorily redeemable preferred securities as liabilities effective July 1, 2003. The implementation of Statement No. 150 did not have a material effect on Savannah Electric's Statements of Income and Cash Flows. FINANCIAL CONDITION Overview Major changes in Savannah Electric's financial condition during the first six months of 2003 included the addition of approximately $19.6 million to utility plant. The funds for these additions and other capital requirements were derived primarily from operations and the issuance of securities. See Savannah Electric's Condensed Statements of Cash Flows herein for further details. 84 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Credit Rating Risk Savannah Electric does not have any credit agreements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade. Exposure to Market Risks Savannah Electric's market risk exposures relative to interest rate changes have not changed materially compared with the December 31, 2002 reporting period. In addition, Savannah Electric is not aware of any facts or circumstances that would significantly affect such exposures in the near term. Due to cost-based rate regulations, Savannah Electric has limited exposure to market volatility in interest rates, commodity fuel prices and prices of electricity. To mitigate residual risks relative to movements in electricity prices, Savannah Electric enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market and, to a lesser extent, similar contracts for gas purchases. Savannah Electric has also implemented a retail fuel hedging program at the instruction of the Georgia PSC. The fair value of derivative energy contracts at June 30, 2003 was as follows: Second Quarter 2003 Year-to-Date Changes Changes --------------------------------- ---------------------------------------- Fair Value --------------------------------- ---------------------------------------- (in thousands) Contracts beginning of period $1,270 $ 626 Contracts realized or settled (1,130) (1,130) New contracts at inception - - Changes in valuation techniques - - Current period changes 37 681 --------------------------------- ------------------------ --------------- Contracts at June 30, 2003 $177 $177 ================================= ======================== =============== Source of June 30, 2003 Valuation Prices ------------------------------ ------------- ----------------------------- Total Maturity ----------------------------- Fair Value Year 1 1-3 Years ------------------------------ ------------------------------------------- (in thousands) Actively quoted $177 $537 $(360) External sources - - - Models and other methods - - - ------------------------------ ------------- -------------- -------------- Contracts at June 30, 2003 $177 $537 $(360) ============================== ============= ============== ============== Unrealized gains and losses from mark to market adjustments on contracts related to the retail fuel hedging programs are recorded as regulatory assets and liabilities. At June 30, 2003, Savannah Electric had approximately $0.2 million in regulatory liabilities related to unrealized gains on mark to market derivative contracts associated with its fuel hedging programs. Gains and losses on contracts that do not represent hedges are recognized in the Statements of Income as incurred. For the three months and six months ended June 30, 2003 and 2002, these amounts were not material. 85 SAVANNAH ELECTRIC AND POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION For additional information, reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Exposure to Market Risks" of Savannah Electric in the Form 10-K and Note 1 to the financial statements of Savannah Electric in Item 8 of the Form 10-K. Financing Activities In February 2003, Savannah Electric sold through a public authority an aggregate principal amount of $13.87 million of variable rate Pollution Control Revenue Bonds, Series 2003 due February 1, 2038. The proceeds from this sale, together with any investment proceeds and other moneys of Savannah Electric, were used to redeem $13.87 million aggregate principal amount of Pollution Control Revenue Bonds, Series 1997. The 2003 bonds will bear interest at a rate to be determined by the auction rate process. In July 2003, Savannah Electric entered a swap to hedge interest payments associated with an anticipated debt issuance planned in December 2003. The swap is for a notional amount of $25 million at a fixed interest rate of 5.025% and matures in December 2013. Savannah Electric plans to continue, to the extent possible, a program to retire higher-cost debt and replace these securities with lower-cost capital. Capital Requirements Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of Savannah Electric under "Capital Requirements for Construction," "Other Capital Requirements" and "Environmental Matters" in the Form 10-K for a description of Savannah Electric's capital requirements for its construction program, maturing debt and environmental compliance efforts. Sources of Capital Savannah Electric plans to obtain the funds required for construction and other purposes from sources similar to those used in the past. The amount, type and timing of any financings -- if needed -- will depend upon maintenance of adequate earnings, regulatory approval, prevailing market conditions and other factors. See Item 1 - BUSINESS - "Financing Programs" in the Form 10-K for additional information. To meet short-term cash needs and contingencies, Savannah Electric had at June 30, 2003 approximately $4.7 million of cash and cash equivalents and $55 million of unused committed credit arrangements with banks, of which $31 million expires in 2003 and $24 million expires in 2004 and beyond. Of the unused credit arrangements expiring in 2003 and 2004, $30 million includes either one or two year term loan options executable at the expiration date. The credit arrangements provide liquidity support to some of Savannah Electric's obligations with respect to its variable rate debt and its commercial paper. Savannah Electric may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper and extendible commercial notes at the request and for the benefit of Savannah Electric and other Southern Company subsidiaries. At June 30, 2003, Savannah Electric had $32 million of outstanding commercial paper. Since Savannah Electric has no major generating plants under construction, management believes that the need for working capital can be adequately met by utilizing lines of credit. 86 SOUTHERN POWER COMPANY 87
SOUTHERN POWER COMPANY CONDENSED STATEMENTS OF INCOME (UNAUDITED) For the Three Months For the Six Months Ended June 30, Ended June 30, 2003 2002 2003 2002 ----- ------ ----- ------- (in thousands) (in thousands) Operating Revenues: Sales for resale -- Non-affiliates $ 68,997 $ 25,355 $119,266 $ 42,842 Affiliates 86,079 32,337 141,369 34,147 Contract termination 80,000 - 80,000 - Other revenues 3,205 85 5,085 87 --------- --------- -------- --------- Total Operating Revenues 238,281 57,777 345,720 77,076 Operating Expenses: Operation -- Fuel 35,198 19,173 55,236 21,165 Purchased power -- Non-affiliates 16,237 7,611 31,560 10,725 Affiliates 31,670 3,421 49,602 4,791 Other 12,327 6,213 18,235 8,402 Maintenance 303 801 2,480 871 Depreciation and amortization 8,062 3,484 14,606 5,485 Taxes other than income taxes 2,063 802 3,363 1,503 --------- --------- -------- --------- Total operating expenses 105,860 41,505 175,082 52,942 --------- --------- -------- --------- Operating Income 132,421 16,272 170,638 24,134 Other Income and (Expense): Interest expense, net of amounts capitalized (2,944) (1,195) (4,343) (1,195) Other income (expense), net (174) (624) 129 (1,220) --------- --------- -------- --------- Total other income and (expense) (3,118) (1,819) (4,214) (2,415) --------- --------- -------- --------- Earnings Before Income Taxes 129,303 14,453 166,424 21,719 Income taxes 50,013 5,595 64,376 8,406 --------- --------- -------- --------- Earnings Before Cumulative Effect of Accounting Change 79,290 8,858 102,048 13,313 Cumulative effect of accounting change -- less income taxes of $231 thousand - - 367 - --------- --------- -------- --------- Net Income $ 79,290 $ 8,858 $102,415 $ 13,313 ========= ========= ======== ========= The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
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SOUTHERN POWER COMPANY CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended June 30, 2003 2002 ----- ------ (in thousands) Operating Activities: Net income $ 102,415 $ 13,313 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 13,924 6,871 Deferred income taxes and investment tax credits, net 10,514 (1,888) Deferred capacity revenues (10,159) 4,309 Other, net 878 2,671 Changes in certain current assets and liabilities -- Receivables, net (34,680) (37,958) Fossil fuel stock 4,678 342 Materials and supplies (324) 663 Other current assets (7,287) 109 Accounts payable 23,023 17,126 Taxes accrued 46,627 10,780 Interest accrued (3,781) 1,198 Other current liabilities - (631) ----------- --------- Net cash provided from operating activities 145,828 16,905 ----------- --------- Investing Activities: Gross property additions (231,396) (853,256) Change in construction related payables (19,587) (20,390) Other 1,079 (333) ----------- --------- Net cash used for investing activities (249,904) (873,979) ----------- --------- Financing Activities: Increase in notes payable, net 488,326 185,392 Proceeds -- Senior notes - 574,189 Capital contributions from parent company 385 253,772 Redemptions -- Other long-term debt (380,163) (135,000) Other (2,540) (19,629) ----------- --------- Net cash provided from financing activities 106,008 858,724 ----------- --------- Net Change in Cash and Cash Equivalents 1,932 1,650 Cash and Cash Equivalents at Beginning of Period 19,474 3,711 ----------- --------- Cash and Cash Equivalents at End of Period $ 21,406 $ 5,361 ----------- --------- Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of $23,890 and $13,436 capitalized for 2003 and 2002, respectively) $- $- Income taxes (net of refunds) $10,831 $724 The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
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SOUTHERN POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At June 30, At December 31, Assets 2003 2002 - ----- ------------ --------------- (in thousands) Current Assets: Cash and cash equivalents $ 21,406 $ 19,474 Receivables -- Customer accounts receivable 8,350 6,609 Affiliated companies 44,494 11,555 Accumulated provision for uncollectible accounts (350) (350) Fossil fuel stock, at average cost 6,353 11,031 Materials and supplies, at average cost 6,877 6,553 Prepayments 11,419 8,796 Assets from risk management activities 5,601 8,386 Other 6,232 1,568 ---------- ------------ Total current assets 110,382 73,622 ---------- ------------ Property, Plant, and Equipment: In service 1,668,361 896,163 Less accumulated provision for depreciation 35,514 21,590 ` ---------- ------------ 1,632,847 874,573 Construction work in progress 555,136 1,082,987 ---------- ------------ Total property, plant, and equipment 2,187,983 1,957,560 ---------- ------------ Deferred Charges and Other Assets: Accumulated deferred income taxes 36,362 38,591 Unamortized debt issuance expense 15,086 12,177 Other 2,931 4,026 ---------- ------------ Total deferred charges and other assets 54,379 54,794 ---------- ------------ Total Assets $2,352,744 $ 2,085,976 ========== ============ The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
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SOUTHERN POWER COMPANY CONDENSED BALANCE SHEETS (UNAUDITED) At June 30, At December 31, Liabilities and Stockholder's Equity 2003 2002 - ------------------------------------ ----------- -------------- (in thousands) Current Liabilities: Securities due within one year $ 200 $ 200 Notes payable 492,351 - Notes payable to parent 16,663 210,488 Accounts payable -- Affiliated 36,881 37,748 Other 8,825 4,522 Taxes accrued -- Income taxes 47,046 3,915 Other 7,809 4,313 Interest accrued 16,932 20,713 Other 6,305 3,484 ----------- ----------- Total current liabilities 633,012 285,383 ----------- ----------- Long-Term Debt: Senior notes 575,000 575,000 Other long-term debt 1,685 382,089 Unamortized debt (discount) premium, net (1,170) (1,210) ----------- ----------- Long-term debt 575,515 955,879 ----------- ----------- Deferred Credits and Other Liabilities: Obligations under risk management activities 92,983 63,191 Deferred capacity revenues-- Affiliated 8,290 13,075 Other 607 3,147 Other-- Affiliated 15,451 15,644 Other 765 3,053 ----------- ----------- Total deferred credits and other liabilities 118,096 98,110 ----------- ----------- Common Stockholder's Equity: Common stock, par value $.01 per share -- Authorized - 1,000,000 shares Outstanding - 1,000 shares - - Paid-in capital 921,615 731,230 Retained earnings 164,892 62,477 Accumulated other comprehensive loss (60,386) (47,103) ----------- ----------- Total common stockholder's equity 1,026,121 746,604 ----------- ----------- Total Liabilities and Stockholder's Equity $ 2,352,744 $ 2,085,976 =========== =========== The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
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SOUTHERN POWER COMPANY CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) For the Three Months For the Six Months Ended June 30, Ended June 30, ---------------------------- ------------------------- 2003 2002 2003 2002 ---- ---- ---- ---- (in thousands) (in thousands) Net Income $ 79,290 $ 8,858 $ 102,415 $ 13,313 Other comprehensive loss: Changes in fair value of qualifying hedges, net of tax of $(6,164), $(20,285), $(8,564), $(16,397), respectively (10,154) (32,194) (13,987) (26,192) Less: Reclassification adjustment for amounts included in net income, net of tax of $(50), $24, $116, $24, respectively 440 38 704 38 --------- --------- --------- --------- COMPREHENSIVE INCOME $ 69,576 $ (23,298) $ 89,132 $ (12,841) ========= ========= ========= ========= SOUTHERN POWER COMPANY CONDENSED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS (UNAUDITED) At At June 30, December 31, 2003 2002 ----------- -------------- Balance at beginning of period $ (47,103) $ 6,689 Change in current period (13,283) (53,792) ---------- --------- BALANCE AT END OF PERIOD $ (60,386) $ (47,103) ========== ========= The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
92 SOUTHERN POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SECOND QUARTER 2003 vs. SECOND QUARTER 2002 AND YEAR-TO-DATE 2003 vs. YEAR-TO-DATE 2002 RESULTS OF OPERATIONS Earnings Southern Power's net income for second quarter and year-to-date 2003 was $79.3 million and $102.4 million, respectively, compared to $8.9 million and $13.3 million for the corresponding periods of 2002. The increases in earnings of $70.4 million for the second quarter 2003 and $89.1 million year-to-date 2003 can be attributed primarily to an after-tax gain of approximately $50 million related to the termination of PPAs with Dynegy related to Plant Dahlberg Units 8 through 10 and Plant Franklin Unit 3. Reference is made to Note (M) to the Condensed Financial Statements herein for additional information regarding the termination of these PPAs. The other significant factor contributing to increased earnings is the sale of wholesale capacity and energy to affiliated and non-affiliated companies from Plant Wansley Units 6 and 7 and Plant Franklin Unit 1 beginning in June 2002, and Plant Franklin Unit 2 and Plant Harris Units 1 and 2, beginning in June 2003, along with the initiation of PPAs for those units with Alabama Power, Georgia Power and Savannah Electric. Significant income statement items appropriate for discussion include the following:
Increase (Decrease) -------------------------------------------------------------- Second Quarter Year-To-Date ------------------------------- ------------------------------ (in thousands) % (in thousands) % Sales for resale - non-affiliates................ $43,642 172.1 $ 76,424 178.4 Sale for resale - affiliates..................... 53,742 166.2 107,222 N/M Contract termination............................. 80,000 N/M 80,000 N/M Other revenues................................... 3,120 N/M 4,998 N/M Fuel expense..................................... 16,025 83.6 34,071 161.0 Purchased power - non-affiliates................. 8,626 113.3 20,835 194.3 Purchased power - affiliates..................... 28,249 N/M 44,811 N/M Other operation expense.......................... 6,114 98.4 9,833 117.0 Depreciation and amortization.................... 4,578 131.4 9,121 166.3 Interest expense, net of amounts capitalized..... 1,749 146.4 3,148 263.4 N/M Not meaningful
Sales for resale - non-affiliates. During the second quarter and year-to-date 2003, sales for resale to non-affiliates increased as a result of additional wholesale capacity and energy sales to non-affiliates that resulted from commercial operation of Plant Franklin Unit 1, which was not fully obligated under a long-term PPA until June 2003, and test period energy transactions for Plant Franklin Unit 2 and Plant Harris Units 1 and 2 which were placed into commercial operation in June 2003. 93 SOUTHERN POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Sales for resale - affiliates. Energy and capacity sales through PPAs with Alabama Power, Georgia Power and Savannah Electric for the full six months of 2003 caused the majority of the increase in the second quarter and year-to-date 2003 when compared to the same periods in 2002. Revenues from sales to affiliated companies through the Southern Company system power pool ("Southern Pool") and energy sales under PPAs will vary depending on demand and the availability and cost of generating resources at each company within the Southern Pool. Contract termination. For the second quarter and year-to-date 2003, this revenue results from the $80 million received from Dynegy in May 2003 to terminate PPAs related to Plants Dahlberg and Franklin. Reference is made to Note (M) to the Condensed Financial Statements herein for further information. Other revenues. The increases in the second quarter and year-to-date 2003 are primarily due to scheduling and administrative fees on wholesale contracts that were not in place during the first six months of 2002. Fuel expense. The second quarter and year-to-date 2003 increases are primarily attributed to the full period commercial operation of units at Plant Wansley and Plant Franklin Unit 1 as well as commercial operation of new units at Plant Franklin and Plant Harris as mentioned above. Purchased power - non-affiliates. During the second quarter and year-to-date 2003, purchased power from non-affiliates were higher than in the same periods in 2002 mainly due to the availability of power at prices lower than Southern Power's self generation or the Southern Pool and the effects of purchase power provisions in the contracts with the electric membership cooperatives, the City of Dalton, Georgia and the North Carolina Municipal Power Authority 1. Purchased power - affiliates. In the second quarter and year-to-date 2003, purchased power from affiliates increased primarily due to the availability of power at prices lower than Southern Power's self-generation. Expenses from purchased power transactions will vary depending on demand, availability and the cost of generating resources accessible throughout the Southern Company system. Other operation expense. The second quarter and year-to-date 2003 increases result from higher administrative and general expenses due to commercial operation of Plant Wansley Units 6 and 7 and Plant Franklin Unit 1, beginning in June 2002, and Plant Franklin Unit 2 and Plant Harris Units 1 and 2, beginning in June 2003, when compared to the corresponding periods in 2002. Depreciation and amortization. During the second quarter and year-to-date 2003, the increases in depreciation and amortization are primarily attributed to the generating units that were placed into service in June 2002 and 2003 as compared to the same periods in the prior year. Interest expense, net of amounts capitalized. The increases in interest expense, net of amounts capitalized for the second quarter and year-to-date 2003, when compared to the corresponding periods in 2002 are due to the lower percentage of interest costs subject to capitalization as projects have reached completion. 94 SOUTHERN POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Effects of Inflation Southern Power is subject to long-term contracts and income tax laws that are based on the recovery of historical costs. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on Southern Power because of the large investment in generating facilities with long economic lives. Conventional accounting for historical cost does not recognize this economic loss nor the partially offsetting gain that arises through financing facilities with fixed-money obligations such as long-term debt. Future Earnings Potential The results of operations are not necessarily indicative of future earnings. The level of future earnings depends on numerous factors including completion of construction on new generating facilities, regulatory matters, energy sales, creditworthiness of customers, total generating capacity available in the Super Southeast and the remarketing of capacity. For additional information relating to these issues, see Item 1 - BUSINESS - "Risk Factors" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of Southern Power in the Form 10-K. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - General" and to Note 5 to the financial statements of Southern Power in Item 8 of the Form 10-K for additional information on long-term power sales agreements and PPAs. Southern Power's PPAs with non-affiliated counterparties have provisions that require the posting of collateral or an acceptable substitute guarantee in the event that S&P or Moody's downgrades the credit ratings of such counterparty to below-investment grade, or, if the counterparty is not rated, fails to maintain a minimum coverage ratio. The PPAs are expected to provide Southern Power with a stable source of revenue during their respective terms. In June 2003, Southern Power placed Plant Franklin Unit 2 and Plant Harris Units 1 and 2 into commercial operation. Southern Power expects Plant Stanton A to be completed and placed into commercial operation during the third quarter 2003. In 2004, Southern Power's PPA with Georgia Power will begin for Plant Harris Unit 2. PPAs for the other units become effective upon commercial operation. Southern Power also has Plant McIntosh Units 10 and 11 under construction. Reference is made to Note (M) to the Condensed Financial Statements herein for information regarding a one-time gain of $50 million upon the termination of PPAs between Dynegy and Southern Power. Under the original terms of the PPAs, Southern Power would have recognized revenue of approximately $5.9 million for the remaining period of 2003 following the terminations. Because of the termination of these PPAs, Southern Power is exploring alternatives for remarketing its existing capacity and has suspended construction of Plant Franklin Unit 3. Southern Power may complete limited construction activities as needed to preserve the long-term viability of the project. Reference is also made to Note (P) to the Condensed Financial Statements herein for information regarding the FERC approval process for Southern Power's PPAs with Georgia Power and Savannah Electric for Plant McIntosh Units 10 and 11. The final outcome of these matters cannot now be determined. In July 2003, Southern Power entered into a five-year contract with Piedmont Municipal Power Authority (PMPA) beginning January 1, 2006. PMPA is a full requirements provider to 10 South Carolina cities. The contract is projected to yield sales of 135 megawatts in 2006, growing to 181 megawatts in the fifth year of the contract. 95 SOUTHERN POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" of Southern Power in the Form 10-K for information on the development by federal and state environmental regulatory agencies of additional control strategies for emission of air pollution from all major sources of air pollution, particularly electric generating facilities. Compliance costs related to current and future environmental laws and regulations could affect earnings if such costs are not fully recovered. Southern Power's business activities are subject to extensive governmental regulation related to public health and the environment. Litigation over environmental issues and claims of various types, including property damage, personal injury and citizen enforcement of environmental requirements, has increased generally throughout the United States; in particular, personal injury claims for damages caused by alleged exposure to hazardous materials have become more frequent. Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - FERC Matters" of Southern Power in the Form 10-K for information on the formation of an RTO as ordered by the FERC and the notice of proposed rulemaking regarding open access transmission service and standard electricity market design. In April 2003, the FERC issued a White Paper related to its proposed rulemaking regarding open access transmission service and standard electricity market design in an effort to respond to certain of the public comments received on the standard market design proposal. Reactions to the White Paper by Southeastern state regulators reflect significant continuing differences in opinion between the FERC and various state regulatory commissions over questions of jurisdiction and protection of retail customers. These significant differences between state and federal regulators create substantial uncertainty related to the ultimate approval of SeTrans because state commission approval of the transfer of operational control of the transmission assets of Southern Company and its subsidiaries is a prerequisite to the formation of SeTrans. Pending energy legislation may also impact these issues. Any impact of the other FERC proposals on Southern Company and its subsidiaries will depend on the form in which final rules may be ultimately adopted. Reference is also made to Notes (A), (E), (L), (M) and (P) to the Condensed Financial Statements herein for discussion of various contingencies and other matters which may affect future earnings potential. Accounting Policies Critical Policies Southern Power's significant accounting policies are described in Note 1 to the financial statements of Southern Power in Item 8 of the Form 10-K. Southern Power has three critical accounting policies that require a significant amount of judgment and are considered to be the most important to the presentation of Southern Power's financial position and results of operations. The first critical policy is the recognition of capacity revenues from long-term contracts at the lesser of the levelized basis or the cash collected over the contract periods. Second, Southern Power designates qualifying derivative instruments as cash flow or fair value hedges and marks such derivative instruments to market based primarily on quoted market prices. The unrealized changes in fair value of qualifying cash flow hedges are deferred in Other Comprehensive Income. Any ineffectiveness in those hedges and changes in non-qualifying positions are reported as a component of current period income. Finally, Southern Power uses flow-through accounting for state manufacturer's tax credits. This means that Southern Power recognizes the credit as a reduction of tax expense when it is more likely than not to be allowed by the Georgia Department of Revenue. 96 SOUTHERN POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION New Accounting Standards Reference is made to Note (J) to the Condensed Financial Statements herein for information regarding the adoption of FASB Statement No. 143, "Accounting for Asset Retirement Obligations" effective January 1, 2003. Southern Power has no legal liability for asset retirement obligations as defined by FASB Statement No. 143. Upon adoption, Southern Power recorded a cumulative effect of change in accounting principle of $0.6 million, representing previously accrued removal costs. FINANCIAL CONDITION Overview The major change in Southern Power's financial condition during the first six months of 2003 was the addition of approximately $231.4 million to utility plant related to on-going construction of Southern Power's combined-cycle units. The funds for these additions were provided by Southern Power's credit facility, commercial paper program and subordinated loans from Southern Company. See Southern Power's Condensed Statements of Cash Flows herein for further details. Credit Rating Risk Southern Power does not have any credit agreements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade. There are certain physical electricity sale contracts, fixed-price physical gas purchases and agreements covering interest rate swaps and currency swaps that could require collateral -- but not accelerated payment -- in the event of a credit rating change to below investment grade. Generally, collateral may be provided for by a Southern Company guaranty, letter of credit or cash. At June 30, 2003, the maximum potential collateral requirements under the electricity sale contracts and financial instrument agreements were approximately $154 million. At June 30, 2003, there were no material collateral requirements for the gas purchase contracts. Exposure to Market Risks Southern Power is exposed to market risks, including changes in interest rates, currency exchange rates and certain commodity prices. To manage the volatility attributable to these exposures, Southern Power nets the exposure to take advantage of natural offsets and enters into various derivative transactions for the remaining exposure pursuant to approved risk management policies in areas such as counterparty exposure and hedging practices. Southern Power's policy is that derivatives are to be used primarily for hedging purposes. Derivative positions are monitored using techniques that include market valuation and sensitivity analysis. 97 SOUTHERN POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Southern Power has no outstanding variable rate long-term debt. To mitigate Southern Power's exposure to interest rates, it entered into interest rate swaps that were designated as cash flow hedges of interest expenses arising from the 2003 planned debt issuances. Changes in the fair values of these swaps are deferred in Other Comprehensive Income. Upon the issuance of the debt in July 2003, the swaps were settled at a loss of approximately $93.3 million that will be amortized to expense over the appropriate periods. Reference is made to Note (L) to the Condensed Financial Statements herein for additional information. Based on Southern Power's overall interest rate exposure at June 30, 2003, including derivative and other interest-rate sensitive instruments, a near-term 100 basis-point change in interest rates would not materially affect Southern Power's financial statements. In addition, Southern Power is not aware of any facts or circumstances that would significantly affect such exposures in the near term. Because energy from Southern Power's facilities is primarily sold under long-term contracts with tolling agreements and provisions shifting substantially all of the responsibility for fuel cost to the PPA counterparties, Southern Power's exposure to market volatility in commodity fuel prices and prices of electricity is limited. To mitigate residual risks in those areas, Southern Power enters into fixed-price contracts for the purchase or sale of fuel and electricity. In connection with the transfers of Plant Franklin in 2001 and Plant Wansley in 2002 to Southern Power, Georgia Power transferred approximately $5.6 million and $1.6 million, respectively, in derivative assets relating to electric and gas forward contracts in effect at the date of the transfers. These contracts were recorded at fair value on the date of the transfer, which was equal to Georgia Power's carrying amount. Following the transfer, these contracts are being marked to market through income until completely realized and settled in August 2003. Southern Power had firm purchase commitments that required payment in Euros. As a hedge against fluctuations in the exchange rate for Euros, Southern Power entered into forward contracts to purchase Euros and had designated these contracts as fair value hedges of an unrecognized firm commitment. Since the terms of these Euro contracts mirrored the purchase commitment terms, there was no ineffectiveness recognized in income. All Euro payments have been made and the gains associated with the hedges effectively reduced the purchase price of the equipment, which is included in construction work in progress. As of June 30, 2003, there were no additional Euro hedges outstanding. Unrealized gains and losses on electric and gas contracts used to hedge anticipated purchases and sales are deferred in Other Comprehensive Income. Gains and losses on contracts that do not represent hedges are recognized in the Statements of Income as incurred. The fair values of derivative energy contracts at June 30, 2003 were as follows: Second Quarter 2003 Year-to-Date Changes Changes ----------------------------------- ---------------------------------------- Fair Value ----------------------------------- ---------------------------------------- (in thousands) Contracts beginning of period $1,875 $3,864 Contracts realized or settled (2,825) (3,490) New contracts at inception - - Changes in valuation techniques - - Current period changes 246 (1,078) ----------------------------------- ------------------------ --------------- Contracts at June 30, 2003 $ (704) $ (704) =================================== ======================== =============== 98 SOUTHERN POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION At June 30, 2003, all of these contracts are based on actively quoted market prices. Realized gains and losses on hedged transactions are recognized in revenues and/or fuel expense in the Statements of Income as incurred. For the three months ended June 30, 2003 and 2002, approximately $0.2 million and $1.3 million of losses, respectively, were recognized in Other Income in the Statements of Income. For the six months ended June 30, 2003 and 2002, approximately $0.1 million of gains and $2.6 million of losses, respectively, were recognized in Other Income in the Statements of Income. Financing Activities During the first six months of 2003, Southern Company made subordinated loans to Southern Power of approximately $3.8 million, net of repayments. In March 2003, $190 million of notes payable to Southern Company were converted to a capital contribution from Southern Company. Equity contributions and subordinated loans from Southern Company are projected to total approximately $900 million to Southern Power by the end of 2003. No dividends are projected to be paid in 2003. In July 2003, Southern Power issued $575 million of 4.875% Senior Notes, Series C due July 15, 2015. The proceeds from the sale were used to repay a substantial portion of existing short-term indebtedness, to settle interest rate hedges associated with this financing and for general corporate purposes. Reference is made to Note (L) to the Condensed Financial Statements herein for information regarding these hedges. Capital Requirements Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Capital Requirements for Construction" and "Other Capital Requirements" of Southern Power in the Form 10-K for a description of Southern Power's capital requirements for its construction program, maturing debt, purchase commitments and long-term service agreements. Sources of Capital Southern Power's current liabilities exceed current assets because of the continued use of short-term debt as an interim funding source for Southern Power's ongoing construction program. Southern Power's strategy is to refinance most of such short-term borrowings with long-term securities following commercial operation of the generating facilities. In February 2003, Southern Power initiated a commercial paper program to fund a portion of the construction costs of new generating facilities. The amount of commercial paper will initially represent about 45% of total debt, but is forecasted to decline to about 7% at year-end 2005 as more construction projects are completed and refinanced with long-term securities. At June 30, 2003, Southern Power had outstanding $492.4 million in commercial paper. Reference is made to Note 7 to the financial statements of Southern Power in Item 8 of the Form 10-K for additional information relating to the commercial paper program. To meet short-term cash needs and contingencies, Southern Power had at June 30, 2003 approximately $21.4 million of cash and cash equivalents. To meet liquidity and capital resource requirements, Southern Power had at June 30, 2003 approximately $650 million of unused committed credit arrangements with banks 99 SOUTHERN POWER COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION expiring in 2006. This line also provides liquidity support for Southern Power's commercial paper program (as discussed above). Amounts drawn under the arrangements are used to finance acquisition and construction costs related to gas-fired electric generating facilities and for general corporate purposes, subject to borrowing limitations for each generating facility. The arrangements permit Southern Power to fund construction of future generating facilities upon meeting certain requirements. Financing of construction at the McIntosh facility is subject to FERC approval of the related PPAs. Reference is made to Note (P) to the Condensed Financial Statements herein for information regarding the FERC approval process for Southern Power's PPAs with Georgia Power and Savannah Electric for Plant McIntosh Units 10 and 11. Southern Power also has access to loans from Southern Company to meet any additional Plant McIntosh funding needs should other funding sources not be adequate. 100 NOTES TO THE CONDENSED FINANCIAL STATEMENTS FOR THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES ALABAMA POWER COMPANY GEORGIA POWER COMPANY GULF POWER COMPANY MISSISSIPPI POWER COMPANY SAVANNAH ELECTRIC AND POWER COMPANY SOUTHERN POWER COMPANY INDEX TO APPLICABLE NOTES TO FINANCIAL STATEMENTS BY REGISTRANT Registrant Applicable Notes Southern Company A, B, C, D, E, F, G, H, I, J, K, L, M, N, R, S Alabama Power A, E, F, H, J, L, N Georgia Power A, E, G, H, I, J, L, N, O, P Gulf Power A, E, H, I, J, L Mississippi Power A, E, H, J, M, Q, R Savannah Electric A, E, H, J, P Southern Power A, E, J, L, M, O, P 101 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES ALABAMA POWER COMPANY GEORGIA POWER COMPANY GULF POWER COMPANY MISSISSIPPI POWER COMPANY SAVANNAH ELECTRIC AND POWER COMPANY SOUTHERN POWER COMPANY NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (A) The condensed financial statements of the registrants included herein have been prepared by each registrant, without audit, pursuant to the rules and regulations of the SEC. In the opinion of each registrant's management, the information regarding such registrant furnished herein reflects all adjustments necessary to present fairly the results of operations for the periods ended June 30, 2003 and 2002. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although each registrant believes that the disclosures regarding such registrant are adequate to make the information presented not misleading. Disclosure which would substantially duplicate the disclosure in the Form 10-K and details which have not changed significantly in amount or composition since the filing of the Form 10-K are omitted from this Form 10-Q. Therefore, these condensed financial statements should be read in conjunction with the financial statements and the notes thereto included in the Form 10-K. Certain prior period amounts have been reclassified to conform to current period presentation. Due to seasonal variations in the demand for energy, operating results for the periods presented do not necessarily indicate operating results for the entire year. (B) Reference is made to Note 11 to the financial statements of Southern Company in Item 8 and MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - General" of Southern Company in Item 7 of the Form 10-K for information on the spin-off of Mirant from Southern Company. On July 14, 2003, Mirant filed for voluntary reorganization under Chapter 11 of the Federal Bankruptcy Code. Southern Company has certain contingent liabilities associated with Mirant. Reference is made to Note 9 under "Guarantees" to the financial statements of Southern Company in Item 8 of the Form 10-K for information regarding Southern Company's guarantees of contractual commitments made by Mirant's subsidiaries. At July 31, 2003, the total notional amount of guarantees outstanding was less than $30 million. Reference is also made to Note (E) herein for information regarding various lawsuits related to Mirant and guarantees related to Mobile Energy. Reference is also made to Note 6 to the financial statements of Southern Company in Item 8 of the Form 10-K for information regarding joint and several liability with Mirant in connection with the joint consolidated federal income tax return. As discussed in Note (C) below, the IRS has completed its audits of the consolidated federal income tax returns through 1999. Under the terms of the separation agreement, Mirant agreed to indemnify Southern Company for costs associated with these lawsuits, Mobile Energy guarantees and additional IRS assessments. The impact of Mirant's bankruptcy filing on Mirant's indemnity obligations, if any, cannot now be determined. 102 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) On April 30, 2003, Mirant filed its Annual Report on Form 10-K for the year ended December 31, 2002. This filing included Mirant's restated financial statements for the years ended December 31, 2001 and 2000. Mirant's restated net income for 2001 and 2000 decreased by $159 million and $29 million, respectively. Mirant also announced that it is preparing revised quarterly financial statements for 2001 and expects to provide the quarterly results as soon as possible. Southern Company owned 100% of Mirant through September 2000 and 80% between October 2000 and April 2, 2001. Due to Southern Company's spin-off of Mirant on April 2, 2001, Southern Company's financial statements reflect its share of Mirant's net income as discontinued operations. The effect of these restatements on Southern Company's financial statements, if any, cannot be determined until Mirant's 2001 revised quarterly financial statements are filed. The impact of the bankruptcy filing on the timing of filing 2001 revised quarterly financial statements, if any, cannot now be determined. (C) Reference is made to Note 1 under "Leveraged Leases" and Note 6 to the financial statements of Southern Company in Item 8 and MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - General" in Item 7 of the Form 10-K. As a large corporate taxpayer, Southern Company undergoes audits by the IRS for each of its tax years. The IRS has completed its audits of Southern Company's consolidated federal income tax returns for all years through 1999. As part of the audit for the 1996-1999 tax years, the IRS reviewed Southern Company's four international leveraged lease transactions. Based on its review, the IRS proposed to disallow the tax losses associated with one of these transactions, resulting in an additional tax payment of approximately $30 million, including interest, to the IRS. To finalize the audit and eliminate any additional interest charges, Southern Company made this payment to the IRS in May 2003 and intends to pursue a refund claim for this amount. Notwithstanding the position taken by the IRS, Southern Company continues to believe that the transaction remains a valid lease for U.S. tax purposes and, accordingly, will vigorously contest the proposed disallowance. Southern Company has accounted for the payment as a deposit. If Southern Company is not successful in its defense of the tax treatment for this transaction, it would also affect the timing of the related revenue recognition for book purposes. A cumulative effect adjustment would be required to reduce net income based on the revised cash flows as a result of the changes in the allowed tax deductions. The IRS did not disallow any tax losses or make any other adjustments for the 1996-1999 period with respect to any of Southern Company's other lease transactions. However, there can be no assurance that subsequent IRS audits would not raise similar disallowance issues. The ultimate outcome of these matters cannot now be determined. 103 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) (D) On June 30, 2003, the IRS issued an announcement suspending the issuance of new private letter rulings on tax credits for synthetic fuels pursuant to Section 29 of the Internal Revenue Code upon its initiation of a review of the scientific validity of test procedures and results that have been presented as evidence that a significant chemical change occurred in such synthetic fuel. In addition, the IRS indicated that it may revoke existing private letter rulings that relied on the procedures and results under review if it determines that those test procedures and results do not demonstrate that a significant chemical change has occurred. Southern Company has investments in two entities that produce synthetic fuel and receive tax credits. In April 2001, Southern Company acquired a 30% membership interest in Alabama Fuel Products, LLC (AFP). In 1998, Southern Company acquired a 24.975% limited partnership interest in Carbontronics Synfuels Investors, L.P. (Carbontronics). At June 30, 2003, Southern Company's investments in AFP and Carbontronics totaled $25 million and $8 million, respectively. Carbontronics has informed Southern Company that, on August 5, 2003, the IRS communicated plans to perform an examination of the partnership for the years 2000 and 2001. From the inception of Southern Company's investment in Carbontronics through June 30, 2003, Southern Company has recognized approximately $90 million in tax credits through income related to its share of Carbontronics' synthetic fuel production. The IRS is currently auditing AFP for tax years 1999 and 2000. Based on a conversation between the IRS field agent and the tax matters partner for AFP on July 31, 2003, there is an expectation that the IRS may challenge the existence of significant chemical change at AFP. A written report is expected, but has not yet been received. From the inception of Southern Company's investment in AFP through June 30, 2003, Southern Company has recognized approximately $129 million in tax credits through income related to its share of AFP's synthetic fuel production. Both entities have private letter rulings from the IRS that concluded significant chemical change occurred based on the procedures and results submitted. In addition, both entities regularly use independent laboratories and experts to test for chemical change. These tests replicated significant chemical changes consistent with the procedures submitted with the private letter rulings. Southern Company has relied on these private letter rulings and believes that the test results presented in connection with such private letter rulings are valid, and that the entities have operated in compliance with their respective private letter rulings and Section 29 of the Internal Revenue Code. The ultimate outcome of this matter cannot now be determined. (E) Reference is made to Note 3 to the financial statements of Southern Company, the operating companies and Southern Power in Item 8 and to "Legal Proceedings" in Item 3 of the Form 10-K for information relating to various lawsuits and other contingencies. MIRANT ERISA LITIGATION On April 17, 2003, a retired employee of Mirant filed a complaint in the United States District Court for the Northern District of Georgia alleging violations of the Employee Retirement Income Security Act and naming as defendants Mirant, Southern Company, several current and former directors and officers of Mirant and/or Southern Company, and "Unknown Fiduciary Defendants 1-100." The plaintiff seeks to represent a purported class consisting of individuals who were participants in or beneficiaries of two Mirant employee benefit plans and their predecessor plans (the "Plans") at any time between January 1, 2000, and the filing of the complaint whose plan accounts included investments in Mirant common stock or the "Mirant Corporation Stock 104 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) Fund." The complaint alleges that the defendants misled participants in the Plans by concealing Mirant's alleged "participation in the illegal manipulation of energy prices in California during 2000 and 2001 as well as other irregular and unlawful accounting manipulations tied to energy trading." On June 3, 2003, a substantially similar complaint was filed in the United States District Court for the Northern District of Georgia. Neither complaint contains any specific allegations of wrongdoing with respect to Southern Company. It is expected that these suits will be consolidated. Southern Company denies any wrongdoing and intends to defend this action. The final outcome of this matter cannot now be determined. NEW SOURCE REVIEW ENFORCEMENT ACTIONS Reference is made to MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" in Item 7 and Note 3 to the financial statements of each registrant (except Southern Power) under "New Source Review Enforcement Actions" in Item 8 of the Form 10-K. On June 24, 2003, the U.S. Court of Appeals for the Eleventh Circuit ("Court of Appeals") ruled that it did not have jurisdiction to decide the TVA appeal because the challenged Administrative Compliance Order ("ACO") did not constitute final agency action. The Court of Appeals held that the Clean Air Act's statutory scheme for enforcement of the ACO is unconstitutional and that the EPA must prove any Clean Air Act violations by TVA in federal district court. Until that time, the Court of Appeals ruled, TVA is free to ignore the ACO without penalty. On July 3, 2003, Alabama Power and the EPA jointly notified the Alabama district court of the ruling of the Court of Appeals and requested that the stay in that case be continued until expiration of the period in which the EPA can request a rehearing. The district court granted the parties' request on July 10, 2003. On August 8, 2003, the EPA filed a petition for rehearing en banc with the Court of Appeals. At this time, no party to the case in federal district court in Atlanta against Georgia Power, which was administratively closed two years ago, has asked the court to reopen that case. The final outcome of these matters cannot now be determined. MOBILE ENERGY BANKRUPTCY PETITION Reference is made to Note 3 to the Southern Company financial statements in Item 8 of the Form 10-K. In July 2003, Mobile Energy received the necessary approval of its plan of reorganization under PUHCA. Mobile Energy currently anticipates the U.S. Bankruptcy Court will also approve the plan of reorganization in September 2003. The reorganization will not impact Southern Company's outstanding guarantees of certain potential obligations of Mobile Energy that represent a maximum contingent liability of $19 million at June 30, 2003. PLANT WANSLEY ENVIRONMENTAL LITIGATION Reference is made to Item 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" of Georgia Power in the Form 10-K and to Note 3 to the financial statements of Southern Company and Georgia Power under "Plant Wansley Litigation" in Item 8 of the Form 10-K. On June 19, 2003, the court granted Georgia Power's motion to dismiss the allegations regarding hazardous air pollutants and denied Georgia Power's motion to dismiss the allegations regarding emission offsets. Discovery is ongoing and no trial date has been set. The final outcome of this matter cannot now be determined. 105 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) MIRANT SECURITIES LITIGATION Reference is made to Note 3 under "Mirant Securities Litigation" of Southern Company in Item 8 of the Form 10-K. On July 14, 2003, the U.S. District Court for the Northern District of Georgia dismissed all claims based on Mirant's alleged improper trading and marketing activities in the California energy market; however, the Court did not dismiss the claims based on alleged false statements and omissions in Mirant's prospectus for its initial public offering and accounting-related issues previously disclosed by Mirant. Such claims seek to impose liability on Southern Company based on allegations that Southern Company was a "control person" as to Mirant prior to the spin-off date. Mirant's bankruptcy filing imposes an automatic stay of this action as to Mirant and may affect the proceedings as to Southern Company and other parties in this lawsuit. Southern Company's answer to the consolidated amended complaint is due on September 3, 2003, and discovery begins on that date. Under certain circumstances, Southern Company will be obligated under its Bylaws to indemnify the four current and/or former Southern Company officers who served as directors of Mirant at the time of its initial public offering through the date of the spin-off and are also named as defendants in this lawsuit. The final outcome of this matter cannot now be determined. RACE DISCRIMINATION LITIGATION Reference is made to Note 3 under "Race Discrimination Litigation" of Southern Company and Georgia Power in Item 8 of the Form 10-K. On March 31, 2003, the United States District Court for the Northern District of Georgia granted summary judgment in favor of the defendants on all claims raised by all of the seven named plaintiffs. On April 28, 2003, plaintiffs filed an appeal to the United States Court of Appeals for the Eleventh Circuit challenging these adverse summary judgment rulings, as well as the District Court's October 2001 ruling denying class certification. In addition, plaintiffs appealed some adverse rulings on discovery issues. Both parties have filed their respective briefs with the Eleventh Circuit Court of Appeals, and they are awaiting the determination of the Court of Appeals. The final outcome of the case cannot now be determined. (F) Reference is made to Note 3 to the financial statements of Southern Company and Alabama Power in Item 8 of the Form 10-K for information relating to Alabama Power's retail rate adjustment procedures. In June 2003, Alabama Power began buying power under a seven-year PPA with Southern Power for 615 megawatts of capacity annually from Plant Harris. In addition, Alabama Power also began buying power under a seven-year PPA with a third party for 630 megawatts; one-half of which became available in June 2003, with the remainder scheduled to be available beginning in 2004. Both PPAs have been certificated by the Alabama PSC. As a result, Alabama Power's retail rates were adjusted by approximately 2.6% under Rate CNP (Certificated New Plant), which allows Alabama Power to recover costs associated with certificated PPAs. 106 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) (G) On May 23, 2003, Georgia Power filed for a fuel cost recovery rate increase. The increase will allow for the recovery of fuel costs based on an estimate of future fuel costs, as well as the collection of the existing under recovery of fuel expenses. The Georgia PSC held hearings on July 31, 2003. A final decision from the Georgia PSC is expected on August 19, 2003 with an effective date of September 1, 2003. The outcome of the filing cannot be determined at this time. (H) Reference is made to Note 1 under "Regulatory Assets and Liabilities" to the financial statements of Southern Company and each of the operating companies in Item 8 of the Form 10-K. The operating companies are subject to the provisions of FASB Statement No. 71, "Accounting for the Effects of Certain Types of Regulation." In the event that a portion of a company's operations is no longer subject to these provisions, the company would be required to write off related regulatory assets and liabilities that are not specifically recoverable and determine if any other assets have been impaired. (I) Reference is made to Note 9, Note 4 and Note 4 under "Guarantees" to the financial statements of Southern Company, Georgia Power and Gulf Power, respectively, in Item 8 of the Form 10-K for information regarding guarantees of loans to residential customers for heat pump purchases. As of June 30, 2003, the total outstanding loans guaranteed by all of the operating companies was $14.3 million, of which Georgia Power is responsible for $11.5 million and Gulf Power is responsible for $0.8 million. Total loan loss reserves of $4 million ($2.4 million for Georgia Power and $0.2 million for Gulf Power) have been recorded. (J) Effective January 1, 2003, Southern Company adopted FASB Statement No. 143, "Accounting for Asset Retirement Obligations." Statement No. 143 establishes new accounting and reporting standards for legal obligations associated with the ultimate cost of retiring long-lived assets. The ultimate costs for an asset's future retirement must be recorded in the period in which the liability is incurred. The cost must be capitalized as part of the related long-lived asset and depreciated over the asset's useful life. Additionally, Statement No. 143 does not permit the continued accrual of future retirement costs for long-lived assets which the company does not have a legal obligation to retire. However, the operating companies have discussed the financial statement impacts of Statement No. 143 with their respective PSCs and will continue to recognize the accumulated removal costs for other obligations as part of accumulated depreciation. As of June 30, 2003, amounts recorded in Accumulated Depreciation that represent regulatory liabilities related to such removal costs totaled $1.2 billion, consisting of $562 million, $416 million, $146 million, $75 million and $34 million for Alabama Power, Georgia Power, Gulf Power, Mississippi Power and Savannah Electric, respectively. The operating companies had no cumulative effect to net income resulting from the adoption of Statement No. 143. As a result, Alabama Power, Georgia Power, Gulf Power, Mississippi Power and Savannah Electric recorded regulatory assets (liabilities) of $(71) million, $21 million, $0.9 million, $0.6 million and $2.4 million, respectively, as of January 1, 2003. At June 30, 2003, the regulatory liability for Alabama Power is reflected in the balance sheets under "Asset retirement obligation regulatory liability." The regulatory assets of the other operating companies are reflected in the balance sheets under either "Asset retirement obligation regulatory asset" or in "Other" under "Deferred Charges and Other Assets." Southern Power recorded a cumulative effect adjustment to income upon adoption of $0.6 million, representing removal costs previously accrued. 107 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) The liability recognized to retire long-lived assets primarily relates to Southern Company's nuclear facilities, which include Alabama Power's Plant Farley and Georgia Power's ownership interests in Plants Hatch and Vogtle. The fair value of assets legally restricted for settling retirement obligations related to these assets as of June 30, 2003 is $338 million, $388 million and $726 million for Alabama Power, Georgia Power and Southern Company, respectively. In addition, the operating companies have retirement obligations related to various landfill sites, ash ponds and underground storage tanks. The operating companies have also identified retirement obligations related to certain transmission and distribution facilities. However, liabilities for the removal of these transmission and distribution assets will not be recorded because no reasonable estimate can be made regarding the timing of the obligations. The operating companies will continue to recognize in the income statement their ultimate removal costs in accordance with each company's respective regulatory treatment. Any difference between costs recognized under Statement No. 143 and those reflected in rates will be recognized as either a regulatory asset or liability. Alabama Power has revised the estimated cost to retire Farley Nuclear Plant as a result of a new site-specific decommissioning study completed in April 2003. The effect of the revision is an increase of $34.5 million for the Statement No. 143 liability included in "Asset retirement obligations" with a corresponding increase in property, plant and equipment. Based on the new study, the estimated site study decommissioning costs are $955 million ($892 million for radiated structures plus $63 million for non-radiated structures) and the ultimate decommissioning costs are $2,529 million ($2,349 million for radiated structures plus $180 million for non-radiated structures). For additional information, see Note 1 to the financial statements of Alabama Power in Item 8 of the Form 10-K. The following table reflects the details of the Asset Retirement Obligations included in the balance sheets.
Balance at Liabilities Liabilities Cash Flow Balance at 12/31/02 Incurred Settled Accretion Revisions 06/30/03 -------- -------- ------- --------- --------- -------- (in millions) Alabama Power $ - $301.0 $ - $11.3 $34.5 $346.8 Georgia Power - 469.1 - 15.2 - 484.3 Gulf Power - 4.0 - 0.1 - 4.1 Mississippi Power - 1.0 - - - 1.0 Savannah Electric - 3.2 - 0.1 - 3.3 Southern Company $ - $778.3 $ - $26.7 $34.5 $839.5
The following table represents pro-forma asset retirement obligations as if Statement No. 143 had been adopted on January 1, 2002. At December 31, ----------------------------------- 2002 2001 ---- ---- (in millions) Alabama Power $301.0 $281.3 Georgia Power 469.1 440.1 Gulf Power 4.0 3.7 Mississippi Power 1.0 0.9 Savannah Electric 3.2 2.7 Southern Company $778.3 $728.7 108 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) The adoption of FASB Statement No. 143 has been treated as a non-cash transaction for purposes of the Statements of Cash Flows. (K) Reference is made to Note 1 under "Stock Options" and Note 7 under "Stock Option Plan" to the financial statements of Southern Company in Item 8 of the Form 10-K for information regarding non-qualified employee stock options provided by Southern Company. Southern Company accounts for options granted in accordance with Accounting Principles Board Opinion No. 25; thus, no compensation expense is recognized because the exercise price of all options granted equaled the fair market value on the date of the grant. The estimated fair values of stock options granted during the three-month and six-month periods ending June 30, 2003 and 2002 have been derived using the Black-Scholes stock option pricing model. The following table shows the assumptions and the weighted average fair values of these stock options:
Three Months Three Months Six Six Ended Ended Months Months June 30, 2003 June 30, 2002 Ended Ended June 30, 2003 June 30, 2002 -------------- -------------- --------------- -------------- Interest Rate 2.6% 4.2% 2.7% 4.0% Average expected life of stock options (in years) 4.3 4.3 4.3 4.3 Expected volatility of common stock 22.7% 26.2% 23.6% 26.1% Expected annual dividends on common stock $1.37 $1.34 $1.37 $1.34 Weighted average fair value of stock options granted $3.51 $4.08 $3.59 $3.37
The pro forma impact of fair-value accounting for options granted on net income is as follows:
As Reported Pro Forma --------------------- ------------------------- Three Months Ended June 30, 2003 Net income (in millions) $432 $427 Earnings per share (dollars): Basic $0.60 $0.60 Diluted $0.59 $0.59 Three Months Ended June 30, 2002 Net income (in millions) $332 $326 Earnings per share (dollars): Basic $0.47 $0.47 Diluted $0.46 $0.46 Six Months Ended June 30, 2003 Net income (in millions) $730 $721 Earnings per share (dollars): Basic $1.01 $1.00 Diluted $1.00 $0.99 Six Months Ended June 30, 2002 Net income (in millions) $556 $546 Earnings per share (dollars): Basic $0.79 $0.78 Diluted $0.78 $0.77
109 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
Diluted Earnings Per Share Three Months Ended Three Months Ended Six Months Six Months June 30, 2003 June 30, 2002 Ended Ended (in thousands) June 30, 2003 June 30, 2002 ----------------------------------- ------------------- ------------------- ------------------ ------------------- As Reported Shares 724,627 706,181 721,785 703,596 Effect of options 5,659 5,984 5,354 5,541 Diluted Shares 730,286 712,165 727,139 709,137
(L) In addition to the fixed price electric and gas contracts used to mitigate exposure to volatile energy prices (see "Exposure to Market Risks" in MANAGEMENT'S DISCUSSION AND ANALYSIS herein), Southern Company and certain of its subsidiaries enter into interest rate swaps to hedge exposure to interest rate changes. Swaps related to fixed rate securities are accounted for as fair value hedges; swaps related to variable rate securities or forecasted transactions are accounted for as cash flow hedges. The swaps are generally structured to mirror the terms of the hedged debt instruments; therefore, no material ineffectiveness has been recorded in earnings. As of June 30, 2003, the following swaps were outstanding: Fair Value Hedges
--------------- -------------- ------------------ ---------------- -------------------------- Notional Fixed Rate Variable Rate Maturity Fair Value Amount Received Paid Date June 30, 2003 ------------------------ --------------- -------------- ------------------ ---------------- -------------------------- Southern Company $400 million 5.3% 6-month LIBOR February 2007 $46.1 million (in arrears) less 0.103%
Cash Flow Hedges ---------------- -------------- ------------------ ----------------- -------------------- Weighted Average Variable Rate Fixed Rate Notional Received Paid Maturity Fair Value Amount Date June 30, 2003 ----------------------- ---------------- -------------- ------------------ ----------------- -------------------- Variable Rate Securities ----------------------- ---------------- -------------- ------------------ ----------------- -------------------- Southern Company $200 million 1-month LIBOR 3.1975% June 2004 $(4.0) million Alabama Power $350 million 3-month 3.015% December 2003 $(3.2) million LIBOR plus 0.12% Alabama Power $486 million BMA Index 1.6254% January 2004 $(1.6) million Alabama Power $486 million BMA Index 1.9923% January 2007 $2.3 million Alabama Power $195 million 3-month LIBOR 1.89% April 2006 $0.8 million Georgia Power $250 million 3-month 1.96% February 2005 $(2.0) million LIBOR plus 0.125% ----------------------- ---------------- -------------- ------------------ ----------------- --------------------
110 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
----------------------- ---------------- -------------- ------------------ ----------------- -------------------- Forecasted Transactions ----------------------- ---------------- -------------- ------------------ ----------------- -------------------- Gulf Power $60 million 3-month LIBOR 4.5975% July 2013 $(3.7) million Southern Power $350 million 1-month LIBOR 6.2348% June 2013 $(73.1) million Southern Power $150 million 1-month LIBOR 5.4792% June 2008 $(19.8) million
In May 2003, Alabama Power completed the issuance of $250 million of senior notes due May 1, 2008. In connection with the issuance of these notes, Alabama Power settled a related interest rate swap and incurred a loss of $10.2 million. Including the effect of this settlement, for the twelve month period ended June 30, 2004, a total of $2.8 million will be reclassified from Other Comprehensive Income to Interest Expense for Alabama Power. In July 2003, Southern Power completed the issuance of $575 million of 4.875% senior notes due July 15, 2015. In connection with the issuance of these notes, Southern Power settled the interest rate swaps above and incurred a loss of $93.3 million. Including the effect of this settlement, for the twelve month period ended June 30, 2004, a total of approximately $9.8 million will be reclassified from Other Comprehensive Income to Interest Expense for Southern Power. Also in July 2003, Gulf Power completed the issuance of $60 million of 4.35% senior notes due July 15, 2013. In connection with the issuance of these notes, Gulf Power settled the interest rate swaps above and incurred a loss of $3.3 million. For the twelve month period ended June 30, 2004, a total of approximately $0.3 million will be reclassified from Other Comprehensive Income to Interest Expense for Gulf Power. (M) Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - General" and to Note 5 to the financial statements in Item 8 of the Form 10-K for Southern Company, Mississippi Power and Southern Power for information regarding PPAs between subsidiaries of Dynegy and Mississippi Power and Southern Power and related letters of credit. On May 21, 2003, Mississippi Power and Southern Power entered into agreements with Dynegy (the "Agreements") to resolve all outstanding matters related to Dynegy, the PPAs and the related letters of credit. Under the terms of the Agreements, (1) Dynegy made a cash payment of $75 million to Mississippi Power and $80 million to Southern Power; (2) the PPAs between Southern Power and Dynegy were terminated, with no party having any remaining obligations under such PPAs thereafter; (3) Dynegy and Mississippi Power amended their PPA so that no capacity payments are due from Dynegy to Mississippi Power for capacity made available under the PPA from June 2003 through October 2003 (but other obligations and payments by Dynegy under such PPA are not affected during such time) and the PPA will terminate effective October 31, 2003, with neither party having any remaining obligations under the PPA after October 31, 2003; (4) Dynegy paid all amounts for which it was obligated under the PPAs up to their time of cancellation or amendment; (5) Southern Power and Mississippi Power returned the existing letters of credit in support of Dynegy's obligations under the PPAs; and (6) Dynegy deposited $7 million with Mississippi Power as collateral for Dynegy's potential energy purchases under the PPA through October 31, 2003. 111 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) The termination payments from Dynegy resulted in a one-time gain to Southern Company of approximately $88 million after tax ($38 million for Mississippi Power and $50 million for Southern Power). Because of the terminations of these PPAs, Southern Power has suspended construction of Plant Franklin Unit 3. Southern Power may complete limited construction activities as needed to preserve the long-term viability of the project. The length of the deferral period will depend on forecasted capacity needs and other wholesale market opportunities. Mississippi Power and Southern Power are also continuing to explore alternatives for their existing capacity. The final outcome of these matters cannot now be determined. After giving effect to the termination of these PPAs, total expected capacity payments from non-affiliates are as follows (in millions): Southern Mississippi Southern Year Power Power Company ----------------------- ------------ ----------------- -------------- 2003 $43.3 $17.6 $ 60.9 2004 64.1 - 64.1 2005 30.5 - 30.5 2006 30.2 - 30.2 2007 30.1 - 30.1 2008 and thereafter 171.4 - 171.4 ----------------------- ------------ ----------------- -------------- Total $369.6 $17.6 $387.2 ======================= ============ ================= ============== (N) Reference is made to Note 10, Note 9, and Note 5 for Southern Company, Alabama Power and Georgia Power, respectively, in Item 8 of the Form 10-K for information regarding a mandatory program of deferred premiums which could be assessed after a nuclear incident against all owners of nuclear reactors to cover third-party liability claims. On or about August 20, 2003, the NRC will increase the maximum retrospective premium for each licensed reactor operated from $88 million to $100 million per incident. The maximum assessment, excluding any applicable state premium taxes, for Alabama Power and Georgia Power - based on its ownership and buyback interests -- is $200 million and $203 million, respectively, per incident. The annual retrospective limit of $10 million per incident for each licensed reactor will not change. (O) Reference is made to Note 3 to the financial statements under "Construction Program" of Southern Power and to Note 4 to the financial statements under "Construction Program" of Georgia Power in Item 8 of the Form 10-K for information regarding Southern Company keep-wells covering the transfer of specific vendor contracts from Georgia Power to Southern Power for the operation of Plant Dahlberg and construction at the Plant Franklin and Plant Stanton sites. As of June 30, 2003, Southern Power has no remaining purchase obligations to equipment vendors under these contracts. (P) Reference is made to MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - General" in Item 7 and Note 4 under "Purchased Power Commitments" and "Fuel and Purchased Power Commitments" to the financial statements of Georgia Power and Savannah Electric, respectively, and Note 5 to the financial statements of Southern Power in Item 8 of the Form 10-K for information regarding PPAs between Southern Power and Georgia Power and Savannah Electric for Plant McIntosh capacity. Such PPAs were certified by the Georgia PSC in December 2002 after a competitive bidding process. 112 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) The Electric Power Supply Association and Calpine Corporation have made filings in this proceeding in opposition to the FERC's acceptance of the PPAs, alleging that the PPAs do not meet the applicable standards for PPAs between affiliates. In April 2003, Southern Power applied for FERC approval of these PPAs. In July 2003, the FERC accepted the PPAs to become effective June 1, 2005, subject to refund, and ordered that hearings be held to determine: (a) whether, in the design and implementation of the Georgia PSC competitive bidding process, Georgia Power and Savannah Electric unduly preferred Southern Power; (b) whether the analysis of the competitive bids unduly favored Southern Power, particularly with respect to evaluation of non-price factors; (c) whether Georgia Power and Savannah Electric selected their affiliate, Southern Power, based upon a reasonable combination of price and non-price factors; (d) whether Southern Power received an undue preference or competitive advantage in the competitive bidding process as a result of access to its affiliate's transmission system; (e) whether and to what extent the PPAs impact wholesale competition; and (f) whether the PPAs are just and reasonable and not unduly discriminatory. Hearings are scheduled to commence on March 1, 2004. Management believes that the PPAs should be approved by the FERC; however, the ultimate outcome of this matter cannot now be determined. In March 2003, Savannah Electric transferred to Southern Power 58 acres of land to facilitate construction at Plant McIntosh. The transfer was made at Savannah Electric's book value of approximately $16,500 in accordance with PUHCA and the related SEC order (Release No. 35-27322) dated December 27, 2000, which authorized the formation of Southern Power and the transfer of assets thereto. On July 17, 2003, the Georgia PSC issued an order requiring that Savannah Electric record the transfer of this land at the higher of net book value or fair market value based on an appraisal by an appraiser selected by the Georgia PSC staff. Based on an appraisal performed in November 2002, the estimated fair market value of the land is approximately $200,000. The outcome of this matter cannot now be determined. (Q) Reference is made to MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential - FERC Matters" in Item 7 and Note 3 under "Transmission Facilities Agreement" to the financial statements of Mississippi Power in Item 8 of the Form 10-K for information regarding the FERC's investigation related to a transmission facilities agreement with Entergy Corporation. On July 9, 2003, the FERC approved a settlement between Mississippi Power and the FERC Staff. The impact of the settlement provides for no refund of prior revenues collected. (R) Reference is made to MANAGEMENT'S DISCUSSION AND ANALYSIS - "Accounting Policies - Critical Policies" and "Financial Condition - Off-Balance Sheet Financing Arrangements" of Mississippi Power and "Financial Condition - Off-Balance Sheet Financing Arrangements" of Southern Company in Item 7 and Note 8 under "Lease Agreements" and Note 9 under "Operating Leases" to the financial statements of Mississippi Power and Southern Company, respectively, in Item 8 of the Form 10-K for information regarding Mississippi Power's lease of two generating units totaling 1,064 megawatts at Plant Daniel from Escatawpa Funding, Limited Partnership ("Escatawpa"), which began in 2001. Escatawpa raised a total of approximately $370 million to finance these generating units. Escatawpa was not consolidated by Mississippi Power pursuant to accounting guidance then in effect. On June 27, 2003, the generating units owned by Escatawpa and the related debt were acquired by Juniper Capital L.P. ("Juniper"), a limited partnership unaffiliated with Mississippi Power. Simultaneously, Juniper entered into a restructured lease agreement with Mississippi Power. Juniper has also entered into leases with third parties unrelated to Mississippi Power. The assets leased by Mississippi Power comprise less than half of Juniper's assets. In accordance with FASB Interpretation No. 46, Mississippi Power is not 113 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) required to consolidate the leased assets and related liabilities. Furthermore, the new lease agreement is an operating lease under FASB Statement No. 13. Principal terms of the Juniper lease remain essentially the same as those in the Escatawpa lease. The initial lease term ends in 2011. Like the Escatawpa lease, the Juniper lease also includes a purchase and renewal option based on the cost of the facility, which was $368.7 million at the inception of the Juniper lease. Mississippi Power is required to amortize approximately 4% of the initial acquisition cost over the initial lease term, which is less than the 10% provided for under the Escatawpa lease. Eighteen months prior to the end of the initial lease, Mississippi Power may elect to renew for 10 years. If Mississippi Power elects to renew the lease, the agreement calls for Mississippi Power to amortize an additional 17% of the initial completion cost over the renewal period. Upon termination of the lease, at Mississippi Power's option, it may either exercise its purchase option or the facility can be sold to a third party. For each of the six month periods ended June 30, 2003 and 2002, Mississippi Power recognized approximately $13 million in lease expenses, including approximately $1.6 million related to the amortization of the initial acquisition cost. In addition, $10.6 million in lease termination costs are included in other operation expenses for the three months ended June 30, 2003. The Juniper lease provides for a residual value guarantee (approximately 73% of the acquisition cost) by Mississippi Power that is due upon termination of the lease in the event that Mississippi Power does not renew the lease or purchase the assets and the fair market value is less than the unamortized cost of the asset. In accordance with FASB Interpretation No. 45, Mississippi Power has recognized a liability of approximately $16 million for the fair market value of this residual value guarantee in its June 30, 2003 balance sheet. 114 NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued) (S) Southern Company's reportable business segment is the sale of electricity in the Southeast by the operating companies and Southern Power. The All Other category includes parent Southern Company, which does not allocate operating expenses to business segments, and segments below the quantitative threshold for separate disclosure. These segments include telecommunications, energy products and services, and leasing and financing services. Intersegment revenues are not material. Financial data for business segments for the periods covered in the Form 10-Q are as follows:
Electric All Reconciling Utilities Other Eliminations Consolidated --------------------------------------------------- -------------------------------------------------------------- (in millions) Three Months Ended June 30, 2003: Operating revenues $ 2,742 $ 123 $ (6) $ 2,859 Segment net income (loss) 423 9 - 432 Six Months Ended June 30, 2003: Operating revenues 5,147 276 (11) 5,412 Segment net income (loss) 710 20 - 730 Total assets at June 30, 2003 $31,962 $ 1,743 $ (412) $33,293 --------------------------------------------------- ------------- ------------- ---------------- ----------------- Three Months Ended June 30, 2002: Operating revenues $ 2,563 $ 74 $ (7) $ 2,630 Segment net income (loss) 341 (11) 2 332 Six Months Ended June 30, 2002: Operating revenues 4,704 150 (10) 4,844 Segment net income (loss) 573 (19) 2 556 Total assets at December 31, 2002 $30,409 $1,881 $ (541) $31,749 --------------------------------------------------- ------------- ------------- ---------------- -----------------
Products and Services
Electric Utilities Revenues Period Retail Wholesale Other Total ------ ---------- --------------- ------------ ------------ Three Months Ended June 30, 2003 $2,176 $338 $228 $2,742 Three Months Ended June 30, 2002 2,185 294 84 2,563 Six Months Ended June 30, 2003 4,150 677 320 5,147 Six Months Ended June 30, 2002 4,029 526 149 4,704
115 PART II -OTHER INFORMATION Item 1. Legal Proceedings. Reference is made to the Notes to the Condensed Financial Statements herein for information regarding certain legal and administrative proceedings in which Southern Company and its reporting subsidiaries are involved. Item 4. Submission of Matters to a Vote of Security Holders. Southern Company Southern Company held its annual meeting of shareholders on May 28, 2003. Each nominee for director of Southern Company received the requisite plurality of votes for election. The vote tabulation was as follows:
Nominees Shares For Shares Withhold Vote Daniel P. Amos 536,000,477 10,523,799 Dorrit J. Bern 531,823,380 14,700,896 Thomas F. Chapman 532,249,344 14,274,932 Allen Franklin 533,727,210 12,797,066 Bruce S. Gordon 535,628,816 10,895,460 L. G. Hardman III 532,082,468 14,441,808 Donald M. James 530,981,255 15,543,021 Zack T. Pate 532,098,196 14,426,080 J. Neal Purcell 531,979,230 14,545,046 Gerald J. St. Pe 535,764,375 10,759,901
In addition, at the annual meeting, shareholders were asked to vote for the ratification of by-laws amendments permitting book-entry shares. The vote tabulation was 528,295,086 shares for, 9,409,288 shares against and 8,819,889 shares abstaining. As a result of this vote the by- laws amendments were adopted. Shareholders were also entitled to vote on a stockholder proposal on providing an environmental report. The vote tabulation was 91,215,426 shares for, 293,556,756 shares against and 45,455,923 shares abstaining. As a result of this vote, the stockholder proposal was rejected. 116 Item 4. Submission of Matters to a Vote of Security Holders. (Continued) Alabama Power Alabama Power held its annual meeting of common shareholders and preferred shareholders on April 25, 2003, and the following persons were elected to serve as directors of Alabama Power: Whit Armstrong Charles D. McCrary David J. Cooper, Sr. Malcolm Portera Allen Franklin Robert D. Powers R. Kent Henslee C. Dowd Ritter Carl E. Jones, Jr. James H. Sanford Patricia M. King William F. Walker James K. Lowder John Cox Webb, IV Wallace D. Malone, Jr. James W. Wright All 6,000,000 of the then outstanding shares of Alabama Power's common stock are owned by Southern Company and were voted in favor of the nominees for directors. In addition, at the annual meeting, shareholders were asked to vote for an amendment to Alabama Power's Articles of Incorporation that would increase Alabama Power's authorized common stock from 6,000,000 shares to 15,000,000 shares. All 6,000,000 of the then outstanding shares of Alabama Power's common stock are owned by Southern Company and were voted in favor of this amendment. None of the shares of preferred stock or Class A preferred stock were voted. Georgia Power Georgia Power held its annual meeting of common shareholders and preferred shareholders on May 21, 2003, and the following persons were elected to serve as directors of Georgia Power: Juanita P. Baranco David M. Ratcliffe Robert L. Brown, Jr. D. Gary Thompson Anna R. Cablik Richard W. Ussery Allen Franklin William Jerry Vereen L. G. Hardman III Carl Ware G. Joseph Prendergast E. Jenner Wood, III All of the 7,761,500 outstanding shares of Georgia Power's common stock are owned by Southern Company and were voted in favor of the nominees for directors. None of the shares of preferred stock were voted. 117 Item 4. Submission of Matters to a Vote of Security Holders. (Continued) Gulf Power Gulf Power held its annual meeting of common shareholders and preferred shareholders on May 21, 2003, and the following persons were elected to serve as directors of Gulf Power: C. LeDon Anchors Allen Franklin William C. Cramer, Jr. William A. Pullum Fred C. Donovan, Sr. Susan N. Story All of the 992,717 outstanding shares of Gulf Power's common stock are owned by Southern Company and were voted in favor of the nominees for directors. None of the shares of preferred stock were voted. Mississippi Power Mississippi Power held its annual meeting of common shareholders and preferred shareholders on May 21, 2003, and the following persons were elected to serve as directors of Mississippi Power: Tommy E. Dulaney Aubrey K. Lucas Michael D. Garrett George A. Schloegel Linda T. Howard Philip J. Terrell Robert C. Khayat N. Eugene Warr All of the 1,121,000 outstanding shares of Mississippi Power's common stock are owned by Southern Company and were voted in favor of the nominees for directors. None of the shares of preferred stock were voted. Savannah Electric By written consent, in lieu of the annual meeting of stockholders of Savannah Electric, effective May 2, 2003, the following persons were elected to serve as directors of Savannah Electric: Gus H. Bell, III Anthony R. James Archie H. Davis Robert B. Miller, III Walter D. Gnann Arnold M. Tenenbaum All of the 10,844,635 outstanding shares of Savannah Electric's common stock are owned by Southern Company and were voted in favor of the nominees for directors. 118 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. -------- (3) Articles of Incorporation and By-Laws Southern Company (a) 1 - By-Laws of Southern Company as amended effective February 17, 2003, and as presently in effect. (4) Instruments Describing Rights of Security Holders, Including Indentures Southern Power (g) 1 - Second Supplemental Indenture dated as of July 8, 2003 between Southern Power and The Bank of New York, as Trustee. (10) Material Contracts Southern Company (a) 1 - Southern Company Change in Control Severance Plan, Amended and Restated effective May 1, 2003. (a) 2 - Southern Company Executive Change in Control Severance Plan, Amended and Restated effective May 1, 2003. (a) 3 - Southern Company Senior Executive Change in Control Severance Plan effective May 1, 2003. (a) 4 - First Amendment as adopted July 9, 2003, to The Southern Company Pension Plan, as amended and restated effective January 1, 2002. Alabama Power (b) 1 - Amended and Restated Supplemental Pension Agreement among SCS, Southern Nuclear, Alabama Power and James H. Miller III. (24) Power of Attorney and Resolutions Southern Company (a) 1 - Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2002, File No. 1-3526 as Exhibit 24(a) and incorporated herein by reference.) (a) 2 - Power of Attorney for Thomas A. Fanning. (Designated in the Form 10-Q for the Quarter ended March 31, 2003, File No. 1-3526 as Exhibit 24(a)2 and incorporated herein by reference.) 119 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. (Continued) -------- Alabama Power (b) 1 - Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2002, File No. 1-3164 as Exhibit 24(b) and incorporated herein by reference.) Georgia Power (c) 1 - Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2002, File No. 1-6468 as Exhibit 24(c) and incorporated herein by reference.) (c) 2 - Power of Attorney for C. B. Harreld. Gulf Power (d) 1 - Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2002, File No. 0-2429 as Exhibit 24(d) and incorporated herein by reference.) (d) 2 - Power of Attorney for Susan N. Story. (Designated in the Form 10-Q for the Quarter ended March 31, 2003, File No. 0-2429 as Exhibit 24(d)2 and incorporated herein by reference.) Mississippi Power (e) 1 - Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2002, File No. 001-11229 as Exhibit 24(e) and incorporated herein by reference.) Savannah Electric (f) 1 - Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2002, File No. 1-5072 as Exhibit 24(f) and incorporated herein by reference.) Southern Power (g) 1 - Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2002, File No. 333-98553 as Exhibit 24(g) and incorporated herein by reference.) (31) Section 302 Certifications Southern Company (a) 1 - Certificate of Southern Company's Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002. 120 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. (Continued) -------- (a) 2 - Certificate of Southern Company's Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002. Alabama Power (b) 1 - Certificate of Alabama Power's Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002. (b) 2 - Certificate of Alabama Power's Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002. Georgia Power (c) 1 - Certificate of Georgia Power's Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002. (c) 2 - Certificate of Georgia Power's Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002. Gulf Power (d) 1 - Certificate of Gulf Power's Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002. (d) 2 - Certificate of Gulf Power's Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002. Mississippi Power (e) 1 - Certificate of Mississippi Power's Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002. (e) 2 - Certificate of Mississippi Power's Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002. Savannah Electric (f) 1 - Certificate of Savannah Electric's Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002. (f) 2 - Certificate of Savannah Electric's Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002. 121 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. (Continued) -------- Southern Power (g) 1 - Certificate of Southern Power's Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002. (g) 2 - Certificate of Southern Power's Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002. (32) Section 906 Certifications Southern Company (a) - Certificate of Southern Company's Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. Alabama Power (b) - Certificate of Alabama Power's Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. Georgia Power (c) - Certificate of Georgia Power's Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. Gulf Power (d) - Certificate of Gulf Power's Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. Mississippi Power (e) - Certificate of Mississippi Power's Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. Savannah Electric (f) - Certificate of Savannah Electric's Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. Southern Power (g) - Certificate of Southern Power's Chief Executive Officer and Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. 122 (b) Reports on Form 8-K. ------------------- The registrants collectively and separately filed Current Reports on Form 8-K dated April 30, 2003: Item reported: Items 9 and 12 Financial statements filed: None Southern Company filed Current Reports on Form 8-K dated April 17, 2003, April 21, 2003 and May 21, 2003: Item reported: Item 5 Financial statements filed: None Alabama Power filed Current Reports on Form 8-K dated April 15, 2003 and May 1, 2003: Item reported: Items 5 and 7 Financial statements filed: None Georgia Power filed a Current Report on Form 8-K dated April 10, 2003: Item reported: Items 5 and 7 Financial statements filed: None Mississippi Power filed Current Reports on Form 8-K dated April 21, 2003 and May 21, 2003: Item reported: Item 5 Financial statements filed: None Mississippi Power filed a Current Report on Form 8-K dated April 24, 2003: Item reported: Items 5 and 7 Financial statements filed: None Southern Power filed Current Reports on Form 8-K dated April 21, 2003 and May 21, 2003: Item reported: Item 5 Financial statements filed: None 123 THE SOUTHERN COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. THE SOUTHERN COMPANY By Allen Franklin Chairman and Chief Executive Officer (Principal Executive Officer) By Thomas A. Fanning Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) By /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: August 13, 2003 124 ALABAMA POWER COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. ALABAMA POWER COMPANY By Charles D. McCrary President and Chief Executive Officer (Principal Executive Officer) By William B. Hutchins, III Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) By /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: August 13, 2003 125 GEORGIA POWER COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. GEORGIA POWER COMPANY By David M. Ratcliffe President and Chief Executive Officer (Principal Executive Officer) By C. B. Harreld Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) By /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: August 13, 2003 126 GULF POWER COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. GULF POWER COMPANY By Susan N. Story President and Chief Executive Officer (Principal Executive Officer) By Ronnie R. Labrato Vice President, Chief Financial Officer and Comptroller (Principal Financial and Accounting Officer) By /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: August 13, 2003 127 MISSISSIPPI POWER COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. MISSISSIPPI POWER COMPANY By Michael D. Garrett President and Chief Executive Officer (Principal Executive Officer) By Michael W. Southern Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) By /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: August 13, 2003 128 SAVANNAH ELECTRIC AND POWER COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. SAVANNAH ELECTRIC AND POWER COMPANY By A. R. James President and Chief Executive Officer (Principal Executive Officer) By Kirby R. Willis Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) By /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: August 13, 2003 129 SOUTHERN POWER COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. SOUTHERN POWER COMPANY By William P. Bowers President and Chief Executive Officer (Principal Executive Officer) By Cliff S. Thrasher Senior Vice President, Comptroller and Chief Financial Officer (Principal Financial and Accounting Officer) By /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: August 13, 2003 130 EX-3 3 x3a1.txt SOUTHERN COMPANY BY-LAWS Exhibit 3(a)1 THE SOUTHERN COMPANY BY-LAWS As Amended Effective February 17, 2003 OFFICES. 1. The principal office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. The Corporation shall also have an office in Atlanta, Georgia. The Corporation may have offices at such other places as the Board of Directors may from time to time determine. SEAL. 2. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware." STOCKHOLDERS' MEETINGS. 3. All meetings of the stockholders shall be held at the office of the Corporation in the City of Wilmington, County of New Castle, State of Delaware, except such meetings as the Board of Directors expressly determine shall be held elsewhere in which case meetings may be held upon notice as hereinafter provided, at such other place or places within or without the State of Delaware as said Board of Directors may determine. 4. The annual meeting of the stockholders shall be held at 11:00 o'clock A.M. Eastern Standard Time on the fourth Wednesday in the month of May in each year, if not a legal holiday, and if a legal holiday, then on the next secular day following, at 11:00 o'clock A.M. Eastern Standard Time, when the stockholders entitled to vote thereon shall elect the Board of Directors and transact such other business as may be brought before the meeting. At the annual meeting any business may be transacted, irrespective of whether the notice calling such meeting shall have contained a reference thereto. The time and place named in these By-Laws for the annual meeting at which the Board of Directors is to be elected shall not be changed within sixty (60) days next before the day on which said election is to be held. A notice of any change shall be given to each stockholder twenty days before the election is held, in person or by letter mailed to his last known post-office address. - 1 - 5. At all meetings of the stockholders, the holders of a majority of the shares of the stock issued and outstanding and entitled to vote thereat present in person or represented by proxy shall constitute a quorum requisite for the transaction of business, except as otherwise provided by law, by the Certificate of Incorporation or by these By-Laws. If, however, a quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or by proxy, shall have power to adjourn the meeting from time to time without notice other than announcement at the meeting, until the requisite amount of voting stock shall be present. At such adjourned meeting at which the requisite amount of voting stock shall be represented, any business may be transacted which might have been transacted at the meeting as originally notified. 6. Each stockholder entitled to vote in accordance with the Certificate of Incorporation or any amendment thereof and in accordance with the provisions of these By-Laws or of any action taken pursuant thereto shall be entitled to one vote, in person or by proxy, for each share of stock entitled to vote held by such stockholder, but no proxy shall be voted on after three years from its date unless such proxy provides for a longer period. Except where the transfer books of the corporation shall have been closed or a date shall have been fixed as a record date for the determination of its stockholders entitled to vote, as hereinafter provided, no share of stock shall be voted on at any election for directors which shall have been transferred on the books of the Corporation within twenty days next preceding such election of directors. The vote for directors, and, upon the demand of any stockholder, the vote upon any question before the meeting, shall be by ballot. At all elections of directors of the Corporation, each stockholder shall be entitled to as many votes as shall equal the number of his shares of stock multiplied by the number of directors to be elected, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or any two or more of them as he may see fit, which right when exercised, shall be termed cumulative voting. All other questions shall be decided by plurality vote except as otherwise provided by the Certificate of Incorporation and/or by the laws of the State of Delaware. 7. Written notice of the annual meeting shall be mailed to each stockholder entitled to vote thereat, at such address as appears on the stock books of the Corporation, at least ten days prior to the meeting. It shall be the duty of every stockholder to furnish to the Secretary of the Corporation or to the Transfer Agent, if any, of the class or series of stock owned by him, his post-office address and to notify said Secretary or Transfer Agent of any change therein. 8. At least ten days before every election of directors, the Secretary shall prepare and make or cause to be prepared and made, a complete list of the stockholders entitled to vote at said election, arranged in alphabetical order, with the residence of each, and the number of voting shares held by each. Such list shall be open at the place where said election is to be held for said ten days, to the examination of any stockholder, and shall be produced and kept at the time and place of election during the whole time thereof, and subject to the inspection of any stockholder who may be present. - 2 - 9. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chairman of the Board or the President, and shall be called by the Chairman of the Board or President or Secretary upon the order in writing of a majority of or by resolution of the Board of Directors, or at the request in writing of stockholders owning ten percentum of the entire capital stock of the Corporation issued and outstanding and entitled to vote. Such request or order shall state the purpose or purposes of the proposed meeting. On failure by the Chairman of the Board or President or Secretary to call such special meeting when duly requested, the makers of such request or order may call such special meeting over their own signatures. 10. Written notice of a special meeting of stockholders, stating the time and place and object thereof, shall be mailed, postage prepaid, or delivered, at least ten days before such meeting, to each stockholder entitled to vote thereat at his last known post-office address appearing on the books of the Corporation. No business may be transacted at such meeting except that referred to in said notice, or in a supplemental notice given also in compliance with the provisions hereof. JUDGES. 11. At each meeting of the stockholders, the polls shall be opened and closed, the proxies and ballots shall be received and taken in charge of, all questions touching on the qualifications of voters and the validity of proxies and the acceptance and rejection of votes shall be decided, the number of shares voted shall be counted, the manner of voting said shares shall be ascertained, and the result of the voting shall be declared by two judges. Such judges shall be appointed by the Board of Directors before or at the meeting, and if no such appointment shall have been made, then by the meeting. If for any reason any of the judges previously appointed shall fail to attend or refuse or be unable to serve, judges in place of any so failing to attend or refusing or unable to serve shall be appointed either by the Board of Directors or by the stockholders' meeting. DIRECTORS. 12. The business of the Corporation shall be managed by a Board of Directors. The number of directors which shall constitute the whole Board shall be fixed from time to time by resolution of the Board of Directors, but in no case shall be less than three. Directors need not be stockholders. Each director (whether elected at an annual meeting, or to fill a vacancy or newly created directorship or otherwise) shall hold office until his successor is elected and qualified or until his earlier resignation or removal. Any director of this Corporation may resign at any time by giving written notice to the Chairman of the Board or President or Secretary of the Corporation. Such resignation shall take effect at the time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. - 3 - 13. In case of any vacancies in the Board of Directors through death, resignation, disqualification, removal or other cause, the remaining directors if less than a quorum, by affirmative vote of a majority thereof, or, if a quorum, by a majority vote of such quorum, may elect a successor or successors, and the director or directors so chosen shall hold office until the next annual election and until their successor or successors shall be elected and qualified. 14. The Board of Directors may hold their meetings and have one or more offices, and keep the books of the Corporation, at such place or places as they may from time to time determine. 15. A person being a full-time executive employee of the Corporation or any of its subsidiaries when first elected a director of the Corporation (an "employee-director") shall not be eligible to serve as a director when not an executive employee, whether by reason of resignation, retirement or other cause; and a person not an employee-director shall not be eligible for election or re-election as a director of the corporation after his 70th birthday. Any employee-director not eligible to serve as a director by reason of the foregoing provision shall be eligible to serve as an advisory director, as hereinafter provided for in Section 24 of these By-Laws, until his 70th birthday. The foregoing provisions with respect to the eligibility of a person not an employee-director to serve as a director shall not apply to any person so long as such person shall serve as a member of the Independent Litigation Committee established and designated by the Board of Directors on September 17, 1986. In addition to the powers and authorities expressly conferred upon it by statute, by the Certificate of Incorporation and by these By-Laws, the Board of Directors may exercise all such powers of the Corporation and do all such lawful acts and things as may be done by the Corporation as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. FEES OF DIRECTORS. 16. Directors shall be reimbursed for expenses, if any, incurred in attending meetings of the Board of Directors and in otherwise performing duties as such directors. Directors who perform no paid duties, as an officer, employee or otherwise than as a director, for the Corporation or any of its subsidiaries, may be paid by the Corporation such compensation for their services as directors or as members of a committee authorized by the Board of Directors as may from time to time be fixed by vote of a majority of the members of the Board of Directors or by the vote of the holders of a majority of that part of the capital stock of the Corporation having voting powers which is represented in person or by proxy at any annual meeting of stockholders or at any special meeting called for that purpose (provided that a lawful quorum of stockholders be there represented in person or by proxy). - 4 - MEETINGS OF THE BOARD. 17. The newly elected Board may meet at such place and time as shall be fixed by the vote of the stockholders at the meeting at which such newly elected Board was elected, for the purpose of organization or otherwise, and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present, or they may meet at such place and time as shall be stated in a notice given to such directors either personally or by mail or telegram two days prior to such meeting or as shall be fixed by the consent in writing of all the directors. 18. Regular meetings of the Board may be held without notice at such time and place as shall from time to time be determined by the Board. 19. Special meetings of the Board may be called by the Chairman of the Board or the President, on two days' notice to each director, by delivered letter, by mail or by telegram or by personal communication either over the telephone or otherwise; special meetings shall be called by the Secretary in like manner and on like notice, on the written request of two directors or on the request of the Chairman of the Board or the President. 20. At all meetings of the Board of Directors, one-half of the number of directors then in office, or, if there shall be an odd number of directors, then a majority thereof, shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically permitted or provided by statute, or by the Certificate of Incorporation, or by these By-Laws. If at any meeting of the Board there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum is obtained, and no further notice thereof need be given other than by announcement at said meeting which shall be so adjourned. COMMITTEES OF THE BOARD. 21. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more of the directors of the Corporation, which to the extent provided in the resolution, shall have and may exercise powers of the Board of Directors in the management of the business and affairs of the Corporation. The Board of Directors may designate one or more advisory directors to be a member or members of any such committee but no such advisory director shall have power to vote as a member of such committee. The Board of Directors may also, by resolution adopted by a majority of a quorum of the Board, designate one or more committees with solely advisory functions, each such committee to consist of two or more of the directors and of such other persons as shall be specified in such resolution. Such committee or committees shall have such name or names as may be determined from time to time by the Board of Directors. - 5 - 22. The term of office of each member of any such committee shall be for such period as may be from time to time determined by the Board of Directors but any member of any such committee may be removed at any time by the Board of Directors and shall cease to hold such office upon his ceasing to be a director (or advisory director) or upon his resignation. Vacancies in the membership of any such committee may be filled by the Board of Directors. Except as otherwise determined by the Board of Directors, each such committee may establish its own rules of procedure but shall make a written report or recommendation to the Board of Directors upon completion of its duties or whenever requested by the Board. OFFICERS. 23. The officers of the Corporation shall be chosen by the Board of Directors at its first meeting after each annual meeting of stockholders. The executive officers shall be the President, such one or more Vice Presidents and such other officers as the Board of Directors may from time to time determine. The administrative officers shall be a Secretary and a Treasurer, and such one or more Assistant Secretaries and Assistant Treasurers as the Board may from time to time determine. Any two or, except for the offices of President and Secretary, more offices may be held by the same person. The President shall be chosen from among the members of the Board of Directors, but the other officers need not be members of the Board. 24. The Board of Directors may at any time appoint or reappoint as an advisory director any person eligible to serve as such under the second paragraph of Section 15 of these By-Laws whose services as such will be, in the opinion of the Board of Directors, of value to the Corporation. An advisory director shall be entitled to notice of and to attend and advise at, but not to vote at, meetings of the Board of Directors, and any committees thereof to which he shall be designated, and for his services may be paid, in the discretion of the Board of Directors, compensation and reimbursement of expenses on the same basis as if he were a director. The term of office of each advisory director shall terminate on the earlier of the date when he ceases to be eligible for such position under said paragraph of Section 15 or, subject to reappointment, the date of the first meeting of the Board of Directors after the annual meeting of stockholders next following his appointment. 25. The Board of Directors may appoint such other officers and agents as it shall deem necessary, who shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors. 26. Except as otherwise determined by the Board of Directors, the officers of the Corporation shall hold office until their successors are chosen and qualified. Any officer may be removed at any time by the Board of Directors. In the event of any vacancy occurring in any office of the Corporation by reason of - 6 - death, resignation, removal or otherwise, such vacancy may be filled by, or in the manner prescribed by, the Board of Directors. The Board of Directors may assign, or provide for the assignment or devolution of, the powers and duties of any officer to any other officer or agent of the Corporation. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD. 27. The Board of Directors may from time to time in its discretion appoint from among the members of the Board of Directors a Chairman of the Board with such powers and duties as may be assigned to him from time to time by the Board. POWERS AND DUTIES OF THE PRESIDENT. 28. The President, subject to action by the Board of Directors, shall be the chief executive officer of the Corporation, shall have supervision and charge of all of the affairs of the Corporation, shall preside at all meetings of the Board of Directors and of stockholders, unless a Chairman of the Board has been appointed under Section 27; and shall perform and do all acts and things incident to the position of President and shall have such other powers and duties as may be assigned to him, from time to time, by the Board of Directors. POWERS AND DUTIES OF VICE-PRESIDENTS. 29. The Vice-Presidents shall exercise such of the powers and perform such of the duties of the President on behalf of the Corporation as may be respectively assigned to them from time to time by the Board of Directors or the President. In the absence or inability of the President to act, the Executive Vice-President, if there shall be a Vice-President designated as such by the Board of Directors, or such Vice-President as shall have been designated by the Board of Directors for the purpose, or, in the event of the failure of the Board of Directors so to designate, then the Vice-President senior in service, or, in the absence or inability of such Vice-President to act, any Vice-President shall have and possess all of the powers and discharge all of the duties of the President, subject however to the Board of Directors. POWERS AND DUTIES OF THE TREASURER. 30. It shall be the duty of the Treasurer to have the care and custody of all the funds and securities of the Corporation which may come into his hands as Treasurer, and to endorse checks, drafts and other instruments for the payment of money for deposit or collection when necessary or proper and to deposit the same to the credit of the Corporation in such bank or banks or depository as the Board of Directors may designate, and he may endorse all commercial documents requiring endorsements for or on behalf of the Corporation. He may sign all receipts and vouchers for the payments made to the Corporation. He shall render an account of his transactions to the Board of Directors as often as the Board shall require the same. He shall enter regularly in the books to be kept by him for that purpose, full and adequate account of all moneys received and paid by - 7 - him on account of the Corporation. He shall have charge of the supervision of the accounting system of the Corporation, including the preparation and filing of all reports required by law to be made to any and all public authorities and officials. He shall perform all acts incident to the position of Treasurer, subject to the control of the Board of Directors. He shall when requested, pursuant to vote of the Board of Directors, give a bond to the Corporation conditioned for the faithful performance of his duties, the expense of which bond shall be borne by the Corporation. POWERS AND DUTIES OF THE SECRETARY. 31. The Secretary shall be sworn to the faithful discharge of his duty. He shall act as custodian of the minutes of all meetings of the Board of Directors and of the stockholders; he shall attend to the giving and serving of all notices of the Corporation; and he shall attest the seal of the Corporation upon all contracts and instruments executed under such seal. He shall have charge of the stock certificate book, transfer book and stock ledger, and such other books and papers as the Board of Directors may direct. He shall, in general, perform all the duties of Secretary, subject to the control of the Board of Directors. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. 32. An Assistant Secretary or an Assistant Treasurer shall, in the absence or disability or at the request of the Secretary or Treasurer respectively, perform the duties of the Secretary or Treasurer respectively, and shall perform such other duties as may from time to time be imposed upon him by the Board of Directors or by the President. The performance of any such duty shall be conclusive evidence of his right to act. DUTIES OF OFFICERS MAY BE DELEGATED. 33. In case of the absence of any officer of the Corporation, or for any other reason that the Board may deem sufficient, the Board may delegate, for the time being, the powers or duties, or any of them, of such officer to any other officer, or to any director. TRANSFER AGENT AND REGISTRAR. 34. The Board of Directors may appoint one or more Transfer Agents or Transfer Clerks and Registrars, and may require all stock certificates, certificates representing any rights or options and any written notices or statements relative to uncertificated stock to be signed by such Transfer Agents or Transfer Clerks acting on behalf of the Corporation and by such Registrars. - 8 - CERTIFICATES FOR SHARES. 35. The shares of the Corporation shall be represented by a certificate or shall be uncertificated and shall be entered in the books of the Corporation and registered as they are issued. Certificates shall be signed by, or in the name of the Corporation by, the President or a Vice-President or any other officer authorized by law and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary. Within a reasonable time after the issuance or transfer of uncertificated stock, the Corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to the Delaware General Corporate Law or a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Any of or all the signatures on a certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. TRANSFER OF STOCK 36. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate or evidence of the issuance of uncertificated shares to the person entitled thereto, cancel the old certificate and record the transaction upon the Corporations books. Upon the receipt of proper transfer instructions from the registered owner of uncertificated shares, such uncertificated shares shall be cancelled, issuance of new equivalent uncertificated shares or certificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the Corporation. CLOSING TRANSFER BOOKS AND FIXING RECORD DATE. 37. The Board of Directors shall have power to close the stock transfer books of the Corporation for a period not exceeding sixty days preceding the date of any meeting of stockholders or the date for payment of any dividend or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect or for a period of not exceeding sixty days in connection with obtaining the consent of stockholders for any purpose; provided, however, that in lieu of closing the stock transfer books, the Board of Directors may fix in advance a date, not exceeding sixty days preceding the - 9 - date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting or any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. REGISTERED STOCKHOLDERS. 38. The Corporation shall be entitled to treat the holder of record of any share or shares of stock or of any right or rights or option or options as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share, right or option on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Delaware. LOST, STOLEN OR DESTROYED CERTIFICATES. 39. The Corporation may issue a new certificate or certificates of stock or uncertificated shares in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the such issue of a new certificate or certificates or uncertificated shares, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. ANNUAL REPORT AND INSPECTION OF BOOKS. 40. The President shall make and present to the annual meeting of stockholders a report showing a Balance Sheet and an Income Statement for the preceding fiscal year. A copy of such report shall be mailed to each stockholder of the Corporation at least fifteen days in advance of the annual meeting of the Corporation. Such report may also contain such other information and may be in such detail as the President and the Board of Directors may determine in their absolute discretion. - 10 - The stockholders of the Corporation by a majority vote at any meeting of stockholders duly called, or in case the stockholders shall fail to act, the Board of Directors shall have power from time to time to determine whether and to what extent and at what times and places and under what conditions and regulations the accounts and books of the Corporation (other than the stock ledger) or any of them, shall be open to the inspection of stockholders; and no stockholder shall have any right to inspect any account or book or document of the Corporation, except as conferred by statute or authorized by the Board of Directors or by a resolution of the stockholders. CHECKS. 41. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers as the Board of Directors may from time to time designate. FISCAL YEAR. 42. The fiscal year shall begin the first day of January in each year, and shall end on the thirty-first day of December of such year. NOTICES. 43. Whenever under the provisions of these By-Laws notice is required to be given to any director, officer or stockholder, it shall not be construed to mean personal notice, unless otherwise provided in these By-Laws, but such notice may be given in writing, by mail, by depositing the same in a post-office or letterbox, in a post-paid wrapper, addressed to such stockholder, officer or director at such address as appears on the books of the Corporation, or, in default of other address, to such director, officer or stockholder at the General Post Office in the City of Wilmington, Delaware, and such notice shall be deemed to be given at the time when the same shall be thus mailed. Notice need not be given of any adjourned meeting, special or regular of stockholders or directors other than by announcement at the meeting which is being adjourned. Any stockholder, director or officer may waive any notice required to be given by statute or under the provisions of the Certificate of Incorporation or under these By-Laws, and such waiver shall be deemed equivalent to the notice so required; provided, always, that such waiver shall be in writing and signed by such stockholder, officer or director, or by his duly authorized attorney, whether before or after the meeting or the time stated therein notice of which is being waived. - 11 - ACTION IN RELIANCE UPON ORDERS OF REGULATORY BODIES. 44. No present or future director or officer of the Corporation (or his heirs, executors and administrators) shall be liable for any act, omission, step or conduct taken or had in good faith which (whether by condition or otherwise) is required, authorized or approved by any order or orders issued pursuant to: the Public Utility Holding Company Act of 1935; the Federal Power Act; or any state statute regulating the Corporation or its subsidiaries by reason of their being public utility companies or public utility holding companies; or any amendment to any thereof. In any action, suit or proceeding based on any act, omission, step or conduct, as in this By-Law described, the provisions hereof shall be brought to the attention of the Court. In the event that such provisions are found by the Court not to constitute a valid defense on the grounds of not being applicable to the particular class of plaintiff, each such director and officer (and his heirs, executors and administrators) shall be reimbursed for, or indemnified against, all expenses and liabilities incurred by him or imposed on him, in connection with, or arising out of, any such action, suit or proceeding based on any act, omission, step or conduct taken or had in good faith as in this By-Law described. Such expenses and liabilities shall include, but shall not be limited to, judgments, court costs and attorneys' fees. The foregoing rights shall not be exclusive of any other rights to which any director or officer may otherwise be entitled and shall be available whether or not the director or officer continues to be a director or officer at the time of incurring such expenses and liabilities. INDEMNIFICATION AND RELATED MATTERS. 45. Each person who is or was a director or officer of the Corporation and who was or is a party or was or is threatened to be made a party to any threatened, pending or completed claim, action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall be indemnified by the Corporation as a matter of right against any and all expenses (including attorneys' fees) actually and reasonably incurred by him and against any and all claims, judgments, fines, penalties, liabilities and amounts paid in settlement actually incurred by him in defense of such claim, action, suit or proceeding, including appeals, to the full extent permitted by applicable law. The indemnification provided by this Section shall inure to the benefit of the heirs, executors and administrators of such person. Expenses (including attorneys' fees) incurred by a director or officer of the Corporation with respect to the defense of any such claim, action, suit or proceeding may be advanced by the Corporation prior to the final disposition of such claim, action, suit or proceeding, as authorized by the Board of Directors in the specific case, upon receipt of an undertaking by or on behalf of such person to repay such amount unless it shall ultimately be determined that such person is entitled to be indemnified by the Corporation under this Section or otherwise; provided, however, that the advancement of such expenses shall not be - 12 - deemed to be indemnification unless and until it shall ultimately be determined that such person is entitled to be indemnified by the Corporation. The Corporation may purchase and maintain insurance at the expense of the Corporation on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or any person who is or was serving at the request of Corporation as a director (or the equivalent), officer, employee, agent or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against any liability or expense (including attorneys' fees) asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability or expense under this Section or otherwise. The foregoing rights shall not be exclusive of any other rights to which any such director or officer may otherwise be entitled and shall be available whether or not the director or officer continues to be a director or officer at the time of incurring any such expenses and liabilities. If any word, clause or provision of the By-Laws or any indemnification made under Section 44 or Section 45 hereof shall for any reason be determined to be invalid, the provisions of the By-Laws shall not otherwise be affected thereby but shall remain in full force and effect. The masculine pronoun, as used in the By-Laws, means the masculine and feminine wherever applicable. AMENDMENTS. 46. The By-Laws of the Corporation may be altered, amended or repealed (a) at any meeting of the Board of Directors by the vote of a majority of the entire Board then in office, or (b) by the vote of the holders of a majority of that part of the capital stock of the Corporation having voting powers which is represented in person or by proxy at any annual meeting of stockholders or at any special meeting called for that purpose (provided that a lawful quorum of stockholders be there represented in person or by proxy), or (c) without a meeting by the written consent of the holders of all of the issued and outstanding capital stock of the Corporation having voting powers; provided, however, that the Board of Directors shall not have power to alter, amend or repeal the provisions of Sections 5, 44 or 46 of the By-Laws and provided, further, that an alteration, amendment or repeal of any other provision of the By-Laws by the Board of Directors shall cease to be effective unless submitted to and ratified or approved at the next annual or special meeting at which a lawful quorum of stockholders is represented in person or by proxy by the vote of the holders of a majority of that part of the capital stock of the Corporation having voting powers which is represented in person or by proxy at such meeting. - 13 - EX-4 4 x4g1.txt SOUTHERN POWER SECOND SUPPLEMENTAL INDENTURE Exhibit 4(g)1 SOUTHERN POWER COMPANY TO THE BANK OF NEW YORK, AS TRUSTEE. SECOND SUPPLEMENTAL INDENTURE DATED AS OF JULY 8, 2003 $575,000,000 4.875% SENIOR NOTES, SERIES C DUE JULY 15, 2015 4.875% SENIOR NOTES, SERIES D DUE JULY 15, 2015 TABLE OF CONTENTS1 Article I Additional Definitions.............................................2 Section 101. Definitions...................................2 Article II 2015 Notes........................................................7 Section 201. Establishment. ..............................7 Section 202. Aggregate Principal Amount....................7 Section 203. Payment of Principal and Interest.............7 Section 204. Denominations.................................8 Section 205. Global Securities and Certificated Securities....................................8 Section 206. Form of Securities...........................10 Section 207. Transfer and Exchange........................11 Article III.................................................................15 Section 301. Optional Redemption..........................15 Article IV Covenants........................................................15 Section 401. Reporting Obligations........................15 Section 402. Limitation on Asset Sales....................16 Section 403. Limitation on Liens. :......................16 Section 404. Restrictions on Subsidiary Indebtedness......18 Section 405. Minimum Contract Maintenance Covenant........18 Article V Additional Events of Default......................................18 Section 501. Additional Events of Default.................18 Article VI Covenant Defeasance..............................................19 Section 601. Defeasance of Certain Obligations............19 Article VII Miscellaneous Provisions........................................20 Section 701. Amendment of Original Indenture..............20 Section 702. Recitals by Company..........................20 Section 703. Ratification and Incorporation of Original Indenture...........................20 Section 704. Executed in Counterparts.....................20 Section 705. Legends......................................20 1 This Table of Contents does not constitute part of the Indenture or have any bearing upon the interpretation of any of its terms and provisions. THIS SECOND SUPPLEMENTAL INDENTURE is made as of the 8th day of July, 2003, between SOUTHERN POWER COMPANY, a corporation duly organized and existing under the laws of the state of Delaware (herein called the "Company"), having its principal office at 270 Peachtree Street, N.W., Atlanta, Georgia 30303 and THE BANK OF NEW YORK, a banking corporation, duly organized and existing under the laws of the state of New York, having its principal corporate trust office at 101 Barclay Street, 21 West, New York, New York 10286, as Trustee (herein called the "Trustee"). W I T N E S S E T H: WHEREAS, the Company has heretofore entered into a Senior Note Indenture, dated as of June 1, 2002, as amended (the "Original Indenture"), with the Trustee; WHEREAS, the Original Indenture is incorporated herein by this reference and the Original Indenture, as heretofore supplemented and as further supplemented by this Second Supplemental Indenture, is herein called the "Indenture"; WHEREAS, under the Original Indenture, a new series of unsecured senior debentures, notes or other evidences of indebtedness (the "Senior Notes") may at any time be established by the Board of Directors of the Company in accordance with the provisions of the Original Indenture and the terms of such series may be described by a supplemental indenture executed by the Company and the Trustee; WHEREAS, the Company proposes to create under the Indenture a series of Senior Notes to be designated the "4.875% Senior Notes, Series C due July 15, 2015" (the "Series C Notes") and a series of Senior Notes to be designated the "4.875% Senior Notes, Series D due July 15, 2015" (the "Series D Notes"; and together with the Series C Notes the "2015 Notes"), the form and substance of the 2015 Notes and the terms, provisions and conditions thereof to be set forth as provided in the Original Indenture and this Second Supplemental Indenture; WHEREAS, additional Senior Notes of other series hereafter established, except as may be limited in the Original Indenture as at the time supplemented and modified, may be issued from time to time pursuant to the Indenture as at the time supplemented and modified; and WHEREAS, all conditions necessary to authorize the execution and delivery of this Second Supplemental Indenture and to make it a valid and binding obligation of the Company have been done or performed. NOW, THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: Article I Additional Definitions Section 101. Definitions. The following defined terms used herein shall, unless the context otherwise requires, have the meanings specified below. Capitalized terms used herein for which no definition is provided herein shall have the meanings set forth in the Original Indenture. "Additional Interest" shall have the meaning assigned to it in the Registration Rights Agreement. "Additional Interest Event" shall have the meaning assigned to it in the Registration Rights Agreement. "Affiliate Subordinated Indebtedness" means the Southern Subordinated Note and any other borrowings by the Company from Southern, or an affiliate of Southern, provided that such borrowings are subordinated on terms substantially similar to the terms of subordination set forth in the Southern Subordinated Note. "Asset Sale" means any sale, lease, sale and leaseback transfer, conveyance or other disposition of any assets including by way of the issue by the Company or any of its Subsidiaries of equity interests in such Subsidiaries which own any assets, except (a) in the ordinary course of business to the extent that such property is worn out or is no longer useful or necessary in connection with the operation of the Company's business or sale of inventory, (b) if, prior to such conveyance or disposition, each Rating Agency provides a Ratings Reaffirmation of the 2015 Notes after giving effect to such transaction, or (c) sale and leaseback or similar transfers of assets (other than Existing Assets, except as provided herein). "Clearstream" means Clearstream Banking, Societe Anonyme, or any successor securities clearing agency. "Consolidated Tangible Assets" means, at any date of determination, the total assets of the Company and its Subsidiaries determined in accordance with GAAP, excluding, however, from the determination of total assets (a) goodwill, organizational expenses, research and product development expenses, trademarks, trade names, copyrights, patents, patent applications, licenses and rights in any thereof, and other similar intangibles, (b) all deferred charges or unamortized debt discount and expenses, (c) all reserves carried and not deducted from assets, (d) securities which are not readily marketable, (e) cash held in sinking or other analogous funds established for the purpose of redemption, retirement or prepayment of capital stock or other equity interests or debt, (f) any write-up in the book value of any assets resulting from a revaluation thereof subsequent to March 31, 2003, and (g) any items not included in clauses (a) through (f) above which are treated as intangibles in conformity with GAAP, plus the aggregate net book value of all asset sales or dispositions made by the Company and any of its Subsidiaries since the Original Issue Date of the 2015 Notes to the extent that the proceeds thereof or other consideration received therefor are not invested or reinvested in a Permitted Business, or are not retained by the Company or its Subsidiaries. "Contracted Operating Cash Flow" means the projection done at the end of each fiscal quarter of the next four fiscal quarters of the Company's and its Subsidiaries' (other than Unrestricted Subsidiaries) total cash flow available for debt service from fixed-price capacity power contracts, each contract having a term from initial commencement to expiry of at least five years; provided, however, that up to 12.5% of the Contracted Operating Cash Flows may be derived from fixed-price capacity power contracts that have contract terms of at least two years but less than five years from initial commencement to expiry. The projection shall be consistent with financial reporting procedures of the Company. The term fixed-price capacity power contracts includes any power contract that states the base capacity price on a per unit basis (for example, in dollars per megawatt) and which may allow for adjustments to that base price that are generally encompassed within the Company's or the electric generation industry's commercial expectations for a power contract of a similar duration (including but not limited to adjustments to accommodate changed capacity purchase levels, variations in expected or actual construction costs or demonstrated capability levels, changes in equipment or law and force majeure); provided, however, that a power contract will not be considered to be a fixed-price capacity power contract if a material portion of the capacity price varies based upon a market index for electric capacity or energy, fuel, weather or other factor that is external to the facility and the transaction between the Company and its customer. The method of calculating the energy price shall not be considered in assessing whether a power contract is a fixed-price capacity power contract. "Distribution Compliance Period," with respect to the 2015 Notes, means the period of 40 consecutive days beginning on and including the later of (i) the day on which such 2015 Notes are first offered to Persons other than distributors (as defined in Regulation S under the Securities Act) in reliance on Regulation S and (ii) the Original Issue Date. "DTC" means The Depository Trust Company, the initial Clearing Agency. "Euroclear" means Euroclear Bank S.A., as operator of the Euroclear System or any successor securities clearing agency. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Offer Registration Statement" shall have the meaning assigned to it in the Registration Rights Agreement. "Existing Assets" means the following generating facilities of the Company and its Subsidiaries: (i) Dahlberg Units 1-10; (ii) Wansley 6 and Wansley 7; (iii) Franklin 1 and Franklin 2; (iv) Harris 1 and Harris 2; (v) Stanton A; and (vi) McIntosh 10 and McIntosh 11. "GAAP" means U.S. generally accepted accounting principles. "Global Securities" means global certificates representing the 2015 Notes as described in Section 205. "Holder" means a registered holder of a 2015 Note. "Indebtedness" of any person means (i) all indebtedness of such person for borrowed money, (ii) all obligations of such person evidenced by bonds, debentures, notes, or other similar instruments, (iii) all obligations of such person to pay the deferred purchase price of property or services (other than trade accounts obtained on normal commercial terms in the ordinary course of business or practice), (iv) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (v) all capital lease obligations of such person that are required to be accounted for as a capital lease in accordance with GAAP, (vi) all obligations of the type referred to in clauses (i) through (v) above of other persons which such person is responsible for as guarantor, and (vii) all Indebtedness of the type referred to in clauses (i) through (vi) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any lien or security interest on property. "Institutional Accredited Investor" has the meaning set forth in Section 205(a) hereof. "Interest Payment Dates" mean January 15 and July 15 of each year. "Make-Whole Premium" means, with respect to the 2015 Notes, a computation as of a date not more than five days prior to the redemption date of the following: (i) the average life of the remaining scheduled payments of principal in respect of outstanding 2015 Notes (the "Remaining Average Life") as of the redemption date; (ii) the yield to maturity for the United States treasury security having an average life equal to the Remaining Average Life and trading in the secondary market at the price closest to the principal amount thereof (the "Primary Issue") (subject to extrapolation if no United States treasury security has an average life equal to the Remaining Average Life); and (iii) the discounted present value of the then-remaining scheduled payments of principal and interest (but excluding that portion of any scheduled payment of interest that is actually due and paid on the redemption date) in respect of outstanding 2015 Notes as of the redemption date using a discount factor equal to the sum of (x) the yield to maturity for the Primary Issue, plus (y) 25 basis points. The amount of Make-Whole Premium in respect of 2015 Notes to be redeemed shall be an amount equal to (x) the discounted present value of such 2015 Notes to be redeemed determined in accordance with clause (iii) above, minus (y) the unpaid principal amount of such 2015 Notes; provided, however, that the Make-Whole Premium shall not be less than zero. "Original Issue Date" means July 8, 2003. "Owner" means each Person who is the beneficial owner of a Global Security as reflected in the records of the Depository or, if a Depository participant is not the Owner, then as reflected in the records of a Person maintaining an account with such Depository (directly or indirectly, in accordance with the rules of such Depository). "Permanent Regulation S Global Security" has the meaning set forth in Section 205(b). "Permitted Business" means a business that is the same as or similar to our business as of the date that the 2015 Notes are issued under the Indenture, or any business reasonably related thereto. "QIBs" means qualified institutional buyers as defined in Rule 144A. "Rating Agencies" mean Moody's Investors Service, Inc. and Standard & Poor's Ratings Services. "Ratings Reaffirmation" means a reaffirmation by a rating agency of the higher of its minimum investment grade rating or the then current credit ratings (as applicable) of any of the 2015 Notes outstanding, giving effect to the transaction giving rise to such request for such reaffirmation. "Recourse Indebtedness" means all Indebtedness (other than Affiliate Subordinated Indebtedness) of the Company and its Subsidiaries (other than Unrestricted Subsidiaries). "Registered Exchange Offer" shall have the meaning assigned to it in the Registration Rights Agreement "Registration Rights Agreement" means the Registration Rights Agreement, dated July 8, 2003 among the Company, Citigroup Global Markets Inc. and Lehman Brothers Inc. relating to the registration of the 2015 Notes under the Securities Act. "Regular Record Date" means, with respect to each Interest Payment Date, the close of business on the 15th calendar day preceding such Interest Payment Date. "Regulation S" means Regulation S under the Securities Act and any successor regulation thereto. "Rule 144" means Rule 144 under the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Securities and Exchange Commission. "Rule 144A" means Rule 144A under the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Securities and Exchange Commission. "Rule 144A Global Security" means any Series C Note that is to be traded pursuant to Rule 144A. "Securities Act" means the Securities Act of 1933, as amended from time to time, or any successor legislation. "Securities Custodian" means the custodian with respect to a Global Security (as appointed by the Depository), or any successor Person thereto and shall initially be the Trustee. "Shelf Registration Statement" shall have the meaning assigned to it in the Registration Rights Agreement. "Southern" means The Southern Company. "Southern Subordinated Note" means the subordinated promissory note, dated June 20, 2003, issued by the Company to Southern, as amended. "Stated Maturity" means July 15, 2015. "Subsidiary" means any corporation or other entity of which sufficient voting stock or other ownership or economic interests having ordinary voting power to elect a majority of the board of directors (or equivalent body) are at the time directly or indirectly held by the Company. "Temporary Regulation S Global Security" has the meaning set forth in Section 205(b). "Total Capitalization" means the sum of (a) the aggregate of the capital stock and other equity accounts (including retained earnings and paid-in-capital) of the Company and its Subsidiaries (other than Unrestricted Subsidiaries; provided, however, that retained earnings of Unrestricted Subsidiaries shall be included); (b) all Recourse Indebtedness; and (c) Affiliate Subordinated Indebtedness. "Total Operating Cash Flow" means the projection done at the end of each fiscal quarter of the next four fiscal quarters of the Company and its Subsidiaries' (other than Unrestricted Subsidiaries) total cash flow available for debt service, as projected consistent with the Company's financial reporting procedures. "Transfer Restricted Security" shall have the meaning assigned to it in the Registration Rights Agreement. "Unrestricted Subsidiary" means any Subsidiary of the Company all the Indebtedness of which (a) is nonrecourse to the Company or any of its Subsidiaries (other than any other Unrestricted Subsidiary), other than with respect to stock or other ownership interest of the Company or any of its Subsidiaries in such Subsidiary, and (b) is not secured by any property of the Company or any of its Subsidiaries (other than the property of, or stock or other ownership interest in, an Unrestricted Subsidiary). "U.S. Government Obligations" means securities that are (i) direct and unconditional obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by, and acting as an agency or instrumentality of, the United States of America, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company subject to federal or state supervision or examination with a combined capital and surplus of at least $100,000,000 as custodian with respect to any such U.S. Government Obligations or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt. Article II 2015 Notes Section 201. Establishment. The Series C Notes shall be designated as the Company's "4.875% Senior Notes, Series C due July 15, 2015" and the Series D Notes shall be designated as the Company's "4.875% Senior Notes, Series D due July 15, 2015". The Series C Notes and the Series D Notes shall be treated for all purposes under the Indenture as a single class or series of Senior Notes. Section 202. Aggregate Principal Amount. The Trustee shall authenticate and deliver (i) Series C Notes for original issue on the Original Issue Date in the aggregate principal amount of $575,000,000 and (ii) Series D Notes from time to time thereafter for issue only in exchange for Series C Notes pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement or pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement, in each case upon a Company Order for authentication and delivery thereof and satisfaction of Sections 301 and 302 of the Original Indenture. The aggregate principal amount of the 2015 Notes shall be initially limited to $575,000,000. All 2015 Notes need not be issued at the same time and such series may be reopened at any time, without the consent of any Holder, for issuances of additional 2015 Notes. Any such additional 2015 Notes will have the same interest rate, maturity and other terms as those initially issued. No further Series C Notes shall be authenticated and delivered except as provided by Sections 203, 302, 303, 907 or 1107 of the Original Indenture. The Series C Notes shall be issued in definitive fully registered form. The form of the Trustee's Certificate of Authentication for the 2015 Notes shall be in substantially the form set forth in Exhibit B hereto. Each 2015 Note shall be dated the date of authentication thereof and shall bear interest from the date of original issuance thereof or from the most recent Interest Payment Date to which interest has been paid or duly provided for. Section 203. Payment of Principal and Interest. The principal of the 2015 Notes shall be due at Stated Maturity (unless earlier redeemed). The unpaid principal amount of the 2015 Notes shall bear interest at the rate of 4.875% per annum until paid or duly provided for. Interest shall be paid semi-annually in arrears on each Interest Payment Date to the Person in whose name the 2015 Notes are registered on the Regular Record Date for such Interest Payment Date, provided that interest payable at the Stated Maturity of principal or on a Redemption Date as provided herein will be paid to the Person to whom principal is payable. The initial Interest Payment Date shall be January 15, 2004. Any such interest that is not so punctually paid or duly provided for will forthwith cease to be payable to the Holders on such Regular Record Date and may either be paid to the Person or Persons in whose name the 2015 Notes are registered at the close of business on a Special Record Date for the payment of such defaulted interest to be fixed by the Trustee ("Special Record Date"), notice whereof shall be given to Holders of the 2015 Notes not less than ten (10) days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange, if any, on which the 2015 Notes shall be listed, and upon such notice as may be required by any such exchange, all as more fully provided in the Original Indenture. Payments of interest on the 2015 Notes will include interest accrued to, but excluding, the respective Interest Payment Dates. Interest payments for the 2015 Notes shall be computed and paid on the basis of a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on the 2015 Notes is not a Business Day, then payment of the interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), with the same force and effect as if made on the date the payment was originally payable. Payment of the principal and interest due at the Stated Maturity or earlier redemption of the 2015 Notes shall be made upon surrender of the 2015 Notes at the Corporate Trust Office of the Trustee, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Payments of interest (including interest on any Interest Payment Date) will be made, subject to such surrender where applicable, at the option of the Company, (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) by wire transfer at such place and to such account at a banking institution in the United States as may be designated in writing to the Trustee at least sixteen (16) days prior to the date for payment by the Person entitled thereto. Additional Interest shall accrue on the Transfer Restricted Securities over and above the interest rate set forth herein at a rate of 0.50% per annum from and including the date on which any Additional Interest Event shall occur to, but excluding, the date on which all such Additional Interest Events have been cured or, if earlier, the date on which the Transfer Restricted Securities may first be resold in reliance on Rule 144(k). All Additional Interest shall be paid to the Holders of Transfer Restricted Securities in the same manner and at the same time as regular payments of interest on the 2015 Notes. In the event that more than one Additional Interest Events occurs at the same time, the maximum increase in the interest rate shall be 0.50% per annum. Section 204. Denominations. The 2015 Notes may be issued in denominations of $100,000 and integral multiples of $1,000 in excess thereof. Section 205. Global Securities and Certificated Securities. (a) General. The Series C Notes will be resold initially only to (i) QIBs in reliance on Rule 144A under the Securities Act ("Rule 144A"), (ii) institutional "accredited investors" as such term is defined in Rule 501(a)(1), (2),(3) and (7) of Regulation D under the Securities Act (each, an "Institutional Accredited Investor") and (iii) Persons other than U.S. Persons (as defined in Regulation S) in reliance on Regulation S under the Securities Act ("Regulation S"). Series C Notes may thereafter be transferred to, among others, QIBs, purchasers in reliance on Regulation S, and Institutional Accredited Investors in each case, subject to the restrictions on transfer set forth herein. (b) Global Securities. (i) Form. Series C Notes initially resold pursuant to Rule 144A shall be issued initially in the form of one or more permanent global Securities in definitive, fully registered form (collectively, the "Rule 144A Global Security") and Series C Notes initially resold pursuant to Regulation S shall be issued initially in the form of one or more temporary global securities in definitive, fully registered form (collectively, the "Temporary Regulation S Global Security"), in each case without interest coupons and with the global securities legend and restricted securities legend set forth in Exhibit A hereto, which shall be deposited on behalf of the purchasers of the Series C Notes represented thereby with the Securities Custodian, and registered in the name of the Depository or a nominee of the Depository, duly executed by the Company and authenticated by the Trustee as provided in the Indenture. Except as set forth in this Section 205, beneficial ownership interests in the Temporary Regulation S Global Security (x) will not be exchangeable for interests in the Rule 144A Global Security, the permanent global security (the "Permanent Regulation S Global Security"), or any other security without a legend containing restrictions on transfer of such security prior to the expiration of the Distribution Compliance Period and (y) then may be exchanged for interests in a Rule 144A Global Security or the Permanent Regulation S Global Security only upon certification that beneficial ownership interests in such Temporary Regulation S Global Security are owned either by non-U.S. persons or U.S. persons who purchased such interests in a transaction that did not require registration under the Securities Act. The Rule 144A Global Security, the Temporary Regulation S Global Security and the Permanent Regulation S Global Security are collectively referred to herein as "Global Securities". The aggregate principal amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depository or its nominee as hereinafter provided. (ii) Book-Entry Provisions. This Section shall apply only to a Global Security deposited with or on behalf of the Depository. The Company shall execute and the Trustee shall, in accordance with this Section 2.05(b)(ii), authenticate and deliver initially one or more Global Securities that (a) shall be registered in the name of the Depository for such Global Security or Global Securities or the nominee of such Depository and (b) shall be delivered by the Trustee to such Depository or pursuant to such Depository's instructions or held by the Trustee as custodian for the Depository. Members of, or participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depository or by the Trustee as the custodian of the Depository or under such Global Security, and the Company, the Trustee and any agent of the Company or the Trustee shall be entitled to treat the Depository as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices of such Depository governing the exercise of the rights of a holder of a beneficial interest in any Global Security. To the extent a notice or other communication to the beneficial owners of the 2015 Notes is required under the Indenture, unless and until Certificated Securities shall have been issued to such owners, the Trustee shall give all such notices and communications specified herein to be given to such owners to the Depository, and shall have no obligations to such Owners. (c) Certificated Securities. Series C Notes sold to Institutional Accredited Investors shall be issued initially in the form of a fully registered, certificated Series C Note ("Certificated Securities"). Except as provided in this Section 205, owners of beneficial interests in Global Securities shall not be entitled to receive physical delivery of Certificated Securities. Global Securities shall be exchangeable for Certificated Securities if (i) the Depository (x) notifies the Company that it is unwilling or unable to continue as Depository for the Global Securities and the Company thereupon fails to appoint a successor Depository within 90 days after receipt of such notice or (y) has ceased to be a clearing agency registered under the Exchange Act and the Company thereupon fails to appoint a successor Depository within 90 days after it becomes aware of such cessation or (ii) there shall have occurred and be continuing an Event of Default or any event which after notice or lapse of time or both would be an Event of Default under the Indenture and payment of principal and interest has been accelerated. The Trustee shall notify the Depository (in the case of (ii)) and the Holders of any such event. Upon surrender to the Trustee of the typewritten certificate or certificates representing the Global Securities by the Depository, accompanied by registration instructions, the Trustee shall execute and authenticate the certificates in accordance with the instructions of the Depository. Neither the Security Registrar nor the Trustee shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Certificated Securities, the Trustee shall recognize the Holders of the Certificated Securities as Holders. The Certificated Securities shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Company, as evidenced by the execution thereof by the Company, and shall bear the legend set forth on Exhibit A hereto unless the Company informs the Trustee that such legend is no longer required. Section 206. Form of Securities. The Global Securities and Certificated Securities shall be substantially in the form attached as Exhibit A thereto. Section 207. Transfer and Exchange (a) General. The 2015 Notes may not be transferred except in compliance with the legend contained in Exhibit A unless otherwise determined by the Company in accordance with applicable law. No service charge will be made for any transfer or exchange of 2015 Notes, but payment will be required of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. (b) Transfer and Exchange of Global Securities. (i) If a holder of a beneficial interest in the Rule 144A Global Security wishes at any time to exchange its interest in the Rule 144A Global Security for an interest in the Permanent Regulation S Global Security, or to transfer its interest in the Rule 144A Global Security to a person who wishes to take delivery thereof in the form of an interest in the Permanent Regulation S Global Security, such holder may, subject to the rules and procedures of the Depository and to the requirements set forth in the following sentence, exchange or cause the exchange or transfer or cause the transfer of such interest for an equivalent beneficial interest in the Permanent Regulation S Global Security. Upon receipt by the Trustee, as transfer agent, of (1) instructions given in accordance with the Depository procedures from or on behalf of a holder of a beneficial interest in the Rule 144A Global Security, directing the Trustee, as transfer agent, to credit or cause to be credited a beneficial interest in the Permanent Regulation S Global Security in an amount equal to the beneficial interest in the Rule 144A Global Security to be exchanged or transferred, (2) a written order given in accordance with the Depository's procedures containing information regarding the Euroclear or Clearstream account to be credited with such increase and the name of such account, and (3) a certificate in the form of Exhibit C hereto given by the holder of such beneficial interest stating that the exchange or transfer of such interest has been made pursuant to and in accordance with Rule 903 or Rule 904 of Regulation S under the Securities Act, the Trustee, as transfer agent, shall promptly deliver appropriate instructions to the Depository, its nominee, or the custodian for the Depository, as the case may be, to reduce or reflect on its records a reduction of the Rule 144A Global Security by the aggregate principal amount of the beneficial interest in such Rule 144A Global Security to be so exchanged or transferred from the relevant participant, and the Trustee, as transfer agent, shall promptly deliver appropriate instructions to the Depository, its nominee, or the custodian for the Depository, as the case may be, concurrently with such reduction, to increase or reflect on its records an increase of the principal amount of such Permanent Regulation S Global Security by the aggregate principal amount of the beneficial interest in such Rule 144A Global Security to be so exchanged or transferred, and to credit or cause to be credited to the account of the person specified in such instructions (who may be Euroclear or Clearstream or another agent member of Euroclear or Clearstream or both, as the case may be, acting for and on behalf of them) a beneficial interest in such Permanent Regulation S Global Security equal to the reduction in the principal amount of such Rule 144A Global Security. (ii) If a holder of a beneficial interest in the Permanent Regulation S Global Security wishes at any time to exchange its interest in the Permanent Regulation S Global Security for an interest in the Rule 144A Global Security, or to transfer its interest in the Permanent Regulation S Global Security to a person who wishes to take delivery thereof in the form of an interest in the Rule 144A Global Security, such holder may, subject to the rules and procedures of Euroclear or Clearstream and the Depository, as the case may be, and to the requirements set forth in the following sentence, exchange or cause the exchange or transfer or cause the transfer of such interest for an equivalent beneficial interest in such Rule 144A Global Security. Upon receipt by the Trustee, as transfer agent, of (1) instructions given in accordance with the procedures of Euroclear or Clearstream and the Depository, as the case may be, from or on behalf of a beneficial owner of an interest in the Permanent Regulation S Global Security directing the Trustee, as transfer agent, to credit or cause to be credited a beneficial interest in the Rule 144A Global Security in an amount equal to the beneficial interest in the Permanent Regulation S Global Security to be exchanged or transferred, (2) a written order given in accordance with the procedures of Euroclear or Clearstream and the Depository, as the case may be, containing information regarding the account with the Depository to be credited with such increase and the name of such account, and (3) prior to the expiration of the Distribution Compliance Period, a certificate in the form of Exhibit C hereto given by the holder of such beneficial interest and stating that the person transferring such interest in such Permanent Regulation S Global Security reasonably believes that the person acquiring such interest in the Rule 144A Global Security is a QIB and is obtaining such beneficial interest for its own account or the account of a QIB in a transaction meeting the requirements of Rule 144A and any applicable securities laws of any state of the United States or any other jurisdiction, the Trustee, as transfer agent, shall promptly deliver appropriate instructions to the Depository, its nominee, or the custodian for the Depository, as the case may be, to reduce or reflect on its records a reduction of the Permanent Regulation S Global Security by the aggregate principal amount of the beneficial interest in such Permanent Regulation S Global Security to be exchanged or transferred, and the Trustee, as transfer agent, shall promptly deliver appropriate instructions to the Depository, its nominee, or the custodian for the Depository, as the case may be, concurrently with such reduction, to increase or reflect on its records an increase of the principal amount of the Rule 144A Global Security by the aggregate principal amount of the beneficial interest in the Permanent Regulation S Global Security to be so exchanged or transferred, and to credit or cause to be credited to the account of the person specified in such instructions a beneficial interest in the Rule 144A Global Security equal to the reduction in the principal amount of the Permanent Regulation S Global Security. After the expiration of the Distribution Compliance Period, the certification requirement set forth in clause (3) of the second sentence of this Section 207(b)(ii) will no longer apply to such exchanges and transfers. (iii) Any beneficial interest in one of the Global Securities that is transferred to a person who takes delivery in the form of an interest in the other Global Securities will, upon transfer, cease to be an interest in such Global Security and become an interest in the other Global Securities and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in such other Global Security Note for as long as it remains such an interest. (iv) Beneficial interests in Temporary Regulation S Global Securities may be exchanged for interests in Rule 144A Global Securities or Permanent Regulation S Global Securities if (1) such exchange occurs in connection with a transfer of securities in compliance with Rule 144A, and (2) the transferor of the beneficial interest in the Temporary Regulation S Global Security first delivers to the Trustee a written certificate (in a form satisfactory to the Trustee) to the effect that the beneficial interest in the Temporary Regulation S Global Security is being transferred to a Person (a) who the transferor reasonably believes to be a QIB (b) purchasing for its own account or the account of a QIB in a transaction meeting the requirements of Rule 144A, and (c) in accordance with all applicable securities laws of the states of the United States and other jurisdictions. (v) During the Distribution Compliance Period, beneficial ownership interests in Temporary Regulation S Global Securities may only be sold, pledged or transferred through Euroclear or Clearstream in accordance with the applicable procedures relating to such institutions and only (i) to the Company, (ii) so long as such security is eligible for resale pursuant to Rule 144A, to a Person whom the selling holder reasonably believes is a QIB that purchases for its own account or for the account of a QIB in a transaction meeting the requirements of Rule 144A, (iii) in an offshore transaction in accordance with Regulation S (other than a transaction resulting in an exchange for interest in a Permanent Regulation S Global Security), (iv) pursuant to an exemption from registration under the Securities Act provided by Rule 144 (if applicable) under the Securities Act or (v) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States. (c) Transfer and Exchange of Global Securities and Certificated Securities. (i) In the event that a Global Security is exchanged for a Certificated Security as provided in Section 205(c), such Certificated Security may be exchanged or transferred for one another, subject to Section 303 of the Original Indenture, only in accordance with such procedures as are substantially consistent with the provisions of clauses (b)(i) and (ii) above (including the certification requirements intended to ensure that such exchanges or transfers comply with Rule 144, Rule 144A or Regulation S, as the case may be) and as may be from time to time reasonably adopted by the Company. (ii) Upon receipt by the Trustee of a Certificated Security, duly endorsed or accompanied by appropriate instruments of transfer, the Trustee shall cancel such Certificated Security and cause, or direct the Securities Custodian to cause, in accordance with the standing instructions and procedures existing of the Depository and the Securities Custodian, the aggregate principal amount of 2015 Notes represented by the Rule 144A Global Security or Permanent Regulation S Global Security, as applicable, to be increased by the aggregate principal amount of the Certificated Security to be exchanged and shall credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Rule 144A Global Security or Permanent Regulation S Global Security, as applicable, equal to the principal amount of the Certificated Security so canceled. If no Rule 144A Global Securities or Permanent Regulation S Global Securities, as applicable, are then outstanding, the Company shall issue and the Trustee shall authenticate, upon written order of the Company in the form of an Officers' Certificate, a new Rule 144A Global Security or Permanent Regulation S Global Security, as applicable, in the appropriate principal amount. (d) Certificates. In connection with any transfer described in paragraphs (b) and (c) of this Section 207, the Trustee shall receive a certificate of transfer in the form attached as Exhibit C hereto. Additionally, upon any transfer or exchange to an Institutional Accredited Investor, the Company and the Trustee shall receive a certificate in the form attached as Exhibit D hereto. (e) Transfer Restricted Security. Upon any sale or transfer of a Transfer Restricted Security (including any Transfer Restricted Security represented by a Global Security) pursuant to Rule 144 under the Securities Act or an effective registration statement under the Securities Act, which shall be certified to the Trustee and Security Registrar upon which each may conclusively rely: (i) in the case of any Transfer Restricted Security represented by a Certificated Security, the Security Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a Certificated Security that does not bear the legend set forth in Exhibit A hereto and rescind any restriction on the transfer of such Transfer Restricted Security; and (ii) in the case of any Transfer Restricted Security represented by a Global Security, such Transfer Restricted Security shall not be required to bear the legend set forth in Exhibit A hereto if all other interests in such Global Note have been or are concurrently being sold or transferred pursuant to Rule 144 under the Securities Act or pursuant to an effective registration statement under the Securities Act. (f) Registered Exchange Offer. Notwithstanding the foregoing, upon consummation of the Registered Exchange Offer, the Company shall issue and, upon receipt of a Company Order in accordance with Section 303 of the Original Indenture, the Trustee shall authenticate Series D Notes in exchange for Series C Notes accepted for exchange in the Registered Exchange Offer, which Series D Notes shall not bear the transfer restriction legend set forth in Exhibit A hereto and shall not provide for Additional Interest, and the Security Registrar shall rescind any restriction on the transfer of such Series D Notes, in each case unless the Holder of such Series C Notes (A) is a broker-dealer tendering Series C Notes acquired directly from the Company or an "affiliate" (as defined in Rule 144 under the Securities Act) of the Company for its own account, (B) is a Person who has an arrangement or understanding with any Person to participate in the "distribution" (within the meaning of the Securities Act) of the Series D Notes, (C) is a Person who is an "affiliate" (as defined in Rule 144 under the Securities Act) of the Company or (D) will not be acquiring the Series D Notes in the ordinary course of such Holder's business. The Company shall identify to the Trustee such Holders in a written certification signed by an Officer of the Company and, absent certification from the Company to such effect, the Trustee shall assume that there are no such Holders. Article III Redemption Section 301. Optional Redemption. The 2015 Notes will be redeemable by the Company in whole or in part at any time upon not less than 30 nor more than 60 days' notice, at a redemption price of 100% of the principal amount of the 2015 Notes being redeemed plus accrued interest thereto, if any, to the redemption date, plus the Make-Whole Premium. In the event of redemption of the 2015 Notes in part only, a new 2015 Note or Notes for the unredeemed portion will be issued in the name or names of the Holders thereof upon the surrender thereof. The 2015 Notes will not have a sinking fund. Notice of redemption shall be given as provided in Section 1104 of the Original Indenture except that any Notice of Redemption shall not specify the Redemption Price but only the manner of calculation thereof. Any redemption of less than all of the 2015 Notes shall, with respect to the principal thereof, be divisible by $1,000. Article IV Covenants Section 401. Reporting Obligations (a) General. The Company will furnish to the Trustee: (i) at the time of the delivery of the reports provided for in Section 704(1) of the Original Indenture, an officer's certificate to the effect that, to the best of such officer's knowledge, no default or event of default under the 2015 Notes or the Indenture has occurred and is continuing or, if any default or event of default thereunder has occurred and is continuing, specifying the nature and extent thereof and what action is being taken or is proposed to be taken in response thereto; and (ii) promptly after the Company obtains actual knowledge of the occurrence thereof, written notice of the occurrence of any event or condition which constitutes an event of default, and an Officer's Certificate of the Company specifically stating that such event of default has occurred and setting forth the details thereof and the action which is being taken or is proposed to be taken with respect thereto. All such information provided to the Trustee as indicated above also will be provided by the Trustee upon written request to the Trustee (which may be a single continuing request), to (x) Holders, (y) holders of beneficial interests in the 2015 Notes or (z) prospective purchasers of the 2015 Notes or beneficial interests in the 2015 Notes. The Company will furnish to the Trustee, upon its request, sufficient copies of all such information to accommodate the requests of such Holders and prospective holders of beneficial interests in the 2015 Notes. Upon the request of any Holder, any holder of a beneficial interest in the 2015 Notes, or the Trustee (on behalf of a Holder or a holder of a beneficial interest in the 2015 Notes), we will furnish such information as is specified in paragraph (d)(4) of Rule 144A to Holders (and to holders of beneficial interests in the 2015 Notes), prospective purchasers of the 2015 Notes (and of beneficial interests in the Senior Notes) who are QIBs or "Institutional Accredited Investors" or to the Trustee for delivery to such Holder or prospective purchasers of the 2015 Notes or beneficial interests therein, as the case may be, unless, at the time of such request, the Company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. Section 402. Limitation on Asset Sales. Except for the sale of the Company's properties and assets substantially as an entirety as described in Article VIII of the Original Indenture, and other than assets required to be sold to conform with governmental regulations, the Company will not, and will not permit any of its Subsidiaries to, consummate any Asset Sale, if the aggregate net book value of all such Asset Sales consummated during the most recent twelve month period would exceed 10% of Consolidated Tangible Assets as of the beginning of the Company's most recently ended full fiscal quarter preceding such Asset Sale; provided, however, that any such Asset Sale will be disregarded for purposes of the 10% limitation specified above if the proceeds thereof (i) are, within 18 months of such Asset Sale, invested or reinvested by the Company or any Subsidiary in a Permitted Business, (ii) are used by the Company or a Subsidiary to repay Indebtedness of the Company or such Subsidiary or (iii) are retained by the Company or a Subsidiary; provided, further, to the extent that the Company engages in a sale-leaseback transaction with the Effingham County Industrial Development Authority (or other similar governmental entity) for ad valorem tax abatement opportunities relating to McIntosh 10 and McIntosh 11, such transaction shall not be deemed to be an Asset Sale for purposes of this Section 402. Section 403. Limitation on Liens. The Company shall not, and shall not permit any of its Subsidiaries to, issue, assume, guarantee or permit to exist any Indebtedness for borrowed money secured by any lien on any property of the Company or its Subsidiaries, whether owned on the date that the 2015 Notes are issued or thereafter acquired, without in any such case effectively securing the outstanding 2015 Notes (together with, if the Company shall so determine, any other Indebtedness of or guaranteed by the Company ranking equally with the 2015 Notes) equally and ratably with such Indebtedness (but only so long as such Indebtedness is so secured); provided, however, that the foregoing restriction shall not apply to the following liens: (i) liens, if any, in existence on the date the 2015 Notes are issued; (ii) pledges or deposits in the ordinary course of business in connection with bids, tenders, contracts or statutory obligations or to secure surety or performance bonds; (iii) liens imposed by law, such as carriers', warehousemen's and mechanics' liens, arising in the ordinary course of business; (iv) liens for taxes being contested in good faith; (v) minor encumbrances, easements or reservations which do not in the aggregate materially adversely affect the value of the properties or impair their use; (vi) liens on any property existing at the time of acquisition thereof by the Company or any of its Subsidiaries; (vii) liens on property (other than Existing Assets) securing (a) all or any portion of the cost of acquiring, constructing, altering, improving or repairing any real or personal property or improvements used or to be used in connection with such property or (b) Indebtedness incurred by the Company or any of its Subsidiaries prior to, at the time of, or within one year after the later of the acquisition, the completion of construction (including any improvements on an existing property), alteration, improvement, repair or the commencement of commercial operation of the property, which Indebtedness is incurred for the purpose of financing or refinancing all or any part of the purchase price, construction, improvements, alterations or repairs; (viii) liens to secure purchase money Indebtedness not in excess of the cost or value of the property acquired; (ix) mortgages securing obligations issued by a state, territory or possession of the United States, or any political subdivision of any of the foregoing or the District of Columbia, to finance the acquisition or construction of property, and on which the interest is not, in the opinion of tax counsel of recognized standing or in accordance with a ruling issued by the Internal Revenue Service, includible in gross income of the holder by reason of Section 103(a)(1) of the Internal Revenue Code (or any successor to such provision) as in effect at the time of the issuance of such obligations; (x) other liens to secure Indebtedness for borrowed money or in connection with a project financing (including a sale-leaseback transaction) in an aggregate principal amount which does not at the time such Indebtedness is incurred exceed 20% of Consolidated Tangible Assets; or (xi) liens granted in connection with extending, renewing, replacing or refinancing (or successive extensions, renewals, replacements or refinancings) any of the Indebtedness (so long as there is no increase in the principal amount of the Indebtedness) described in clauses (i) through (x) above. In the event that the Company or any of its Subsidiaries shall propose to pledge, mortgage or hypothecate any property, other than as permitted by clauses (i) through (xi) of the previous paragraph, the Company shall (prior thereto) give written notice thereof to the Trustee, who shall give notice to the Holders, and the Company shall, prior to or simultaneously with such pledge, mortgage or hypothecation, effectively secure all the 2015 Notes equally and ratable with such Indebtedness. This covenant does not restrict the Company's ability or the ability of any of its Subsidiaries to pledge, mortgage, hypothecate or permit to exist any mortgage, pledge or lien upon any assets (other than an Existing Asset, except to the extent permitted by clauses (i) through (xi) above) in connection with project financings or otherwise. Section 404. Restrictions on Subsidiary Indebtedness. Except to the extent permitted under Section 403 hereof, the Company shall not permit any Subsidiary which owns any Existing Asset to create or incur or suffer to exist any Indebtedness for borrowed money. Section 405. Minimum Contract Maintenance Covenant. The Company will not declare or pay any dividends or make any other distributions (except dividends payable or distributions made in shares of its common stock and dividends payable in cash in cases where, concurrently with the payment of the dividend, an amount in cash equal to the dividend is received by the Company as a capital contribution or as the proceeds of the issue and sale of shares of its common stock) on its common stock, or purchase or permit any of its Subsidiaries to purchase any shares of its common stock or make any payment on Affiliate Subordinated Indebtedness, unless (i) the percentage derived from dividing Contracted Operating Cash Flows by Total Operating Cash Flows is at least 80%, or (ii) the ratio of Recourse Indebtedness to Total Capitalization is 60% or less. Article V Additional Events of Default Section 501. Additional Events of Default. In accordance with Section 501 (7) of the Original Indenture, each of the following events, in addition to those provided in Section 501 of the Original Indenture, shall be an Event of Default with respect to the 2015 Notes: (a) an event of default, as defined in any of the Company's instruments under which there may be issued, or by which there may be secured or evidenced, of any Indebtedness of the Company that has resulted in the acceleration of such Indebtedness, or any default occurring in payment of any such Indebtedness at final maturity (and after the expiration of any applicable grace periods), other than such Indebtedness the principal of which does not individually, or in the aggregate, exceed $50,000,000; or (b) one or more final judgments, decrees or orders of any court, tribunal, arbitrator, administrative or other governmental body or similar entity for the payment of money is rendered against the Company or any of its properties in an aggregate amount in excess of $50,000,000 (excluding the amount covered by insurance) and such judgment, decree or order remains unvacated, undischarged, unsatisfied and unstayed for more than 60 consecutive days, except while being contested in good faith by appropriate proceedings. Article VI Covenant Defeasance Section 601. Defeasance of Certain Obligations. The Company may omit to comply with any term, provision or condition set forth in Sections 402 through 405 of this Second Supplemental Indenture and Section 501(4) (with respect to Sections 402 through 405) of the Original Indenture and Sections 501(a) and 501(b) of this Second Supplemental Indenture shall be deemed not to be Events of Default on the 123rd day after the deposit referred to in subparagraph (a) hereof if: (a) with reference to this Section 601, the Company has irrevocably deposited or caused to be irrevocably deposited with the Trustee (or another trustee satisfying the requirements of Section 611 of the Original Indenture) as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the 2015 Notes, (i) money in an amount, or (ii) U.S. Government Obligations which through the payment of interest and principal in respect thereof in accordance with their terms (without reinvestment) will provide not later than one day before the due date of any payment referred to in clause (x) of this Section 601 money in an amount, or (iii) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, after payment of all federal, state and local taxes or other charges and assessments in respect thereof payable by the Trustee, (x) the principal of, premium, if any, and each installment of principal and interest on the Outstanding 2015 Notes at the Stated Maturity of such principal or installment of principal or interest; (b) the Company has delivered to the Trustee (i) an Opinion of Counsel to the effect that Holders will not recognize income, gain or loss for federal income tax purposes as a result of the Company's exercise of its option under this Section 601 and will be subject to federal income tax on the same amount and in the same manner at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, and (ii) an Opinion of Counsel to the effect that the defeasance trust does not constitute an "investment company" under the Investment Company Act of 1940, as amended, and after the passage of 123 days following the deposit, the trust fund will not be subject to the effect of Section 547 of the U.S. Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law; (c) immediately after giving effect to such deposit on a pro forma basis, no Event of Default, or event that after the giving of notice or lapse of time or both would become an Event of Default, shall have occurred and be continuing on the date of such deposit or during the period ending on the 123rd day after the date of such deposit, and such deposit shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which the Company is bound; and (d) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel (which Opinion of Counsel may be subject to customary assumptions and exclusions), each stating that all conditions precedent with respect to such covenant defeasance have been complied with. Article VII Miscellaneous Provisions Section 701. Amendment of Original Indenture. As permitted by Section 901(9) of the Original Indenture, Section 502 of the Original Indenture is hereby amended by deleting the references to "Section 501(7) or Section 501(8)" contained therein and replacing, in lieu thereof, references to "Section 501(5) or Section 501(6)." Section 702. Recitals by Company. The recitals in this Second Supplemental Indenture are made by the Company only and not by the Trustee, and all of the provisions contained in the Original Indenture in respect of the rights, privileges, immunities, powers and duties of the Trustee shall be applicable in respect of 2015 Notes and of this Second Supplemental Indenture as fully and with like effect as if set forth herein in full. Section 703. Ratification and Incorporation of Original Indenture. As supplemented hereby, the Original Indenture is in all respects ratified and confirmed, and the Original Indenture and this Second Supplemental Indenture shall be read, taken and construed as one and the same instrument. Section 704. Executed in Counterparts. This Second Supplemental Indenture may be simultaneously executed in several counterparts, each of which shall be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. Section 705. Legends. Except as determined by the Company in accordance with applicable law, each 2015 Note shall bear the applicable legends relating to restrictions on transfer pursuant to the securities laws in substantially the form set forth on Exhibit A hereto. Article I IN WITNESS WHEREOF, each party hereto has caused this instrument to be signed in its name and behalf by its duly authorized signatories, all as of the day and year first above written. SOUTHERN POWER COMPANY By: /s/ Cliff S. Thrasher Name: Cliff S. Thrasher Title: Senior Vice President Attest: /s/Wayne Boston Name: Wayne Boston Title: Assistant Secretary THE BANK OF NEW YORK By: /s/ Elizabeth T. Wagner Name: Elizabeth T. Wagner Title: As Agent Attest: /s/ Stefan Victory Name: Stephan Victory Title: As Agent EXHIBIT A FORM OF SERIES [C/D] NOTE [Rule 144A Global Security] [Regulation S Global Security] [Certificated Security] [FORM OF FACE OF INITIAL SECURITY] [Global Securities Legend] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OR PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. [FOR REGULATION S GLOBAL NOTE ONLY] UNTIL 40 DAYS AFTER THE COMMENCEMENT OF THE OFFERING, AN OFFER OR SALE OF NOTES WITHIN THE UNITED STATES BY A DEALER (AS DEFINED IN THE U.S. SECURITIES ACT) MAY VIOLATE THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT IF SUCH OFFER OR SALE IS MADE OTHERWISE THAN IN ACCORDANCE WITH RULE 144A THEREUNDER. [Restricted Securities Legend] THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM AND IN ANY EVENT MAY BE SOLD OR OTHERWISE TRANSFERRED ONLY IN ACCORDANCE WITH THE INDENTURE, COPIES OF WHICH ARE AVAILABLE FOR INSPECTION AT THE CORPORATE TRUST OFFICE OF THE TRUSTEE IN ATLANTA, GEORGIA. EACH PURCHASER OF THIS NOTE IS HEREBY NOTIFIFED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. EACH HOLDER OF THIS NOTE REPRESENTS TO SOUTHERN POWER COMPANY THAT (a) SUCH HOLDER WILL NOT SELL, PLEDGE OR OTHERWISE TRANSFER THIS NOTE (WITHOUT THE CONSENT OF SOUTHERN POWER COMPANY) OTHER THAN (I) TO SOUTHERN POWER COMPANY, (II) IN THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION COMPLYING WITH THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (III) IN ACCORDANCE WITH RULE 144 UNDER THE SECURITIES ACT, (IV) OUTSIDE THE UNITED STATES IN A TRANSACTION MEETING THE REQUIREMENTS OF REGULATION S UNDER THE SECURITIES ACT, (V) TO AN INSTITUTIONAL ACCREDITED INVESTOR (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE AND SOUTHERN POWER COMPANY A LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE (THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE), (VI) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT SUBJECT IN THE CASE OF CLAUSES (II), (III), OR (IV) TO THE RECEIPT BY SOUTHERN POWER COMPANY OF AN OPINION OF COUNSEL OF SUCH OTHER EVIDENCE ACCEPTABLE TO SOUTHERN POWER COMPANY THAT SUCH RESALE, PLEDGE OR TRANSFER IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (VII) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, AND THAT (b) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE OF THE RESALE RESTRICTIONS REFERRED TO HEREIN AND DELIVER TO THE TRANSFEREE (OTHER THAN A QUALIFIED INSTITUTIONAL BUYER) PRIOR TO THE SALE A COPY OF THE TRANSFER RESTRICTIONS APPLICABLE HERETO (COPIES OF WHICH MAY BE OBTAINED FROM THE TRUSTEE). [Temporary Regulation S Global Security Legend] EXCEPT AS SET FORTH BELOW, BENEFICIAL OWNERSHIP INTERESTS IN THIS TEMPORARY REGULATION S GLOBAL SECURITY WILL NOT BE EXCHANGEABLE FOR INTERESTS IN THE PERMANENT REGULATION S GLOBAL SECURITY OR ANY OTHER SECURITY REPRESENTING AN INTEREST IN THE SECURITIES REPRESENTED HEREBY WHICH DO NOT CONTAIN A LEGEND CONTAINING RESTRICTIONS ON TRANSFER, UNTIL THE EXPIRATION OF THE "40-DAY DISTRIBUTION COMPLIANCE PERIOD" (WITHIN THE MEANING OF RULE 902(f) OF REGULATION S UNDER THE SECURITIES ACT) AND THEN ONLY UPON CERTIFICATION IN FORM REASONABLY SATISFACTORY TO THE TRUSTEE THAT SUCH BENEFICIAL INTERESTS ARE OWNED EITHER BY NON-U.S. PERSONS OR U.S. PERSONS WHO PURCHASED SUCH INTERESTS IN A TRANSACTION THAT DID NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT. DURING SUCH 40-DAY DISTRIBUTION COMPLIANCE PERIOD, BENEFICIAL OWNERSHIP INTEREST IN THIS TEMPORARY REGULATION S GLOBABL SECURITY MAY ONLY BE SOLD, PLEDGED OR TRANSFERRED THROUGH EUROCLEAR BANK S.A./N.A., AS OPERATOR OF THE EUROCLEAR SYSTEM OR CLEARSTREAM BANKING, SOCIETE ANONYME AND ONLY (I) TO THE COMPANY, (II) IN THE UNITED STATES TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (III) OUTSIDE THE UNITED STATES IN A TRANSACTION IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT, OR (IV) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH OF CASE (I) THROUGH (IV) IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. HOLDERS OF INTERESTS IN THIS TEMPORARY REGULATION S GLOBABL SECURITY WILL NOTIFY ANY PURCHASER OF THIS SECURITY OF THE RESALE RESTRICTIONS REFERRED TO ABOVE, IF THEN APPLICABLE. BENEFICIAL INTERESTS IN THIS TEMPORARY REGULATIONS S GLOBAL SECURITY MAY BE EXCHANGED FOR INTERESTS IN A RULE 144A GLOBAL SECURITY ONLY IF (1) SUCH EXCHANGE OCCURS IN CONNECTION WITH A TRANSFER OF THE NOTES IN COMPLIANCE WITH RULE 144A, AND (2) THE TRANSFEROR OF THE REGULATION S GLOBAL SECURITY FIRST DELIVERS TO THE TRUSTEE A WRITTEN CERTIFICATE (IN THE FORM ATTACHED TO THIS CERTIFICATE) TO THE EFFECT THAT THE REGULATION S GLOBAL SECURITY BEING TRANSFERRED TO A PERSON (A) WHO THE TRANSFEROR REASONABLY BELIEVES TO BE A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A (B) PURCHASING FOR ITS OWN ACCOUNT OR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, AND (C) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS. BENEFICIAL INTEREST IN A RULE 144A GLOBAL SECURITY MAY BE TRANSFERRED TO A PERSON WHO TAKES DELIVERY IN THE FORM OF AN INTEREST IN THE REGULATION S GLOBAL SECURITY, WHETHER BEFORE OR AFTER THE EXPIRATION OF THE 40-DAY DISTRIBUTION COMPLIANCE PERIOD, ONLY IF THE TRANSFEROR FIRST DELIVERS TO THE TRUSTEE A WRITTEN CERTIFICATE (IN THE FORM ATTACHED TO THIS CERTIFICATE) TO THE EFFECT THAT IF SUCH TRANSFER IS BEING MADE IN ACCORDANCE WITH RULE 903 OR 904 OF REGULATION S OR RULE 144 (IF AVAILABLE) AND THAT, IF SUCH TRANSFER OCCURS PRIOR TO THE EXPIRATION OF THE 40-DAY DISTRIBUTION COMPLIANCE PERIOD, THE INTEREST TRANSFERRED WILL BE HELD IMMEDIATELY THEREAFTER THROUGH EUROCLEAR BANK S.A./N.A. OR CLEARSTREAM BANKING SOCIETE ANONYME. [Certificated Securities Legend] IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS. NO. ____ CUSIP NO. _________ SOUTHERN POWER COMPANY 4.875% SENIOR NOTE SERIES [C/D] DUE JULY 15, 2015 Principal Amount: $575,000,000 Regular Record Date: 15th calendar day prior to Interest Payment Date Original Issue Date: July 8, 2003 Stated Maturity: July 15, 2015 Interest Payment Dates: January 15 and July 15 Interest Rate: 4.875% per annum Authorized Denomination: $100,000 and integrals of $1,000 in excess thereof Southern Power Company, a Delaware corporation (the "Company", which term includes any successor corporation under the Indenture referred to on the reverse hereof), for value received, hereby promises to pay to _____________________________________, or registered assigns, the principal sum of _________ DOLLARS ($__________) [or such other amount as is indicated on Schedule A hereto]2 on the Stated Maturity shown above (or upon earlier redemption), and to pay interest thereon from the Original Issue Date shown above, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually in arrears on each Interest Payment Date as specified above, commencing on January 15, 2004 and on the Stated Maturity (or upon earlier redemption) at the rate per annum shown above until the principal hereof is paid or made available for payment and on any overdue principal and on any overdue installment of interest. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date (other than an Interest Payment Date that is the Stated Maturity or on a Redemption Date) will, as provided in such Indenture, be paid to the Person in whose name this Note (the "Note") is registered at the close of business on the Regular Record Date as specified above next preceding such Interest Payment Date, provided that any interest payable at Stated Maturity or on any Redemption Date will be paid to the Person to whom principal is payable. Except as otherwise provided in the Indenture, any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Note is registered at the close of business on a Special Record Date for the payment of such defaulted interest to be fixed by the Trustee, notice whereof shall be given to Holders of Notes of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange, if any, on which the Notes of this series shall be listed, and upon such notice as may be required by any such exchange, all as more fully provided in the Indenture. Payments of interest on this Note will include interest accrued to but excluding the respective Interest Payment Dates. Interest payments for this Note shall be computed and paid on the basis of a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on this Note is not a Business Day, then payment of the interest payable on such date will be made on the next succeeding day that is a Business Day, with the same force and effect as if made on the date the payment was originally payable. A "Business Day" shall mean any day other than a Saturday or a Sunday or a day on which banking institutions in New York City are authorized or required by law or executive order to remain closed or a day on which the Corporate Trust Office of the Trustee is closed for business. Payment of the principal of and interest due at the Stated Maturity or earlier redemption of this Note shall be made upon surrender of this Note at the Corporate Trust Office of the Trustee, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Payment of interest (including interest on an Interest Payment Date) will be made, subject to such surrender where applicable, at the option of the Company, (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) by wire transfer at such place and to such account at a banking institution in the United States as may be designated in writing to the Trustee at least 16 days prior to the date for payment by the Person entitled thereto. REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS NOTE SET FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE. 2 Insert in the Rule 144A Global Security and the Regulation S Global Security only. Unless the certificate of authentication hereon has been executed by the Trustee by manual signature, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. Dated: July __, 2003. SOUTHERN POWER COMPANY By: Name: Title: Attest: CERTIFICATE OF AUTHENTICATION This is one of the Senior Notes referred to in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee By: Authorized Signatory (Reverse Side of Note) This Note is one of a duly authorized issue of Senior Notes of the Company (the "Notes"), issued and issuable in one or more series under a Senior Note Indenture, dated as of June 1, 2002, as supplemented (the "Indenture"), among the Company and The Bank of New York, Trustee (the "Trustee," which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitation of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Notes issued thereunder and of the terms upon which said Notes are, and are to be, authenticated and delivered. This Note is one of the series designated on the face hereof as 4.875% Senior Notes Series [C/D] due July 15, 2015 initially issued in the aggregate principal amount of $575,000,000. Capitalized terms used herein for which no definition is provided herein shall have the meanings set forth in the Indenture. This Note will be redeemable by the Company in whole or in part at any time upon not less than 30 nor more than 60 days' notice, at a redemption price equal to 100% of the principal amount of this Note being redeemed plus accrued interest on the principal amount of this Note, if any, to the redemption date, plus the Make-Whole Premium. In the event of redemption of this Note in part only, a new Note or Notes for the unredeemed portion will be issued in the name or names of the Holders thereof upon the surrender thereof. This Note will not have a sinking fund. If an Event of Default with respect to the Notes of this series shall occur and be continuing, the principal of the Notes of this series may be declared due and payable in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Notes of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in principal amount of the Notes at the time Outstanding of each series to be affected. The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Notes of each series at the time Outstanding, on behalf of the Holders of all Notes of such series, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this Note. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Note at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note is registrable in the Security Register, upon surrender of this Note for registration of transfer at the office or agency of the Company for such purpose, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar and duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Notes of this series, of authorized denominations and of like tenor and for the same aggregate principal amount, will be issued to the designated transferee or transferees. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. The Notes of this series are issuable only in registered form without coupons in denominations of $100,000 and integral multiples of $1,000 in excess thereof. As provided in the Indenture and subject to certain limitations therein set forth, Notes of this series are exchangeable for a like aggregate principal amount of Notes of this series of a different authorized denomination, as requested by the Holder surrendering the same upon surrender of the Note or Notes to be exchanged at the office or agency of the Company. This Note shall be governed by, and construed in accordance with, the internal laws of the State of New York. ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM- as tenants in UNIF GIFT MIN ACT- _______ Custodian ________ common (Cust) (Minor) TEN ENT- as tenants by the entireties under Uniform Gifts to JT TEN- as joint tenants Minors Act with right of survivorship and ________________________ not as tenants (State) in common Additional abbreviations may also be used though not on the above list. FOR VALUE RECEIVED, the undersigned hereby sell(s) and transfer(s) unto ___________________ (please insert Social Security or other identifying number of assignee) PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE OF ASSIGNEE the within Note and all rights thereunder, hereby irrevocably constituting and appointing agent to transfer said Note on the books of the Company, with full power of substitution in the premises. Dated: -------------------- -------------------------------------------- NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within instrument in every particular without alteration or enlargement, or any change whatever. In connection with any transfer of any of the Series C Notes evidenced by this certificate, the undersigned confirms that such Series C Notes are being: CHECK ONE BOX BELOW (1) exchanged for the undersigned's own account without transfer; or (2) transferred to a person whom the undersigned reasonably believes to be a "qualified institutional buyer" as defined in Rule 144A under the Securities Act of 1933 who is purchasing such Series C Notes for such buyer's own account or the account of a "qualified institutional buyer" in a transaction meeting the requirements of Rule 144A under the Securities Act of 1933 and any applicable securities laws of any state of the United States or any other jurisdiction; or (3) exchanged or transferred pursuant to and in compliance with Rule 903 or 904 of Regulation S under the Securities Act of 1933; or (4) exchanged or transferred to an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act pursuant to Rule 144A (and based upon an opinion of counsel if the Company or the Trustee so requests) and, to the knowledge of the transferor of the Series C Notes, such institutional accredited investor to whom such Note is to be transferred is not an "affiliate" (as defined in Rule 144 under the Securities Act) of the Company; or (5) transferred pursuant to another available exemption from the registration requirements of the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the Series C Notes evidenced by this certificate in the name of any person other than the registered Holder thereof; provided, however, that if box (3), (4) or (5) is checked, the Company may require, prior to registering any such transfer of the Series C Notes, such legal opinions, certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act; provided, further, that if box (2) is checked, the transferee must also certify that it is a qualified institutional buyer as defined in Rule 144A. Signature - --------------------------------------- TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Series C Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Date: ------------------------------ NOTICE: To be executed by an executive officer. SCHEDULE A The initial aggregate principal amount of Series C Notes evidenced by the Certificate to which this Schedule is attached is $___________. The notations on the following table evidence decreases and increases in the aggregate principal amount of Series C Notes evidenced by such Certificate.
Principal Amount of Series C Notes Remaining Decrease in Principal Amount Increase in Principal After Such Decrease or Notation by of Series C Notes Amount of Series C Notes Increase Security Registrar - -------------------------------------------------------------------------------
EXHIBIT B CERTIFICATE OF AUTHENTICATION This is one of the Senior Notes referred to in the within-mentioned Indenture. THE BANK OF NEW YORK as Trustee By: Authorized Signatory EXHIBIT C FORM OF TRANSFER CERTIFICATE In connection with any transfer of any of the Series C Notes evidenced by this certificate, the undersigned confirms that such Series C Notes are being: CHECK ONE BOX BELOW (1) exchanged for the undersigned's own account without transfer; or (2) transferred to a person whom the undersigned reasonably believes to be a "qualified institutional buyer" as defined in Rule 144A under the Securities Act of 1933 who is purchasing such Series C Notes for such buyer's own account or the account of a "qualified institutional buyer" in a transaction meeting the requirements of Rule 144A under the Securities Act of 1933 and any applicable securities laws of any state of the United States or any other jurisdiction; or (3) exchanged or transferred pursuant to and in compliance with Rule 903 or 904 of Regulation S under the Securities Act of 1933; or (4) exchanged or transferred to an institutional "accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act pursuant to Rule 144A (and based upon an opinion of counsel if the Company or the Trustee so requests) and, to the knowledge of the transferor of the Series C Notes, such institutional accredited investor to whom such Note is to be transferred is not an "affiliate" (as defined in Rule 144 under the Securities Act) of the Company; or (5) transferred pursuant to another available exemption from the registration requirements of the Securities Act of 1933. Unless one of the boxes is checked, the Trustee will refuse to register any of the Series C Notes evidenced by this certificate in the name of any person other than the registered Holder thereof; provided, however, that if box (3) or (4) is checked, the Company may require, prior to registering any such transfer of the Series C Notes, such legal opinions, certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act; provided, further, that if box (2) is checked, the transferee must also certify that it is a qualified institutional buyer as defined in Rule 144A. Signature TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Series C Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Date: ------------------------------ NOTICE: To be executed by an executive officer. EXHIBIT D FORM OF LETTER TO BE DELIVERED BY INSTITUTIONAL ACCREDITED INVESTORS Southern Power Company 270 Peachtree Street, N.W. Atlanta, Georgia 30303 Citigroup Global Markets Inc. Lehman Brothers Inc. as representatives of the several initial purchasers (collectively, the "Initial Purchasers") c/o Lehman Brothers Inc. 745 Seventh Avenue New York, New York 10019 and Citigroup Global Markets Inc. 390 Greenwich Street New York, New York 10013 Ladies and Gentlemen: We are delivering this letter in connection with an offering of 4.875% Senior Notes, Series C due July 15, 2015 (the "Notes") issued by Southern Power Company (the "Company"). We confirm that we understand that the Notes have not been and will not be registered under the Securities Act of 1933, as amended (the "Securities Act"), or any other applicable securities law and may not be offered, sold or otherwise transferred unless registered pursuant to, or exempt from registration under, the Securities Act or any other applicable securities law. We also represent and agree as follows: (i) We are an "institutional accredited investor" within the meaning of Rule 501(a)(1), (2) or (3) under the Securities Act or an entity in which all of the equity owners are accredited investors within the meaning of Rule 501(a)(1), (2) or (3) under the Securities Act (an "Institutional Accredited Investor"); (ii) (A) any purchase of the Notes by us will be for our own account or for the account of one or more other Institutional Accredited Investors or as fiduciary for the account of one or more trusts, each which is an "accredited investor" within the meaning of Rule 501(a)(7) under the Securities Act and for each of which we exercise sole investment discretion or (B) we are a "bank", within the meaning of Section 3(a)(2) of the Securities Act, or a "savings and loan association" or other institution described in Section 3(a)(5)(A) of the Securities Act that is acquiring the Notes as fiduciary for the account of one or more institutions for which we exercise sole investment discretion; (iii) in the event that we purchase any of the Notes, we will acquire Notes having a minimum purchase price of not less than $100,000 for our own account or for any separate account for which we are acting; (iv) we have such knowledge and experience in financial and business matters that we are capable of evaluating the merits and risks of purchasing the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment in the Notes; (v) we are not acquiring the Notes with a view to distribution thereof or with any present intention of offering or selling any of the Notes, except inside the United States in accordance with Rule 144A under the Securities Act or outside the United States in accordance with Regulation S under the Securities Act, as provided below; provided that the disposition of our property and the property of any accounts for which we are acting as fiduciary shall remain at all times within our control; and (vi) we acknowledge that (A) we have been afforded an opportunity to request from the Company and to review, and we have received, all additional information considered by us to be necessary to verify the accuracy of the information contained in the offering memorandum relating to the Notes dated July 1, 2003 (the "Offering Memorandum"); (B) we have not relied on any Initial Purchaser or any person affiliated with any Initial Purchaser in connection with our investigation of the accuracy of the information contained in the Offering Memorandum or our investment decision; and (C) no person has been authorized to give any information or to make any representation concerning the Notes other than those contained in the Offering Memorandum and, if given or made, such other information or representation should not be relied upon as having been authorized by any Initial Purchaser. We understand that the Notes are being offered in a transaction not involving any public offering within the United States within the meaning of the Securities Act and that the Notes have not been and will not be registered under the Securities Act, and we agree, on our own behalf and on behalf of each account for which we acquire any Notes, that if in the future we decide to resell, pledge or otherwise transfer such Notes, such Notes may be offered, resold, pledged or otherwise transferred only (i) in the United States to a person who we reasonably believe is a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act) in a transaction meeting the requirements of Rule 144A, (ii) outside the United States in a transaction in accordance with Rule 904 under the Securities Act, (iii) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available), (iv) to an Institutional Accredited Investor that, prior to such transfer, furnishes to you and the Company, a signed letter substantially in the form of this letter or (v) pursuant to an effective registration statement under the Securities Act, in each of cases described in (i) through (v), in accordance with any applicable securities laws of any State of the United States or any other applicable jurisdiction. We understand that the registrar and transfer agent for the Notes will not be required to accept for registration of transfer any Notes acquired by us, except upon presentation of evidence satisfactory to the Company and the transfer agent that the foregoing restrictions on transfer have been complied with. We further understand that any Notes acquired by us will be in definitive, certificated form and that such certificated Notes will bear a legend reflecting the substance of this paragraph. We acknowledge that you, the Company and others will rely upon our confirmations, acknowledgements and agreements set forth herein, and we agree to notify you promptly in writing if any of our representations or warranties herein ceases to be accurate and complete. You are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. Date:____________________________ __________________________________ (Name of Purchaser) By:________________________________ Name: Title: Address: EX-10.1 5 x10a1.txt CHANGE IN CONTROL SEVERANCE PLAN Exhibit 10(a)1 SOUTHERN COMPANY CHANGE IN CONTROL SEVERANCE PLAN Troutman Sanders LLP Bank of America Plaza, Suite 5200 600 Peachtree Street, N.E. Atlanta, Georgia 30308 Effective May 1, 2003 SOUTHERN COMPANY CHANGE IN CONTROL SEVERANCE PLAN ARTICLE 1 - PURPOSE AND ADOPTION OF PLAN 1.1 Adoption of Plan. Southern Company Services, Inc. hereby adopts this Southern Company Change in Control Severance Plan, effective as of the date of execution hereof. This Plan was originally effective December 7, 1998; it was amended by a First Amendment also effective December 7, 1998, and subsequently amended and restated effective July 10, 2000 and effective May 9, 2002. This amended and restated Plan is effective May 1, 2003. The Plan shall be an unfunded severance pay plan that is a welfare plan as such term is defined by the Employee Retirement Income Security Act of 1974, the benefits of which shall be paid solely from the general assets of the respective Employing Companies. 1.2 Purpose. The Plan is primarily designed to provide benefits to certain employees of the Employing Companies, whose employment is terminated subsequent to a change in control of Southern or their respective Employing Company. ARTICLE 2 - DEFINITIONS 2.1 "Administrative Committee" shall mean the Board of Directors, plus, in the event of any act necessary to be taken in connection with the Plan relative to a particular Participant, the Chief Executive Officer of the Participant's Employing Company, if such Chief Executive Officer is not already a member of the Board of Directors. 2.2 "Beneficial Ownership" shall mean beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act. 2.3 "Board of Directors" shall mean the board of directors of the Company. 2.4 "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. 2.5 "Change in Control" shall mean, (a) with respect to Southern, the occurrence of 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 Section 2.5(a)(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 an employee of Southern or its subsidiary or affiliate or Group composed exclusively of such 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 2.5(a)(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'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 qualified pension plan, publicly held mutual fund, Group composed exclusively of Employees or employee benefit plan (or related trust) of Southern, any Southern Subsidiary 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. (b) with respect to an Employing Company, the occurrence of any of the following: (i) 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 2.5(b)(i), any acquisition by an employee of Southern or its subsidiary or affiliate, or Group composed entirely of such 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 Southern Subsidiary shall not constitute a Change in Control; (ii) 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 or a Southern Subsidiary 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 an Employing Company to an entity which Southern or a Southern Subsidiary does not Control. Notwithstanding the foregoing, in no event shall "Change in Control" mean an initial public offering or a spin-off of an Employing Company, 2.6 "COBRA Coverage" shall mean any continuation coverage to which a Participant or his dependents may be entitled pursuant to Code Section 4980B. 2.7 "Code" shall mean the Internal Revenue Code of 1986, as amended. 2.8 "Company" shall mean Southern Company Services, Inc., its successors and assigns. 2.9 "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 governmental agencies. 2.10 "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. 2.11 "Effective Date" shall mean the date of execution hereof. 2.12 "Employee" shall mean each regular full-time or regular part-time employee of an Employing Company of Grade 9 or below (or, if the Grade system is not used, below $130,000 of annual base salary rate for the twelve month period immediately preceding the Change in Control) not covered by a collective bargaining agreement between the Employing Company and a union or other employee representative. The Administrative Committee of the Southern Company Change in Control Benefit Determination Policy may deem one or more Employees (as defined in this Section 2.12 except not employed by an Employing Company) of a particular Southern Subsidiary, or corporation or entity Controlled by a Southern Subsidiary, to be employed by an Employing Company for certain purposes under this Plan. Such action shall be in writing and shall cause such an Employee to only be entitled to benefits under this Plan in the event of a Change in Control of his deemed Employing Company, and not his actual employing company. Notwithstanding the above, no employee shall participate in the Plan if, prior to a change in control, the employee has entered into a change in control agreement and such employee elects to receive benefits under such agreement. 2.13 "Employee Outplacement Program" shall mean the program established by the Employing 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: (a) self assessment, career decision and goal setting; (b) job market research and job sources; (c) networking and interviewing skills; (d) planning and implementation strategy; (e) resume writing, job hunting methods and salary negotiation; and (f) office support and job search resources. 2.14 "Employing Company" shall mean the Company, or any other Southern Subsidiary, 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. The term "Employing Company" shall also mean any corporation or entity Controlled by a Southern Subsidiary which the Compensation Committee of the Southern Board has determined to bring under the Plan and which shall adopt the Plan, and any successor of any of them. The participation of Southern Company Gas, LLC in the Plan as an Employing Company shall be limited to Support Employees. 2.15 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 2.16 "Good Reason" shall mean, without an Employee's express written consent, after written notice to his Employing Company, and after a thirty (30) day opportunity for the Employee's Employing Company to cure, the continuing occurrence of any of the following events: (a) Reduced Salary. A reduction of five percent (5%) or more by the Employing Company in either of the following: (i) the Employee's annual base salary rate for the twelve month period immediately preceding the Change in Control ("Base Salary") (except for a less than ten percent (10%), across-the-board Base Salary reduction similarly affecting at least ninety-five percent (95%) of all Employees of the Employing Company) or (ii) the sum of the Employee's Base Salary plus target bonus under his Employing Company's short term bonus plan (e.g., the PPP under the Omnibus Plan), as in effect immediately prior to the Change in Control (except for a less than ten percent (10%), across-the-board reduction of Base Salary plus target bonus under such short term plans similarly affecting at least ninety-five (95%) of all Employees of the Employing Company); (b) Relocation. A change in an Employee's work location to a location more than fifty (50) miles from the facility where the Employee was located at the time of the Change in Control, unless such new work location is within fifty (50) miles from the Employee's principal place of residence at the time of the Change in Control. The acceptance, if any, by an Employee of employment by an Employing Company at a work location which is outside the fifty mile radius set forth in this Section 2.16(b) shall not be a waiver of the Employee's right to refuse subsequent transfer by an Employing Company to a location which is more than fifty (50) miles from the Employee'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; (c) Compensation Plans. The failure by an Employing Company to continue in effect any "compensation plan or agreement" in which an Employee participates or the elimination of the Employee's participation in any such plan (except for across-the-board plan changes or terminations similarly affecting at least ninety-five percent (95%) of all Employees of the Employing Company); For purposes of this Section 2.16(c), the term "compensation plan or agreement" shall mean any written arrangement executed by an authorized officer of the Employing Company which provides for periodic, non-discretionary compensatory payments to Employees in the nature of bonuses. (d) Benefits and Perquisites. The taking of any action by the Employing Company that would directly or indirectly materially reduce the benefits enjoyed by an Employee under the Employing Company's retirement, life insurance, medical, health and accident, disability, deferred compensation or savings plans in which the Employee was participating immediately prior to the Change in Control, or the failure by the Employing Company to provide an Employee with the number of paid vacation days or, if applicable, paid time off days to which the Employee is entitled on the basis of years of service with the Employing Company in accordance with the Employing Company's normal vacation policy or the paid time off program (whichever applicable) in effect immediately prior to the Change in Control (except for across-the-board vacation policy or paid time off program changes or policy or program terminations similarly affecting at least ninety-five percent (95%) of all Employees of the Employing Company). 2.17 "Group" shall have the meaning set forth in Section 14(d) of the Exchange Act. 2.18 "Group Health Plan" shall mean the group health plan covering the Participant, as such plan may be amended from time to time. 2.19 "Group Life Insurance Plan" shall mean the group life insurance program covering the Participant, as such plan may be amended from time to time. 2.20 "Incumbent Board" shall mean those individuals who constitute the Southern Board 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 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. 2.21 "Month of Service" shall mean any calendar month during which a Participant has worked at least one (1) hour or was on approved leave of absence while in the employ of an Employing Company or any other Southern Subsidiary. 2.22 "Omnibus Plan" shall mean the Southern Company Omnibus Incentive Compensation, and the Design and Administrative Specifications duly adopted thereunder, as in effect on the date before the date of a Change in Control, as may be amended from time to time. 2.23 "Participant" shall mean an Employee or Support Employee who meets the eligibility requirements of Section 3.1 of this Plan. 2.24 "Pension Plan" shall mean The Southern Company Pension Plan or any successor thereto, as such plans may be amended from time to time. 2.25 "Performance Dividend Program" or "PDP" shall mean the Performance Dividend Program under the Omnibus Plan or any replacement thereto, as such plans may be amended from time to time. 2.26 "Performance Pay Program" or "PPP" shall mean the Performance Pay Program under the Omnibus Plan or any replacement thereto, as such plans may be amended from time to time. 2.27 "Person" shall mean any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of Exchange Act. 2.28 "Plan" shall mean the Southern Company Change in Control Severance Plan. 2.29 "Preliminary Change in Control" shall mean the occurrence of any of the following as determined by the Southern Committee. (a) Southern or an Employing Company has entered into a written agreement, such as, but not limited to, a letter of intent, which, if Consummated, would result in a Change in Control; (b) Southern, an Employing Company or any Person publicly announces an intention to take or to consider taking actions which, if Consummated, would result in a Change of Control under circumstances where the Consummation of the announced action or intended action is legally and financially possible; (c) Any Person achieves the Beneficial Ownership of fifteen percent (15%) or more of the Common Stock; or (d) The Southern Board or the board of directors of an Employing Company has declared that a Preliminary Change of Control has occurred. 2.30 "Southern" shall mean The Southern Company, its successors and assigns. 2.31 "Southern Board" shall mean the board of directors of Southern. 2.32 "Southern Committee" shall mean the committee comprised of the Chairman of the Southern Board, Chief Financial Officer of Southern, General Counsel of Southern and the Chairman of the Administrative Committee. 2.33 "Southern Subsidiary" shall mean any corporation or other entity Controlled by Southern or another Southern Subsidiary. 2.34 "Straight Time Pay" shall mean a Participant's highest base salary during the calendar year in which his Termination Date occurs, plus the average of the most recent three years' commission pay (if employed less than three years, the average of the period of employment). Base salary shall include "add ons" such as monthly shift differential, monthly premium pay, etc., but shall not include overtime pay. For Participants who were part-time Employees "Straight Time Pay" shall mean the actual average salary, plus the average of the most recent three years' commission pay (if employed less than three years, the average of the period of employment), paid during the calendar year in which the Participant's Termination Date occurs. 2.35 "Support Employee" shall mean an Employee of the Company (which shall continue to be such Employee's Employing Company for purposes of this Plan) who: (a) Is involuntarily terminated without Cause within one year of the Change in Control of an Employing Company (other than the Company) and either (i) spent at least 40% of his working time performing services for such Employing Company at the time of the Change in Control and for the six months prior thereto, or (ii) is determined by the Administrative Committee to be involuntarily terminated without Cause as a result of such Change in Control; or (b) Voluntarily terminates with Good Reason within one year of the Change in Control of an Employing Company (other than the Company) and spent at least 40% of his working time performing services for such Employing Company at the time of the Change in Control and for the six months prior thereto. 2.36 "Termination for Cause" or "Cause" shall mean an Employee's termination of employment with his Employing Company upon the occurrence of any of the following: (a) The willful and continued failure by the Employee to substantially perform his duties with his Employing Company (other than any such failure resulting from the Employee's Total Disability or from the Employee's retirement or any such actual or anticipated failure resulting from termination by the Employee for Good Reason) after a written demand for substantial performance is delivered to him by the Employee's responsible corporate officer, which demand specifically identifies the manner in which such corporate officer believes the Employee has not substantially performed his duties; or (b) The willful engaging by the Employee in conduct that is demonstrably and materially injurious to his Employing Company, monetarily or otherwise, including but not limited to any of the following: (i) any willful act involving fraud or dishonesty in the course of an Employee's employment by his Employing Company; (ii) the willful carrying out of any activity or the making of any statement by an Employee which would materially prejudice or impair the good name and standing of his Employing Company, Southern or any other Southern Subsidiary or would bring his Employing Company, Southern or any other Southern Subsidiary into contempt, ridicule or would reasonably shock or offend any community in which his Employing Company, Southern or such other Southern Subsidiary is located; (iii) attendance by an Employee 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; (iv) violation of his Employing 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 Employing Company's safety officer; (v) assault or other act of violence by an Employee against any person during the course of employment; or (vi) an Employee's indictment for any felony or any misdemeanor involving moral turpitude. No act or failure to act by an Employee shall be deemed "willful" unless done, or omitted to be done, by the Employee not in good faith and without reasonable belief that his action or omission was in the best interest of his Employing Company. Notwithstanding the foregoing, an Employee 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 the majority of the Administrative Committee at a meeting called and held for such purpose (after reasonable notice to the Employee and an opportunity for him, together with counsel, to be heard before the Administrative Committee), finding that, in the good faith opinion of the Administrative Committee, the Employee was guilty of conduct set forth in Section 2.36(a) or (b) hereof and specifying the particulars thereof in detail. 2.37 "Termination Date" shall mean the date on which a Participant is separated from his Employing Company's regular payroll; provided, however, that solely for purposes of Section 3.2(c) hereof, the Termination Date of Participants who are deemed to be retired pursuant to the provisions of Section 3.3 hereof, shall be the effective date of their retirement pursuant to the terms of the Pension Plan. 2.38 "Total Disability" shall mean total disability under the terms of the Pension Plan. 2.39 "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. 2.40 "Waiver and Release" shall mean the Waiver and Release attached hereto as Exhibit A. 2.41 "Year of Service" shall mean an Employee'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 an Employee has a break in his service with his Employing Company, he will receive credit under this Plan for the service prior to the break in service only if the break in service was less than five years and his service prior to the break exceeds the length of the break in service. ARTICLE 3 - SEVERANCE BENEFITS 3.1 Eligibility. (a) Employees. Except as otherwise provided herein, any Employee whose employment is involuntarily terminated by his Employing Company at any time during the two year period following a Change in Control of Southern or his Employing Company for reasons other than Cause or who shall voluntarily terminate his employment with his Employing Company for Good Reason at any time during the two year period following a Change in Control of Southern or his Employing Company shall be entitled to participate in this Plan and receive the benefits described in Section 3.2 hereof, subject to the terms and conditions described in this Article 3. (b) Deemed Employees. An Employee who is deemed to be employed by a different Employing Company than his actual Employing Company under Section 2.12 hereof, shall be entitled to participate in this Plan and receive the benefits described in Section 3.2 hereof in the same manner as other Employees under Section 3.1(a) hereof; provided, however, that such deemed Employee will be considered to be an Employee of the deemed Employing Company solely for purposes of determining whether a Change in Control has occurred. For all other purposes under this Plan, such deemed Employee's actual Employing Company shall be considered. (c) Support Employees. A Support Employee shall be entitled to participate in this Plan and receive the benefits described in Section 3.2 hereof, subject to the terms and conditions described in this Article 3. (d) Limits on Eligibility. Notwithstanding anything to the contrary herein, an Employee or Support Employee shall not be eligible to receive benefits under this Plan if the Employee or Support Employee: (i) is not actively at work on his Termination Date, unless such Employee or Support Employee is capable of returning to work within twelve (12) weeks of the beginning of any leave of absence from work; (ii) voluntarily terminates his employment with his Employing Company for other than Good Reason; (iii) is terminated by his Employing Company for Cause; (iv) accepts the transfer of his employment to Southern, any Southern Subsidiary or any employer that acquires all or substantially all of the assets of Southern, a Southern Subsidiary or his Employing Company; (v) refuses an offer of continued employment with his Employing Company, Southern or a Southern Subsidiary, or any employer that acquires all or substantially all of the assets of Southern, a Southern Subsidiary or his Employing Company, under circumstances where such refusal would not amount to Good Reason for voluntary termination of employment and such employer agrees to adopt this Plan as it applies to such Participant; or (vi) elects to receive the benefits of any other voluntary or involuntary severance, separation or outplacement program, plan or agreement maintained by his Employing Company in lieu of benefits under this Plan; provided however, that the receipt of benefits under any retention plan or agreement shall not be deemed to be the receipt of benefits under any severance, separation or outplacement program for purposes of this Plan. 3.2 Benefits. Upon the Employing Company's receipt of an effective Waiver and Release, Participants shall be entitled to receive the following benefits: (a) Employee Outplacement Services. Each Participant shall be eligible to participate in the Employee Outplacement Program, which program shall not be less than six (6) months duration measured from the Participant's Termination Date. (b) Severance Benefit. Each Participant shall be paid a cash amount equal to the sum of the following amounts: (i) eight (8) weeks' Straight Time Pay, (ii) one (1) week's Straight Time Pay for each of the Participant's first five (5) Years of Service; (iii) two (2) weeks' Straight Time Pay for each of the Participant's sixth (6th) through tenth (10th) Years of Service; (iv) three (3) weeks' Straight Time Pay for each of the Participant's eleventh (11th) through fifteenth (15th) Years of Service; (v) five (5) weeks' Straight Time Pay for each of the Participant's sixteenth (16th) through twentieth (20th) Years of Service; and (vi) six (6) weeks' Straight Time Pay for each of the Participant's Years of Service in excess of twenty (20) Years of Service. (c) Welfare Benefit. (i) Except as provided in Section 3.3 hereof, each Participant shall be eligible to participate in the Employing Company's Group Health Plan for a period of six (6) months for each of the Participant's Years of Service, not to exceed a period of five (5) years, beginning on the first day of the first month following the Participant's Termination Date unless otherwise specifically provided under such plan, upon the Participant's payment of both the Employing Company's and the Participant's premium under such plan. A Participant who receives this extended medical coverage shall also be entitled to elect coverage under the Group Health Plan for his dependents who are participating in the Group Health Plan on the Participant'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 the Participant's extended medical coverage under this Section 3.2(c) to the extent such dependents remain eligible for dependent coverage under the terms of the Group Health Plan. (ii) The extended medical coverage afforded to a Participant pursuant to this Section 3.2(c) as well as the premiums to be paid by the Participant 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 the Participant in connection with this extended coverage shall be due on the first day of each month; provided, however, that if a Participant fails to pay his premium within thirty (30) days of its due date, such Participant's extended coverage shall be terminated. (iii) Any Group Health Plan coverage provided under this Section 3.2(c) shall be a part of and not in addition to any COBRA Coverage which a Participant or his dependent may elect. In the event that a Participant or his 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 Employing Company's Group Health Plan available to the Participant or his dependent by virtue of the provisions of this Article 3 shall terminate, except as may otherwise be required by law, and shall not be renewed. It shall be the duty of a Participant to inform the Employing Company of his eligibility to participate in any such health plan. (iv) Except as otherwise provided in Section 3.3 hereof, regardless of whether a Participant elects the extended coverage described in Section 3.2(c) hereof, the Employing Company shall pay to each Participant a cash amount equal to the Employing Company's and the Participant's cost of premiums for coverage under the Group Health Plan and Group Life Insurance Plan, if the Participant was participating in such plans on his Termination Date, for a period equal to the total number of weeks of pay the Participant receives as a severance benefit under Section 3.2(b) hereof. (d) Stock Option Vesting. The provisions of this Section 3.2(d) shall apply to any Participant who, as of the date of the Change in Control, was a participant in the Omnibus Plan, the defined terms of which are incorporated in this Section 3.2(d) by reference. (i) Any of the Participant's Options and Stock Appreciation Rights outstanding as of the Termination Date 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 Participant holding a Stock Appreciation Right who 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 the Participant 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. (ii) The restrictions and deferral limitations applicable to any of the Participant's Restricted Stock and Restricted Stock Units as of the Termination Date shall lapse, and such Restricted Stock and Restricted Stock Units shall become free of all restrictions and limitations and become fully vested and transferable to the full extent of the original grant. (e) Performance Pay Program. The provisions of this Section 3.2(e) shall apply to any Participant who, as of the date of the Change in Control, was a participant in the Performance Pay Program, the defined terms of which are incorporated in this Section 3.2(e) by reference. Provided the Participant is not entitled to a Cash-Based Award under the PPP, if the PPP is in place as of the Participant's Termination Date and to the extent the Participant is entitled to participate therein, the Participant shall be entitled to receive cash in an amount equal to a prorated payout of his Cash-Based Award under the PPP for the performance period in which the Termination Date shall have occurred, at target performance under the PPP and prorated by the number of months which have passed since the beginning of the performance period until the Termination Date. (f) Performance Dividend Program. The provisions of this Section 3.2(f) shall apply to any Participant who, as of the date of the Change in Control, was a participant in the Performance Dividend Program, the defined terms of which are incorporated in this Section 3.2(f) by reference. Provided the Participant is not entitled to a Cash-Based Award under the PDP, if the PDP is in place through the Participant's Termination Date and to the extent the Participant is entitled to participate therein, the Participant shall be entitled to receive cash for each such Cash-Based Award under the PDP held as of such date based on a payout percentage of 50% under the PDP for the performance period in which the Termination Date shall have occurred, and the annual dividend declared prior to the Termination Date. (g) Other Short Term Incentives Under the Omnibus Plan. The provisions of this Section 3.2(g) shall apply to any Participant who, as of the date of the Change in Control is entitled to a Performance Unit or Performance Share award under the Omnibus Plan. Provided the Participant is not otherwise entitled to a Performance Unit/Share award under the Omnibus Plan, the Participant shall be entitled to receive cash in an amount equal to a prorated payout of the value of his Performance Units and/or Performance Shares for the performance period in which the Termination Date shall have occurred, at target performance and prorated by the number of months which have passed since the beginning of the performance period until the Termination Date. (h) Other Short-Term Incentive Plans. The provisions of this Section 3.2(h) shall apply to any Participant who, as of the date of the Change in Control, is a participant in any other "short term incentive compensation plan" not otherwise previously referred to in this Section 3.2. Provided the Participant is not otherwise entitled to a plan payout under any change in control provisions of such plans, if the "short term incentive compensation plan" is in place through the Participant's Termination Date and to the extent the Participant is entitled to participate therein, the Participant shall be entitled to receive cash in an amount equal to his award under his respective Employing Company's "short term incentive compensation plan" for the annual performance period in which the Termination Date shall have occurred, at the Participant's target performance level and prorated by the number of months which have passed since the beginning of the annual performance period until the Termination Date. For purposes of this Section 3.2(h), the term "short term incentive compensation plan" shall mean any incentive compensation plan or arrangement adopted in writing by an Employing Company which provides for annual, recurring compensatory bonuses to participants based upon articulated performance criteria, and which have been identified by the Board of Directors and listed on Exhibit B hereto, which may be amended from time to time to reflect plan additions, terminations and amendments. 3.3 Coordination with Retiree Medical and Life Insurance Coverage. Notwithstanding anything to the contrary above, any Participant who is otherwise eligible to retire pursuant to the terms of the Pension Plan, shall be deemed to have retired for purposes of all employee benefit plans sponsored by the Employing Company of which the Participant is a participant. A Participant who is deemed to have retired in accordance with the preceding sentence shall not be eligible to receive the benefits described in Section 3.2(c) hereof if, upon his Termination Date, such Participant becomes eligible to receive the retiree medical and life insurance coverage provided to certain retirees pursuant to the terms of the Pension Plan, the Group Health Plan and the Group Life Insurance Plan. 3.4 Maximum Benefit. Notwithstanding anything to the contrary above, with respect to each Participant, the maximum benefit payable under this Article 3 shall be an amount equal to two (2) times such Participant's "annual compensation" as defined in Department of Labor Regulation Section 2510.3-2(b), which, for purposes of this Plan shall be no less than Straight Time Pay plus thirty percent (30%). When necessary, the Administrative Committee shall reduce the severance benefits described in Section 3.2(b) and 3.2(c)(iv) hereof to comply with this Section 3.4. 3.5 Payment of Benefits. The total amount payable under this Article 3 shall be paid to a Participant in one (1) lump sum payment within two (2) payroll periods of the later of the following to occur: (a) the Participant's Termination Date, or (b) the tender to the Employing Company by the Participant of an effective Waiver and Release (in the form of Exhibit A 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 Employing Company. 3.6 Benefits in the Event of Death. In the event of the Participant's death prior to the payment of all benefits due under this Article 3, the Participant's estate shall be entitled to receive as due any amounts not yet paid under this Article 3 upon the tender by the executor or administrator of the estate of an effective Waiver and Release. 3.7 Legal Fees. In the event of a dispute between a Participant and his Employing Company with regard to any amounts due hereunder, if any material issue in such dispute is finally resolved in the Participant's favor, his Employing Company shall reimburse the Participant's legal fees incurred with respect to all issues in such dispute in an amount not to exceed fifteen thousand dollars ($15,000). 3.8 No Mitigation. A Participant who receives benefits under Section 3.2 of this Plan shall have no duty or obligation to seek other employment following his Termination Date and, except as otherwise provided in Subsection 3.1(d) hereof, the amounts due a Participant hereunder shall not be reduced or suspended if such Participant accepts such subsequent employment. 3.9 Non-qualified Retirement and Deferred Compensation Plans. Subsequent to a Change in Control, any claims by a Participant 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 procedures and provisions set forth in Article 5 hereof and if any material issue in such dispute is finally resolved in the Participant's favor, the Company shall reimburse the Participant's legal fees in the manner provided in Section 3.7 hereof. ARTICLE 4 - ADMINISTRATION 4.1 Administrative Committee. The Administrative Committee shall be responsible for the general administration of the Plan and shall be a "named fiduciary" under Section 402 of the Employee Retirement Income Security Act of 1974, as amended. 4.2 Duties of the Administrative Committee. (a) The Administrative Committee shall be responsible for the daily administration of the Plan and may appoint other persons or entities to perform or assist in the performance of any of its fiduciary duties, subject to its review and approval. The Administrative Committee shall have the right to remove any such appointee from his position without cause upon notice. Any person, group of persons, or entity may serve in more than one fiduciary capacity. (b) The Administrative Committee shall maintain permanent 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 the Company and any persons designated thereby. (c) The Administrative Committee shall take all steps necessary to ensure that the Plan complies with the law at all times, including the preparation and filing of all documents and forms required by any governmental agency; maintenance of adequate Participant records; recording and transmission of all notices required to be given to Participants and their beneficiaries; receipt and dissemination, if required, of all reports and information received from the Employing Companies; 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 accounts, records, and other data as may be necessary for proper administration of the Plan. The Administrative Committee shall notify the Employing Companies upon their request of any action taken by it, and when required, shall notify any other interested person or persons. 4.3 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 as more particularly set forth herein. The Administrative Committee shall have the discretionary authority to interpret the Plan (including any ambiguities herein) and to determine all questions arising in the administration, interpretation, and application of the Plan. The Administrative Committee shall adopt such procedures and regulations necessary or desirable for the discharge of its duties hereunder and may appoint such accountants, counsel, actuaries, specialists, and other agents as it deems necessary or desirable in connection with the administration of this Plan. The Administrative Committee shall be the legal appointed agent for the service of process. 4.4 Compensation of the Administrative Committee. The Administrative Committee shall not receive any compensation from the Plan for its services. 4.5 Payment of Expenses. The Administrative Committee shall be reimbursed by the Employing Companies for its reasonable expenses incurred in the discharge of its duties. Such expenses shall include any expenses incident to its duties, including, but not limited to, fees of accountants, counsel, actuaries, and other specialists, and other costs of administering the Plan. 4.6 Indemnification. Each Employing Company shall indemnify the Administrative Committee against any and all claims, losses, damages, expenses, and liability arising from its actions or omissions, except when the same is finally adjudicated to be the result of gross negligence or willful misconduct. The Employing Companies may purchase at their own expense sufficient liability insurance for the Administrative Committee to cover any and all claims, losses, damages, and expenses arising from any action or omission in connection with the execution of the duties as the Administrative Committee. ARTICLE 5 - ARBITRATION 5.1 General. Any dispute, controversy or claim arising out of or relating to the Company's obligations to pay severance benefits under this Plan, 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 Article 5 are not intended to apply to any other disputes, claims or controversies arising out of or relating to a Participant's employment by an Employing Company or the termination thereof. 5.2 Demand for Arbitration. Arbitration shall be initiated by serving a written notice of demand for arbitration to the Participant, in the case of an Employing Company, or to the Administrative Committee, in the case of a Participant. 5.3 Law and Venue. The arbitrators shall apply the laws of the State of Georgia, except to the extent pre-empted by federal law, excluding any law which would require the use of the law of another state. The arbitration shall be held in Atlanta, Georgia. 5.4 Appointment of Arbitrators. Arbitrators shall be appointed 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 the Participant, one arbitrator shall be appointed by the Employing 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. 5.5 Costs. The arbitration filing fee shall be paid by the Participant. All other costs of arbitration shall be borne equally by the Participant and his Employing Company, provided, however, that such Employing Company shall reimburse such fees and costs in the event any material issue in such dispute is finally resolved in the Participant's favor and the Participant is reimbursed legal fees under Section 3.7 hereof. 5.6 Interim and Injunctive Relief. Nothing in this Article 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 either party's interests or as otherwise may be appropriate pending the conclusion of arbitration proceedings pursuant to this Article 5 and nothing herein is intended to 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 Article 5. ARTICLE 6 - MISCELLANEOUS 6.1 Funding of Benefits. Unless the Board of Directors in its discretion determines otherwise, the benefits payable to a Participant under the Plan shall not be funded in any manner and shall be paid by the Employing Companies out of their general assets, which assets are subject to the claims of the Employing Companies' creditors. 6.2 Withholding. There shall be deducted from the payment of any benefit due under the Plan the amount of any tax required by any governmental authority to be withheld and paid over by the Employing Companies to such governmental authority for the account of the Participant entitled to such payment. 6.3 Assignment. No Participant or beneficiary shall have any 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. 6.4 Amendment and Termination. The Plan may be amended or terminated at any time by the Board of Directors. Notwithstanding the above, no amendment or termination of the Plan shall be effective if such amendment or termination is made or is effective within six (6) months of a Preliminary Change in Control unless such amendment or termination has the effect of increasing benefits to Participants under the Plan or is determined by the Board of Directors to be immaterial. 6.5 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, this Southern Company Change in Control Severance Plan has been executed by the Company through its duly authorized officers, this 16th day of May, 2003, to be effective as provided herein. SOUTHERN COMPANY SERVICES, INC. By: /s/Ellen N. Lindemann Ellen Lindemann, Senior Vice President Exhibit A SOUTHERN COMPANY CHANGE IN CONTROL SEVERANCE PLAN Waiver and Release I understand that I am entitled to receive the severance benefits described in Article 3 of the Southern Company Change in Control Severance Plan (the "Plan") if I execute this Waiver and Release ("Waiver"). I understand that the benefits I have elected to receive under the Plan are in excess of those I would have received from ____________________ (the "Company") if I had not elected to participate in the Plan and sign this Waiver. I recognize that I may have a claim against the Company under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act, the Rehabilitation Act of 1973, 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. d/b/a Southern LINC, Southern Company Services, Inc., Southern Company Energy Solutions, LLC, Southern Nuclear Operating Company, Inc., Southern Telecom, Inc., Southern Company Management Development, Inc. and other current or former 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, 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. I understand and agree that I am obligated to keep confidential and not disclose the terms of this Waiver, including, but not limited to, the benefits under this Plan, except to my attorneys, financial advisors, or except where such disclosure is required by law. 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 any vested or accrued benefits that I have under any workers' compensation laws or 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 except for programs specifically designed for participants in the Plan. Notwithstanding anything in this Waiver to the contrary, I understand that the Company is not discouraging me or prohibiting me from engaging in any protected activity described in Section 211 of the Energy Reorganization Act. 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 forty-five (45) 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. I understand I do not have to sign this Waiver. IN WITNESS WHEREOF, the undersigned hereby executes this Waiver this _____ day of ________________, in the year ___. Employee's signature Employee's printed name Acknowledged and Accepted by the Administrative Committee of the Southern Company Change in Control Severance Plan. By: ----------------------------------- Date: ----------------------------------- Attachment to Exhibit A TO: All Eligible Employees under the Southern Company Change in Control Severance Plan FROM: _____________________ RE: ADEA Information Notice DATE: _____________________ A severance plan known as the Southern Company Change in Control Severance Plan ("Plan") has been approved and established by The Southern Company, its affiliates and its direct and indirect subsidiaries (collectively the "Company"). You are eligible to participate in the Plan subject to the terms of the Plan. In accordance with the Age Discrimination in Employment Act ("ADEA"), the Company is providing you the following information pertaining to eligibility and participation in the Plan. This information, in conjunction with the information provided in the Plan, should allow you to make an informed decision concerning your options under the Plan. The purpose of the Plan is to provide benefits to certain employees of The Southern Company and certain subsidiaries of The Southern Company ("Employing Companies") whose employment is terminated subsequent to a change in control of The Southern Company or their respective Employing Company. A full description of the benefits under the Plan as well as any restrictions or limitations that may be applicable can be found in the Summary Plan Description you have been given. All eligible employees may elect to receive severance benefits under the Plan by signing an Election Form and Waiver Agreement no later than 45 calendar days from the date it is received. The Agreement will remain revocable by you for a seven day period after you sign it. Attached is a list sorted by job title and age of each employee eligible to participate in the Plan as well as a list of the ages of all employees in the same job classification who are not eligible to participate in the Plan. In furtherance of you making an informed decision, the Company urges you to seek a financial advisor, legal counsel and a qualified tax advisor to assist you in fully understanding your rights and benefits under the plan and the Election Form and Waiver Agreement that you will be required to sign to receive severance benefits under the Plan. If you have any questions or need additional information, please call me at _______________. Sincerely, - ---------------------- [Name] - ---------------------- [Title] ADEA INFORMATION NOTICE
- ------------------------------------------------------- -------------------------------------------------------------- Job Title, Classification Age of or Category of Eligible Employees Eligible Employees - ------------------------------------------------------- -------------------------------------------------------------- - ------------------------------------------------------- -------------------------------------------------------------- - ------------------------------------------------------- -------------------------------------------------------------- - ------------------------------------------------------- -------------------------------------------------------------- [List job classification, title or category of all [List corresponding age of each eligible employee] eligible employees] - ------------------------------------------------------- -------------------------------------------------------------- - ------------------------------------------------------- -------------------------------------------------------------- Job Title, Classification Age of or Category of Ineligible Employees Ineligible Employees - ------------------------------------------------------- -------------------------------------------------------------- - ------------------------------------------------------- -------------------------------------------------------------- - ------------------------------------------------------- -------------------------------------------------------------- - ------------------------------------------------------- -------------------------------------------------------------- [List job classification, title or category of all [List corresponding age of each ineligible employee] ineligible employees] - ------------------------------------------------------- --------------------------------------------------------------
Exhibit B SOUTHERN COMPANY CHANGE IN CONTROL SEVERANCE PLAN Short Term Incentive Compensation Plans EX-10.2 6 x10a2.txt EXECUTIVE CHANGE IN CONTROL SEVERANCE PLAN Exhibit 10(a)2 SOUTHERN COMPANY EXECUTIVE CHANGE IN CONTROL SEVERANCE PLAN Troutman Sanders LLP Bank of America Plaza, Suite 5200 600 Peachtree Street, N.E. Atlanta, Georgia 30308 Effective May 1, 2003 SOUTHERN COMPANY EXECUTIVE CHANGE IN CONTROL SEVERANCE PLAN ARTICLE 1 - PURPOSE AND ADOPTION OF PLAN - ------------------- ------------------------------ 1.1 Adoption of Plan. Southern Company Services, Inc. hereby adopts this Southern Company Executive Change in Control Severance Plan. This Plan was originally effective December 7, 1998; it was amended by a First Amendment also effective December 7, 1998, and subsequently amended and restated effective July 10, 2000 and May 9, 2002. This amended and restated Plan is effective May 1, 2003. The Plan shall be an unfunded "top hat" plan designed to provide certain severance benefits to a select group of management or highly compensated employees, to be paid solely from the general assets of the respective Employing Companies. 1.2 Purpose. The Plan is primarily designed to provide benefits to certain key employees of the Employing Companies, whose employment is terminated subsequent to a change in control of Southern or their respective Employing Company. ARTICLE 2 - DEFINITIONS - ------------------- ------------- 2.1 "Administrative Committee" shall mean the Board of Directors, plus, in the event of any act necessary to be taken in connection with the Plan relative to a particular Participant, the Chief Executive Officer of the Participant's Employing Company, if such Chief Executive Officer is not already a member of the Board of Directors. 2.2 "Annual Compensation" shall mean a Participant's highest annual base salary rate for the twelve month period immediately preceding the date of the Change in Control plus target bonus. 2.3 "Beneficial Ownership" shall mean beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act. 2.4 "Board of Directors" shall mean the board of directors of the Company. 2.5 "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. 2.6 "Change in Control" shall mean, (a) with respect to Southern, the occurrence of 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 Section 2.6(a)(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 an employee of Southern or its subsidiary or affiliate, or Group composed exclusively of such 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 2.6(a)(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'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 qualified pension plan, publicly held mutual fund, Group composed exclusively of Employees or employee benefit plan (or related trust) of Southern, any Southern Subsidiary 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. (b) with respect to an Employing Company, the occurrence of any of 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 an Employing Company; provided, however, that for purposes of this Section 2.6(b)(i), any acquisition by an employee of Southern or its subsidiary or affiliate, or Group composed entirely of such 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 Southern Subsidiary shall not constitute a Change in Control; (ii) The 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 or a Southern Subsidiary Controls the corporation surviving or resulting from such Employing Company Business Combination; or (iii) The Consummation of the sale or other disposition of all or substantially all of the assets of an Employing Company to an entity which Southern or a Southern Subsidiary does not Control. Notwithstanding the foregoing, in no event shall "Change in Control" mean an initial public offering or a spin-off of an Employing Company. 2.7 "COBRA Coverage" shall mean any continuation coverage to which a Participant or his dependents may be entitled pursuant to Code Section 4980B. 2.8 "Code" shall mean the Internal Revenue Code of 1986, as amended. 2.9 "Company" shall mean Southern Company Services, Inc., its successors and assigns. 2.10 "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. 2.11 "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. 2.12 "Effective Date" shall mean the date of execution hereof. 2.13 "Employee" shall mean each regular full-time or regular part-time employee of an Employing Company of Grades 10 to 13 (or, if the Grade system is not used, $130,000 or more of annual base salary rate for the twelve month period immediately preceding the Change in Control who has not otherwise entered into a Change in Control agreement with his Employing Company and elects to receive benefits under such agreement) not covered by a collective bargaining agreement between the Employing Company and a union or other employee representative. The Administrative Committee of the Southern Company Change in Control Benefit Determination Policy may deem one or more Employees (as defined in this Section 2.13 except not employed by an Employing Company) of a particular Southern Subsidiary, or corporation or entity Controlled by a Southern Subsidiary, to be employed by an Employing Company for certain purposes under this Plan. Such action shall be in writing and shall cause such an Employee to only be entitled to benefits under this Plan in the event of a Change in Control of his deemed Employing Company, and not his actual employing company. Notwithstanding the above, no employee shall participate in the Plan if, prior to a change in control, the employee has entered into a change in control agreement and such employee elects to receive benefits under such agreement. 2.14 "Employee Outplacement Program" shall mean the program established by the Employing 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: (a) self assessment, career decision and goal setting; (b) job market research and job sources; (c) networking and interviewing skills; (d) planning and implementation strategy; (e) resume writing, job hunting methods and salary negotiation; and (f) office support and job search resources. 2.15 "Employing Company" shall mean the Company, or any other Southern Subsidiary, 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. The term "Employing Company" shall also mean any corporation or entity Controlled by a Southern Subsidiary which the Compensation Committee of the Southern Board has determined to bring under the Plan and which shall adopt the Plan, and any successor of any of them. The participation of Southern Company Gas, LLC in the Plan as an Employing Company shall be limited to Support Employees. 2.16 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 2.17 "Good Reason" shall mean, without an Employee's express written consent, after written notice to his Employing Company, and after a thirty (30) day opportunity for the Employee's Employing Company to cure, the continuing occurrence of any of the following events: (a) Inconsistent Duties. A meaningful and detrimental alteration in the Employee's position or in the nature or status of his responsibilities from those in effect immediately prior to the Change in Control; (b) Reduced Salary. A reduction of five percent (5%) or more by the Employing Company in either of the following: (i) the Employee's annual base salary rate for the twelve month period immediately preceding the date of the Change in Control ("Base Salary") (except for a less than ten percent (10%), across-the-board Base Salary reduction similarly affecting at least ninety-five percent (95%) of all Employees of the Employing Company); or (ii) the sum of the Employee's Base Salary plus target bonus under his Employing Company's short term bonus plan (e.g., the PPP under the Omnibus Plan), as in effect immediately prior to the Change in Control (except for a less than ten percent (10%), across-the-board reduction of Base Salary plus target bonus under such short term plan similarly affecting at least ninety-five percent (95%) of all Employees of the Employing Company); (c) Compensation Plans. The failure by the Employing Company to continue in effect any "compensation plan or agreement" in which an Employee participates as of the date of the Change in Control or the elimination of the Employee's participation in any such plan, (except for across-the-board plan changes or terminations similarly affecting at least ninety-five percent (95%) of all Employees of the Employing Company); For purposes of this Section 2.17(c), the "compensation plan or agreement" shall mean any written arrangement executed by an authorized officer of the Employing Company which provides for periodic, non-discretionary compensatory payments to employees in the nature of bonuses. (d) Relocation. A change in an Employee's work location to a location more than fifty (50) miles from the facility where the Employee was located at the time of the Change in Control, unless such new work location is within fifty (50) miles from the Employee's principal place of residence at the time of the Change in Control. The acceptance, if any, by an Employee of employment by an Employing Company at a work location which is outside the fifty mile radius set forth in this Section 2.17(d) shall not be a waiver of the Employee's right to refuse subsequent transfer by an Employing Company to a location which is more than fifty (50) miles from the Employee'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 (e) Benefits and Perquisites. The taking of any action by the Employing Company that would directly or indirectly materially reduce the benefits enjoyed by an Employee under the Employing Company's retirement, life insurance, medical, health and accident, disability, deferred compensation or savings plans in which the Employee was participating immediately prior to the Change in Control, or the failure by the Employing Company to provide an Employee with the number of paid vacation days or, if applicable, paid time off days to which the Employee is entitled on the basis of years of service with the Employing Company in accordance with the Employing Company's normal vacation policy or the paid time off program (whichever applicable) in effect immediately prior to the Change in Control (except for across-the-board vacation policy or paid time off program changes or policy or program terminations similarly affecting at least ninety-five percent (95%) of all Employees of the Employing Company). 2.18 "Group" shall have the meaning set forth in Section 14(d) of the Exchange Act. 2.19 "Group Health Plan" shall mean the group health plan covering the Participant, as such plan may be amended from time to time. 2.20 "Group Life Insurance Plan" shall mean the group life insurance program covering the Participant, as such plan may be amended from time to time. 2.21 "Incumbent Board" shall mean those individuals who constitute the Southern Board 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 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. 2.22 "Month of Service" shall mean any calendar month during which a Participant has worked at least one (1) hour or was on approved leave of absence while in the employ of an Employing Company or any other Southern Subsidiary. 2.23 "Omnibus Plan" shall mean the Southern Company Omnibus Incentive Compensation Plan, and the Design and Administrative Specifications duly adopted thereunder, as in effect on the day before the date of a Change in Control, as may be amended from time to time. 2.24 "Participant" shall mean an Employee or Support Employee who meets the eligibility requirements of Section 3.1 of this Plan. 2.25 "Pension Plan" shall mean The Southern Company Pension Plan or any successor thereto, as such plans may be amended from time to time. 2.26 "Performance Dividend Program" or "PDP" shall mean the Performance Dividend Program under the Omnibus Plan or any replacement thereto, as such plans may be amended from time to time. 2.27 "Performance Pay Program" or "PPP" shall mean the Performance Pay Program under the Omnibus Plan or any replacement thereto, as such plans may be amended from time to time. 2.28 "Person" shall mean any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of Exchange Act. 2.29 "Preliminary Change in Control" shall mean the occurrence of any of the following as determined by the Southern Committee. (a) Southern or an Employing Company has entered into a written agreement, such as, but not limited to, a letter of intent, which, if Consummated, would result in a Change in Control; (b) Southern, an Employing Company or any Person publicly announces an intention to take or to consider taking actions which, if Consummated, would result in a Change of Control under circumstances where the Consummation of the announced action or intended action is legally and financially possible; (c) Any Person achieves the Beneficial Ownership of fifteen percent (15%) or more of the Common Stock; or (d) The Southern Board or the board of directors of an Employing Company has declared that a Preliminary Change of Control has occurred. 2.30 "Plan" shall mean the Southern Company Executive Change in Control Severance Plan. 2.31 "Southern" shall mean The Southern Company, its successors and assigns. 2.32 "Southern Board" shall mean the board of directors of Southern. 2.33 "Southern Committee" shall mean the committee comprised of the Chairman of the Southern Board, Chief Financial Officer of Southern, General Counsel of Southern and the Chairman of the Administrative Committee. 2.34 "Southern Subsidiary" shall mean any corporation or other entity Controlled by Southern or another Southern Subsidiary. 2.35 "Support Employee" shall mean an Employee of the Company (which shall continue to be such Employee's Employing Company for purposes of this Plan) who: (a) Is involuntarily terminated without Cause within one year of the Change in Control of an Employing Company (other than the Company) and either (i) spent at least 40% of his working time performing services for such Employing Company at the time of the Change in Control and for the six months prior thereto, or (ii) is determined by the Administrative Committee to be involuntarily terminated without Cause as a result of such Change in Control; or (b) Voluntarily terminates with Good Reason within one year of the Change in Control of an Employing Company (other than the Company) and spent at least 40% of his working time performing services for such Employing Company at the time of the Change in Control and for the six months prior thereto. For purposes of this Section 2.35(b) only, Good Reason shall not include the provisions of Section 2.17(a), entitled "Inconsistent Duties." 2.36 "Termination for Cause" or "Cause" shall mean an Employee's termination of employment with his Employing Company upon the occurrence of any of the following: (a) The willful and continued failure by the Employee to substantially perform his duties with his Employing Company (other than any such failure resulting from the Employee's Total Disability or from the Employee's retirement or any such actual or anticipated failure resulting from termination by the Employee for Good Reason) after a written demand for substantial performance is delivered to him by the Administrative Committee, which demand specifically identifies the manner in which the Administrative Committee believes that he has not substantially performed his duties; or (b) The willful engaging by the Employee in conduct that is demonstrably and materially injurious to his Employing Company, monetarily or otherwise, including but not limited to any of the following: (i) any willful act involving fraud or dishonesty in the course of an Employee's employment by his Employing Company; (ii) the willful carrying out of any activity or the making of any statement by an Employee which would materially prejudice or impair the good name and standing of his Employing Company, Southern or any other Southern Subsidiary or would bring his Employing Company, Southern or any other Southern Subsidiary into contempt, ridicule or would reasonably shock or offend any community in which his Employing Company, Southern or such other Southern Subsidiary is located; (iii) attendance by an Employee 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; (iv) violation of his Employing 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 Employing Company's safety officer; (v) assault or other act of violence by an Employee against any person during the course of employment; or (vi) an Employee's indictment for any felony or any misdemeanor involving moral turpitude. No act or failure to act by an Employee shall be deemed "willful" unless done, or omitted to be done, by the Employee not in good faith and without reasonable belief that his action or omission was in the best interest of his Employing Company. Notwithstanding the foregoing, an Employee 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 the majority of the Administrative Committee at a meeting called and held for such purpose (after reasonable notice to the Employee and an opportunity for him, together with counsel, to be heard before the Administrative Committee), finding that, in the good faith opinion of the Administrative Committee, the Employee was guilty of conduct set forth in Section 2.36(a) or (b) hereof and specifying the particulars thereof in detail. 2.37 "Termination Date" shall mean the date on which a Participant is separated from his Employing Company's regular payroll; provided, however, that solely for purposes of Section 3.2(c) hereof, the Termination Date of Participants who are deemed to be retired pursuant to the provisions of Section 3.3 hereof, shall be the effective date of their retirement pursuant to the terms of the Pension Plan. 2.38 "Total Disability" shall mean total disability within the meaning of the Pension Plan. 2.39 "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. 2.40 "Waiver and Release" shall mean the Waiver and Release attached hereto as Exhibit A. 2.41 "Year of Service" shall mean an Employee'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 an Employee has a break in his service with his Employing Company, he will receive credit under this Plan for the service prior to the break in service only if the break in service was less than five years and his service prior to the break exceeds the length of the break in service. ARTICLE 3 - SEVERANCE BENEFITS - ------------------- -------------------- 3.1 Eligibility. (a) Employees. Except as otherwise provided herein, any Employee whose employment is involuntarily terminated by his Employing Company at any time during the two year period following a Change in Control of Southern or his Employing Company for reasons other than Cause or who shall voluntarily terminate his employment with his Employing Company for Good Reason at any time during the two year period following a Change in Control of Southern or his Employing Company, shall be entitled to participate in this Plan and receive the benefits described in Section 3.2 hereof, subject to the terms and conditions described in this Article 3. (b) Deemed Employees. An Employee who is deemed to be employed by a different Employing Company than his actual Employing Company under Section 2.13 hereof, shall be entitled to participate in this Plan and receive the benefits described in Section 3.2 hereof in the same manner as other Employees under Section 3.1(a) hereof; provided, however, that such deemed Employee will be considered to be an Employee of the deemed Employing Company solely for purposes of determining whether a Change in Control has occurred. For all other purposes under this Plan, such deemed Employee's actual Employing Company shall be considered. (c) Support Employees. A Support Employee shall be entitled to participate in this Plan and receive the benefits described in Section 3.2 hereof, subject to the terms and conditions described in this Article 3. (d) Limits on Eligibility. Notwithstanding anything to the contrary herein, an Employee or Support Employee shall not be eligible to receive benefits under this Plan if the Employee or Support Employee: (i) is not actively at work on his Termination Date, unless such Employee or Support Employee is capable of returning to work within twelve (12) weeks of the beginning of any leave of absence from work; (ii) voluntarily terminates his employment with his Employing Company for other than Good Reason; (iii) is terminated by his Employing Company for Cause; (iv) accepts the transfer of his employment to Southern, any Southern Subsidiary or any employer that acquires all or substantially all of the assets of Southern, a Southern Subsidiary or his Employing Company; (v) refuses an offer of continued employment with his Employing Company, Southern or a Southern Subsidiary, or any employer that acquires all or substantially all of the assets of Southern, a Southern Subsidiary or his Employing Company, under circumstances where such refusal would not amount to Good Reason for voluntary termination of employment and such employer agrees to adopt this Plan as it applies to such Participant; or (vi) elects to receive the benefits of any other voluntary or involuntary severance, separation or outplacement program, plan or agreement maintained by his Employing Company in lieu of benefits under this Plan; provided however, that the receipt of benefits under any retention plan or agreement shall not be deemed to be the receipt of benefits under any severance, separation or outplacement program for purposes of this Plan. 3.2 Benefits. Upon the Employing Company's receipt of an effective Waiver and Release, Participants shall be entitled to receive the following benefits: (a) Employee Outplacement Services. Each Participant shall be eligible to participate in the Employee Outplacement Program, which program shall not be less than six (6) months duration measured from the Participant's Termination Date. (b) Severance Benefit. Participants shall be paid in cash an amount equal to two times the Participant's Annual Compensation, but not in excess of the Capped Amount. For purposes of this Section 3.2(b), the Capped Amount shall be the amount otherwise payable under this Section 3.2(b), reduced in such amount and to such extent that no amount of the payment under this Section 3.2(b), plus all other "parachute payments" under Code Section 280G, would constitute an "excess parachute payment" under Code Section 280G, but only to the extent that if the payment under this Section 3.2(b) were increased by one additional dollar ($1.00), a portion of the payment under this Section 3.2(b) would be an "excess parachute payment" under Code Section 280G. The calculation of the Capped Amount and any other determinations relating to the applicability of Code Section 280G (and the rules and regulations promulgated thereunder) to the payments contemplated by this Plan shall be made by the tax department of the independent public accounting firm then responsible for preparing Southern's consolidated federal income tax return, and such determinations shall be binding upon the Participants, Southern and the Employing Company. (c) Welfare Benefit. (i) Except as provided in Section 3.3 hereof, each Participant shall be eligible to participate in the Employing Company's Group Health Plan for a period of six (6) months for each of the Participant's Years of Service, not to exceed a period of five (5) years, beginning on the first day of the first month following the Participant's Termination Date unless otherwise specifically provided under such plan, upon the Participant's payment of both the Employing Company's and the Participant's premium under such plan. A Participant who receives this extended medical coverage shall also be entitled to elect coverage under the Group Health Plan for his dependents who are participating in the Group Health Plan on the Participant'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 the Participant's extended medical coverage under this Section 3.2(c) to the extent such dependents remain eligible for dependent coverage under the terms of the Group Health Plan. (ii) The extended medical coverage afforded to a Participant pursuant to this Section 3.2(c) as well as the premiums to be paid by the Participant 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 the Participant in connection with this extended coverage shall be due on the first day of each month; provided, however, that if a Participant fails to pay his premium within thirty (30) days of its due date, such Participant's extended coverage shall be terminated. (iii) Any Group Health Plan coverage provided under this Section 3.2(c) shall be a part of and not in addition to any COBRA Coverage which a Participant or his dependent may elect. In the event that a Participant or his 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 Employing Company's Group Health Plan available to the Participant or his dependent by virtue of the provisions of this Article 3 shall terminate, except as may otherwise be required by law, and shall not be renewed. It shall be the duty of a Participant to inform the Employing Company of his eligibility to participate in any such health plan. (iv) Except as otherwise provided in Section 3.3 hereof, regardless of whether a Participant elects the extended coverage described in Section 3.2(a) hereof, the Employing Company shall pay to each Participant a cash amount equal to the Employing Company's and the Participant's cost of premiums for two (2) years of coverage under the Group Health Plan and Group Life Insurance Plan, as such Plans were in effect as of the date of the Change in Control. (d) Stock Option Vesting. The provisions of this Section 3.2(d) shall apply to any Participant who, as of the date of the Change in Control, was a participant in the Omnibus Plan, the defined terms of which are incorporated in this Section 3.2(d) by reference. (i) Any of the Participant's Options and Stock Appreciation Rights outstanding as of the Termination Date 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 Participant holding a Stock Appreciation Right who 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 the Participant 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. (ii) The restrictions and deferral limitations applicable to any of the Participant's Restricted Stock and Restricted Stock Units as of the Termination Date shall lapse, and such Restricted Stock and Restricted Stock Units shall become free of all restrictions and limitations and become fully vested and transferable to the full extent of the original grant. (e) Performance Pay Program. The provisions of this Section 3.2(e) shall apply to any Participant who, as of the date of the Change in Control, was a participant in the Performance Pay Program, the defined terms of which are incorporated in this Section 3.2(e) by reference. Provided the Participant is not entitled to a Cash-Based Award under the PPP, if the PPP is in place as of the Participant's Termination Date and to the extent the Participant is entitled to participate therein, the Participant shall be entitled to receive cash in an amount equal to a prorated payout of his Cash-Based Award under the PPP for the performance period in which the Termination Date shall have occurred, at target performance under the PPP and prorated by the number of months which have passed since the beginning of the performance period until the Termination Date. (f) Performance Dividend Program. The provisions of this Section 3.2(f) shall apply to any Participant who, as of the date of the Change in Control, was a participant in the Performance Dividend Program, the defined terms of which are incorporated in this Section 3.2(f) by reference. Provided the Participant is not entitled to a Cash-Based Award under the PDP, if the PDP is in place through the Participant's Termination Date and to the extent the Participant is entitled to participate therein, the Participant shall be entitled to receive cash for each such Cash-Based Award under the PDP held as of such date based on a payout percentage of 50% under the PDP for the performance period in which the Termination Date shall have occurred, and the annual dividend declared prior to the Termination Date. (g) Other Short Term Incentives Under the Omnibus Plan. The provisions of this Section 3.2(g) shall apply to any Participant who, as of the date of the Change in Control is entitled to a Performance Unit or Performance Share award under the Omnibus Plan. Provided the Participant is not otherwise entitled to a Performance Unit/Share award under the Omnibus Plan, the Participant shall be entitled to receive cash in an amount equal to a prorated payout of the value of his Performance Units and/or Performance Shares for the performance period in which the Termination Date shall have occurred, at target performance and prorated by the number of months which have passed since the beginning of the performance period until the Termination Date. (h) Other Short-Term Incentive Plans. The provisions of this Section 3.2(h) shall apply to any Participant who, as of the date of the Change in Control, is a participant in any other "short term incentive compensation plan" not otherwise previously referred to in this Section 3.2. Provided the Participant is not otherwise entitled to a plan payout under any change in control provisions of such plans, if the "short term incentive compensation plan" is in place through the Participant's Termination Date and to the extent the Participant is entitled to participate therein, the Participant shall be entitled to receive cash in an amount equal to his award under his respective Employing Company's "short term incentive compensation plan" for the annual performance period in which the Termination Date shall have occurred, at the Participant's target performance level and prorated by the number of months which have passed since the beginning of the annual performance period until the Termination Date. For purposes of this Section 3.2(h), the term "short term incentive compensation plan" shall mean any incentive compensation plan or arrangement adopted in writing by an Employing Company which provides for annual, recurring compensatory bonuses to participants based upon articulated performance criteria, and which have been identified by the Board of Directors and listed on Exhibit B hereto, which may be amended from time to time to reflect plan additions, terminations and amendments. 3.3 Coordination with Retiree Medical and Life Insurance Coverage. Notwithstanding anything to the contrary above, any Participant who is otherwise eligible to retire pursuant to the terms of the Pension Plan shall be deemed to have retired for purposes of all employee benefit plans sponsored by the Employing Company of which the Participant is a participant. A Participant who is deemed to have retired in accordance with the preceding sentence shall not be eligible to receive the benefits described in Section 3.2(c) hereof if, upon his Termination Date, such Participant becomes eligible to receive the retiree medical and life insurance coverage provided to certain retirees pursuant to the terms of the Pension Plan, the Group Health Plan and the Group Life Insurance Plan. 3.4 Payment of Benefits. The amounts due a Participant under Sections 3.2(b) and (c) hereof shall be payable in one (1) lump sum payment as soon as administratively practicable within thirty (30) days of the later of the following to occur: (a) the Participant's Termination Date, or (b) the tender to the Employing Company by the Participant of an effective Waiver and Release in the form of Exhibit A 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 Employing Company. 3.5 Benefits in the Event of Death. In the event of the Participant's death prior to the payment of all benefits due under this Article 3, the Participant's estate shall be entitled to receive as due any amounts not yet paid under this Article 3 upon the tender by the executor or administrator of the estate of an effective Waiver and Release. 3.6 Legal Fees. In the event of a dispute between a Participant and his Employing Company with regard to any amounts due hereunder, if any material issue in such dispute is finally resolved in the Participant's favor, his Employing Company shall reimburse the Participant's legal fees incurred with respect to all issues in such dispute in an amount not to exceed thirty thousand dollars ($30,000). 3.7 No Mitigation. A Participant who receives benefits under Section 3.2 of this Plan shall have no duty or obligation to seek other employment following his Termination Date and, except as otherwise provided in Subsection 3.1(d) hereof, the amounts due a Participant hereunder shall not be reduced or suspended if such Participant accepts such subsequent employment. 3.8 Non-qualified Retirement and Deferred Compensation Plans. Subsequent to a Change in Control, any claims by a Participant 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 procedures and provisions set forth in Article 5 hereof and if any material issue in such dispute is finally resolved in the Participant's favor, the Company shall reimburse the Participant's legal fees in the manner provided in Section 3.6 hereof. ARTICLE 4 - ADMINISTRATION - ------------------- ---------------- 4.1 Administrative Committee. The Administrative Committee shall be responsible for the general administration of the Plan and may appoint other persons or entities to perform or assist in the performance of any of its duties, subject to its review and approval. The Administrative Committee shall have the right to remove any such appointee from his position without cause upon notice. ARTICLE 5 - ARBITRATION - ------------------- ------------- 5.1 General. Any dispute, controversy or claim arising out of or relating to the Company's obligations to pay severance benefits under this Plan, 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 Article 5 are not intended to apply to any other disputes, claims or controversies arising out of or relating to a Participant's employment by an Employing Company or the termination thereof. 5.2 Demand for Arbitration. Arbitration shall be initiated by serving a written notice of demand for arbitration to the Participant, in the case of an Employing Company, or to the Administrative Committee, in the case of a Participant. 5.3 Law and Venue. The arbitrators shall apply the laws of the State of Georgia, except to the extent pre-empted by federal law, excluding any law which would require the use of the law of another state. The arbitration shall be held in Atlanta, Georgia. 5.4 Appointment of Arbitrators. Arbitrators shall be appointed 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 the Participant, one arbitrator shall be appointed by the Employing 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. 5.5 Costs. The arbitration filing fee shall be paid by the Participant. All other costs of arbitration shall be borne equally by the Participant and his Employing Company, provided, however, that such Employing Company shall reimburse such fees and costs in the event any material issue in such dispute is finally resolved in the Participant's favor and the Participant is reimbursed legal fees under Section 3.6 hereof. 5.6 Interim and Injunctive Relief. Nothing in this Article 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 either party's interests or as otherwise may be appropriate pending the conclusion of arbitration proceedings pursuant to this Article 5 and nothing herein is intended to 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 Article 5. ARTICLE 6 - MISCELLANEOUS - ------------------- --------------- 6.1 Funding of Benefits. Unless the Board of Directors shall in its discretion determine otherwise, the benefits payable to a Participant under the Plan shall not be funded in any manner and shall be paid by the Employing Companies out of their general assets, which assets are subject to the claims of the Employing Companies' creditors. 6.2 Withholding. There shall be deducted from the payment of any benefit due under the Plan the amount of any tax required by any governmental authority to be withheld and paid over by the Employing Companies to such governmental authority for the account of the Participant entitled to such payment. 6.3 Assignment. No Participant or beneficiary shall have any 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. 6.4 Amendment and Termination. The Plan may be amended or terminated at any time by the Board of Directors. Notwithstanding the above, no amendment or termination of the Plan shall be effective if such amendment or termination is made or is effective within six (6) months of a Preliminary Change in Control unless such amendment or termination has the effect of increasing benefits to Participants under the Plan or is determined by the Board of Directors to be immaterial. 6.5 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, this Southern Company Executive Change in Control Severance Plan has been executed by the Company through its duly authorized officers, this 16th day of May, 2003, to be effective as provided herein. SOUTHERN COMPANY SERVICES, INC. By: /s/Ellen N. Lindemann Ellen Lindemann, Senior Vice President Exhibit A SOUTHERN COMPANY EXECUTIVE CHANGE IN CONTROL SEVERANCE PLAN Waiver and Release I understand that I am entitled to receive the Severance Benefits described in Article 3 of the Southern Company Executive Change in Control Severance Plan (the "Plan") if I execute this Waiver and Release ("Waiver"). I understand that the benefits I have elected to receive under the Plan are in excess of those I would have received from ________________________ (the "Company") if I had not elected to participate in the Plan and sign this Waiver. I recognize that I may have a claim against the Company under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act, the Rehabilitation Act of 1973, 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. d/b/a Southern LINC, Southern Company Services, Inc., Southern Company Energy Solutions, LLC, Southern Nuclear Operating Company, Inc., Southern Telecom, Inc., Southern Company Management Development, Inc., and other current or former 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 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. I understand and agree that I am obligated to keep confidential and not disclose the terms of this Waiver, including, but not limited to, the benefits under this Plan, except to my attorneys, financial advisors, or except where such disclosure is required by law. 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 any vested or accrued benefits that I have under any workers' compensation laws or 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 except for programs specifically designed for participants in the Plan. Notwithstanding anything in this Waiver to the contrary, I understand that the Company is not discouraging or prohibiting me from engaging in any protected activity described in Section 211 of the Energy Reorganization Act. 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 forty-five (45) 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. I understand I do not have to sign this Waiver. IN WITNESS WHEREOF, the undersigned hereby executes this Waiver this _________ day of _______________ , in the year ______. Employee's signature Employee's printed name WITNESS Acknowledged and Accepted by the Administrative Committee of the Southern Company Executive Change in Control Severance Plan. By: ----------------------------------- Date: ----------------------------------- Attachment to Exhibit A TO: All Eligible Employees under the Southern Company Executive Change in Control Severance Plan FROM: _____________________ RE: ADEA Information Notice DATE: _____________________ A severance plan known as the Southern Company Executive Change in Control Severance Plan ("Plan") has been approved and established by The Southern Company, its affiliates and its direct and indirect subsidiaries (collectively the "Company"). You are eligible to participate in the Plan subject to the terms of the Plan. In accordance with the Age Discrimination in Employment Act ("ADEA"), the Company is providing you the following information pertaining to eligibility and participation in the Plan. This information, in conjunction with the information provided in the Plan, should allow you to make an informed decision concerning your options under the Plan. The purpose of the Plan is to provide benefits to certain key employees of The Southern Company and certain subsidiaries of The Southern Company and its subsidiaries ("Employing Companies") whose employment is terminated subsequent to a change in control of The Southern Company or their respective Employing Company. You are eligible to participate in the Plan because your employment has been terminated under the terms of the Plan. All eligible employees may receive severance benefits under the Plan by signing a Waiver and Release no later than 45 calendar days from the date it is received. The Waiver and Release will remain revocable by you for a seven day period after you sign it. Attached is a list sorted by job title and age of each employee eligible to participate in the Plan as well as a list of the ages of all employees in the same job classification who are not eligible to participate in the Plan. In furtherance of you making an informed decision, the Company urges you to seek a financial advisor, legal counsel and a qualified tax advisor to assist you in fully understanding your rights and benefits under the plan and the Waiver and Release that you will be required to sign to receive severance benefits under the Plan. If you have any questions or need additional information, please call me at _______________. Sincerely, - ---------------------- [Name] - ---------------------- [Title] ADEA INFORMATION NOTICE
- ------------------------------------- ---------------------------------- --------------------------------------------- Department Job Title, Classification Age of or Category of Eligible Employees Eligible Employees - ------------------------------------- ---------------------------------- --------------------------------------------- - ------------------------------------- ---------------------------------- --------------------------------------------- - ------------------------------------- ---------------------------------- --------------------------------------------- - ------------------------------------- ---------------------------------- --------------------------------------------- [List department of each eligible [List job classification, title [List corresponding age of each employee] or category of all eligible eligible employee] employees] - ------------------------------------- ---------------------------------- --------------------------------------------- - ------------------------------------- ---------------------------------- --------------------------------------------- Department Job Title, Classification Age of or Category of Ineligible Ineligible Employees Employees - ------------------------------------- ---------------------------------- --------------------------------------------- - ------------------------------------- ---------------------------------- --------------------------------------------- - ------------------------------------- ---------------------------------- --------------------------------------------- - ------------------------------------- ---------------------------------- --------------------------------------------- [List department of each eligible [List job classification, title [List corresponding age of each employee] or category of all eligible eligible employee] employees] - ------------------------------------- ---------------------------------- ---------------------------------------------
Exhibit B SOUTHERN COMPANY EXECUTIVE CHANGE IN CONTROL SEVERANCE PLAN Short Term Incentive Compensation Plans EX-10.3 7 x10a3.txt SENIOR EXECUTIVE CHANGE IN CONTROL SEVERANCE PLAN Exhibit 10(a)3 SOUTHERN COMPANY SENIOR EXECUTIVE CHANGE IN CONTROL SEVERANCE PLAN Troutman Sanders LLP Bank of America Plaza, Suite 5200 600 Peachtree Street, N.E. Atlanta, Georgia 30308 Effective May 1, 2003 SOUTHERN COMPANY SENIOR EXECUTIVE CHANGE IN CONTROL SEVERANCE PLAN ARTICLE I - PURPOSE AND ADOPTION OF PLAN 1.1 Adoption of Plan. Southern Company Services, Inc. hereby adopts this Southern Company Senior Executive Change in Control Severance Plan. This Plan is originally effective May 1, 2003. The Plan shall be an unfunded "top hat" plan designed to provide certain severance benefits to a select group of management or highly compensated employees, to be paid solely from the general assets of the respective Employing Companies. 1.2 Purpose. The Plan is primarily designed to provide benefits to certain key executive employees of the Employing Companies, whose employment is terminated subsequent to a change in control of Southern or their respective Employing Company. ARTICLE II - DEFINITIONS 2.1 "Annual Compensation" shall mean a Participant's highest annual base salary rate for the twelve (12) month period immediately preceding the date of the Change in Control plus target bonus. 2.2 "Beneficial Ownership" shall mean beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act. 2.3 "Board of Directors" shall mean the board of directors of the Company. 2.4 "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. 2.5 "Change in Control" shall mean, (a) with respect to Southern, the occurrence of 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 Section 2.5(a)(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 an employee of Southern or its subsidiary or affiliate, or Group composed exclusively of such 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 2.5(a)(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'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 qualified pension plan, publicly held mutual fund, Group composed exclusively of Employees or employee benefit plan (or related trust) of Southern, any Southern Subsidiary 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. (b) with respect to an Employing Company, the occurrence of any of 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 an Employing Company; provided, however, that for purposes of this Section 2.5(b)(i), any acquisition by an employee of Southern or its subsidiary or affiliate, or Group composed entirely of such 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 Southern Subsidiary shall not constitute a Change in Control; (ii) The 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 or a Southern Subsidiary Controls the corporation surviving or resulting from such Employing Company Business Combination; or (iii) The Consummation of the sale or other disposition of all or substantially all of the assets of an Employing Company to an entity which Southern or a Southern Subsidiary does not Control. Notwithstanding the foregoing, in no event shall "Change in Control" mean an initial public offering or a spin-off of an Employing Company. 2.6 "COBRA Coverage" shall mean any continuation coverage to which a Participant or his dependents may be entitled pursuant to Code Section 4980B. 2.7 "Code" shall mean the Internal Revenue Code of 1986, as amended. 2.8 "Company" shall mean Southern Company Services, Inc., its successors and assigns. 2.9 "Compensation Committee" shall mean the Compensation and Management Succession Committee of the Southern Board. 2.10 "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. 2.11 "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. 2.12 "Effective Date" shall mean the date of execution hereof. 2.13 "Employee" shall mean the (a) Chief Executive Officer of Southern, (b) Chief Financial Officer of Southern, (c) General Counsel of Southern, (d) External Affairs Executive Vice President of Southern, (e) Chief Production Officer of Southern, (f) Chief Executive Officer of Alabama Power Company, (g) Chief Executive Officer of Georgia Power Company, (h) Chief Executive Officer of Gulf Power Company, (i) Chief Executive Officer of Mississippi Power Company, (j) Chief Executive Officer of Southern Communications Services, Inc., (k) Chief Executive Officer of Savannah Electric and Power Company, (l) Chief Executive Officer of Southern Nuclear Operating Company, Inc., (m) Chief Executive Officer of Southern Company Generation and Energy Marketing, (n) Executive Vice President of Southern Nuclear Operating Company, Inc., and (o) any other employee that the Compensation Committee has designated as eligible to participate in the Plan based upon the recommendation of the Chief Executive Officer of Southern; provided, however, that no employee shall participate in the Plan (x) if the Compensation Committee has designated the employee as ineligible to participate in the Plan based upon the recommendation of the Chief Executive Officer of Southern; or (y) if, prior to a change in control, the employee has entered into a change in control agreement. The Compensation Committee may deem one or more Employees (as defined in this Section 2.13 except not employed by an Employing Company) of a particular Southern Subsidiary, or corporation or entity Controlled by a Southern Subsidiary, to be employed by an Employing Company for certain purposes under this Plan. Such action shall be in writing and shall cause such an Employee to only be entitled to benefits under this Plan in the event of a Change in Control of his deemed Employing Company, and not his actual employing company. An Employee shall immediately cease to be an Employee who is eligible under the Plan upon his transfer from one of the named positions set forth above or from a position designated under subsection (15) above unless the Compensation Committee has designated (upon the recommendation of the Chief Executive Officer of Southern) the Employee as eligible under his new position. 2.14 "Employee Outplacement Program" shall mean the program established by the Employing 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: (a) self assessment, career decision and goal setting; (b) job market research and job sources; (c) networking and interviewing skills; (d) planning and implementation strategy; (e) resume writing, job hunting methods and salary negotiation; and (f) office support and job search resources. 2.15 "Employing Company" shall mean the Company, or any other corporation or other entity controlled by Southern, 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. The term "Employing Company" shall also mean any corporation or entity Controlled by a Southern Subsidiary which the Compensation Committee has determined to bring under the Plan and which shall adopt the Plan, and any successor of any of them. The participation of Southern Company Gas, LLC in the Plan as an Employing Company shall be limited to Support Employees. 2.16 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 2.17 "Good Reason" shall mean, without an Employee's express written consent, after written notice to his Employing Company, and after a thirty (30) day opportunity for the Employee's Employing Company to cure, the continuing occurrence of any of the following events: (a) Inconsistent Duties. A meaningful and detrimental alteration in the Employee's position or in the nature or status of his responsibilities from those in effect immediately prior to the Change in Control; (b) Reduced Salary. A reduction of five percent (5%) or more by the Employing Company in either of the following: (i) the Employee's annual base salary rate as in effect immediately prior to the Change In Control ("Base Salary") (except for a less than ten percent (10%), across-the-board Base Salary reduction similarly affecting at least ninety-five percent (95%) of all Executive Employees of the Employing Company); or (ii) the sum of the Employee's Base Salary plus target bonus under his Employing Company's short term bonus plan (the PPP under the Omnibus Plan), as in effect immediately prior to the Change in Control (except for a less than ten percent (10%), across-the-board reduction of Base Salary plus target bonus under such short term plan similarly affecting at least ninety-five percent (95%) of all Executive Employees of the Employing Company); (c) Pension and Compensation Plans. The failure by the Employing Company to continue in effect any "pension plan or arrangement" or any "compensation plan or agreement" in which an Employee participates as of the date of the Change in Control or the elimination of the Employee's participation in any such plan, (except for across-the-board plan changes or terminations similarly affecting at least ninety-five percent (95%) of all Executive Employees of the Employing Company). For purposes of this Section 2.17(c), a "pension plan or agreement" shall mean any written arrangement executed by an authorized officer of the Employing Company which provides for payments upon retirement. For purposes of this Section 2.17(c), the "compensation plan or agreement" shall mean any written arrangement executed by an authorized officer of the Employing Company which provides for periodic, non-discretionary compensatory payments to employees in the nature of bonuses. (d) Relocation. A change in an Employee's work location to a location more than fifty (50) miles from the facility where the Employee was located at the time of the Change in Control, unless such new work location is within fifty (50) miles from the Employee's principal place of residence at the time of the Change in Control. The acceptance, if any, by an Employee of employment by an Employing Company at a work location which is outside the fifty mile radius set forth in this Section 2.17(d) shall not be a waiver of the Employee's right to refuse subsequent transfer by an Employing Company to a location which is more than fifty (50) miles from the Employee'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 (e) Benefits and Perquisites. The taking of any action by the Employing Company that would directly or indirectly materially reduce the benefits enjoyed by an Employee under the Employing Company's retirement, life insurance, medical, health and accident, disability, deferred compensation or savings plans in which the Employee was participating immediately prior to the Change in Control, or the failure by the Employing Company to provide an Employee with the number of paid vacation days or, if applicable, paid time off days to which the Employee is entitled on the basis of years of service with the Employing Company in accordance with the Employing Company's normal vacation policy or, the paid time off program (whichever applicable) in effect immediately prior to the Change in Control (except for across-the-board vacation policy or paid time off program changes or policy or program terminations similarly affecting at least ninety-five percent (95%) of all Executive Employees of the Employing Company). (f) For purposes of this Section 2.17, the term "Executive Employee" shall mean those employees of an Employing Company of Grade Level 10 or above whether or not they participate in the Plan. 2.18 "Group" shall have the meaning set forth in Section 14(d) of the Exchange Act. 2.19 "Group Health Plan" shall mean the group health plan covering the Participant, as such plan may be amended from time to time. 2.20 "Group Life Insurance Plan" shall mean the group life insurance program covering the Participant, as such plan may be amended from time to time. 2.21 "Incumbent Board" shall mean those individuals who constitute the Southern Board 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 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. 2.22 "Month of Service" shall mean any calendar month during which a Participant has worked at least one (1) hour or was on approved leave of absence while in the employ of an Employing Company or any other Southern Subsidiary. 2.23 "Omnibus Plan" shall mean the Southern Company Omnibus Incentive Compensation Plan, and the Design and Administrative Specifications duly adopted thereunder, as in effect on the day before the date of a Change in Control, as may be amended from time to time. 2.24 "Participant" shall mean an Employee who meets the eligibility requirements of Section 3.1 of this Plan. 2.25 "Pension Plan" shall mean The Southern Company Pension Plan or any successor thereto, as such plans may be amended from time to time. 2.26 "Performance Dividend Program" or "PDP" shall mean the Performance Dividend Program under the Omnibus Plan or any replacement thereto, as such plans may be amended from time to time. 2.27 "Performance Pay Program" or "PPP" shall mean the Performance Pay Program under the Omnibus Plan or any replacement thereto, as such plans may be amended from time to time. 2.28 "Person" shall mean any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of Exchange Act. 2.29 "Plan" shall mean the Southern Company Senior Executive Change in Control Severance Plan. 2.30 "Preliminary Change in Control" shall mean the occurrence of any of the following as determined by the Southern Committee. (a) Southern or an Employing Company has entered into a written agreement, such as, but not limited to, a letter of intent, which, if Consummated, would result in a Change in Control; (b) Southern, an Employing Company or any Person publicly announces an intention to take or to consider taking actions which, if Consummated, would result in a Change of Control under circumstances where the Consummation of the announced action or intended action is legally and financially possible; (c) Any Person achieves the Beneficial Ownership of fifteen percent (15%) or more of the Common Stock; or (d) The Southern Board or the board of directors of an Employing Company has declared that a Preliminary Change of Control has occurred. 2.31 "Southern" shall mean The Southern Company, its successors and assigns. 2.32 "Southern Board" shall mean the board of directors of Southern. 2.33 "Southern Committee" shall mean the committee comprised of the Chairman of the Southern Board, Chief Financial Officer of Southern, General Counsel of Southern and the Chairman of the Administrative Committee (as defined in the Southern Company Change in Control Benefit Plan Determination Policy). 2.34 "Southern Subsidiary" shall mean any corporation or other entity Controlled by Southern or another Southern Subsidiary. 2.35 "Support Employee" shall mean an Employee of the Company (which shall continue to be such Employee's Employing Company for purposes of this Plan) who: (a) Is involuntarily terminated without Cause within one year of the Change in Control of an Employing Company (other than the Company) and either (i) spent at least 40% of his working time performing services for such Employing Company at the time of the Change in Control and for the six months prior thereto, or (ii) is determined by the Compensation Committee to be involuntarily terminated without Cause as a result of such Change in Control; or (b) Voluntarily terminates with Good Reason within one year of the Change in Control of an Employing Company (other than the Company) and spent at least 40% of his working time performing services for such Employing Company at the time of the Change in Control and for the six months prior thereto. For purposes of this Section 2.35(b) only, Good Reason shall not include the provisions of Section 2.17(a), entitled "Inconsistent Duties." 2.36 "Termination for Cause" or "Cause" shall mean an Employee's termination of employment with his Employing Company upon the occurrence of any of the following: (a) The willful and continued failure by the Employee to substantially perform his duties with his Employing Company (other than any such failure resulting from the Employee's Total Disability or from the Employee's retirement or any such actual or anticipated failure resulting from termination by the Employee 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 (b) The willful engaging by the Employee in conduct that is demonstrably and materially injurious to his Employing Company, monetarily or otherwise, including but not limited to any of the following: (i) any willful act involving fraud or dishonesty in the course of an Employee's employment by his Employing Company; (ii) the willful carrying out of any activity or the making of any statement by an Employee which would materially prejudice or impair the good name and standing of his Employing Company, Southern or any other Southern Subsidiary or would bring his Employing Company, Southern or any other Southern Subsidiary into contempt, ridicule or would reasonably shock or offend any community in which his Employing Company, Southern or such other Southern Subsidiary is located; (iii) attendance by an Employee 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; (iv) violation of his Employing 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 Employing Company's safety officer; (v) assault or other act of violence by an Employee against any person during the course of employment; or (vi) an Employee's indictment for any felony or any misdemeanor involving moral turpitude. No act or failure to act by an Employee shall be deemed "willful" unless done, or omitted to be done, by the Employee not in good faith and without reasonable belief that his action or omission was in the best interest of his Employing Company. Notwithstanding the foregoing, an Employee 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 the majority of the Southern Board at a meeting called and held for such purpose (after reasonable notice to the Employee 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, the Employee was guilty of conduct set forth in Section 2.36(a) or (b) hereof and specifying the particulars thereof in detail. 2.37 "Termination Date" shall mean the date on which the Participant's employment with the Employing Company is terminated; provided, however, that solely for purposes of Section 3.2(c) hereof, the Termination Date of Participants who are deemed to be retired pursuant to the provisions of Section 3.3 hereof, shall be the effective date of their retirement pursuant to the terms of the Pension Plan. 2.38 "Total Disability" shall mean total disability within the meaning of the Pension Plan. 2.39 "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. 2.40 "Waiver and Release" shall mean the Waiver and Release attached hereto as Exhibit A. 2.41 "Year of Service" shall mean an Employee'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 an Employee has a break in his service with his Employing Company, he will receive credit under this Plan for the service prior to the break in service only if the break in service was less than five years and his service prior to the break exceeds the length of the break in service. ARTICLE III - SEVERANCE BENEFITS 3.1 Eligibility. (a) Employees. Except as otherwise provided herein, any Employee whose employment is involuntarily terminated by his Employing Company at any time during the two year period following a Change in Control of Southern or his Employing Company for reasons other than Cause or who shall voluntarily terminate his employment with his Employing Company for Good Reason at any time during the two year period following a Change in Control of Southern or his Employing Company, shall be entitled to participate in this Plan and receive the benefits described in Section 3.2 hereof, subject to the terms and conditions described in this Article 3. (b) Deemed Employees. An Employee who is deemed to be employed by a different Employing Company than his actual Employing Company under Section 2.13 hereof, shall be entitled to participate in this Plan and receive the benefits described in Section 3.2 hereof in the same manner as other Employees under Section 3.1(a) hereof; provided, however, that such deemed Employee will be considered to be an Employee of the deemed Employing Company solely for purposes of determining whether a Change in Control has occurred. For all other purposes under this Plan, such deemed Employee's actual Employing Company shall be considered. (c) Support Employees. A Support Employee shall be entitled to participate in this Plan and receive the benefits described in Section 3.2 hereof, subject to the terms and conditions described in this Article 3. (d) Limits on Eligibility. Notwithstanding anything to the contrary herein, an Employee or Support Employee shall not be eligible to receive benefits under this Plan if the Employee or Support Employee: (i) is not actively at work on his Termination Date, unless such Employee or Support Employee is capable of returning to work within twelve (12) weeks of the beginning of any leave of absence from work; (ii) voluntarily terminates his employment with his Employing Company for other than Good Reason; (iii) is terminated by his Employing Company for Cause; (iv) accepts the transfer of his employment to Southern, any Southern Subsidiary or any employer that acquires all or substantially all of the assets of Southern, a Southern Subsidiary or his Employing Company; (v) refuses an offer of continued employment with his Employing Company, Southern or a Southern Subsidiary, or any employer that acquires all or substantially all of the assets of Southern, a Southern Subsidiary or his Employing Company, under circumstances where such refusal would not amount to Good Reason for voluntary termination of employment and such employer agrees to adopt this Plan as it applies to such Participant; or (vi) elects to receive the benefits of any other voluntary or involuntary severance, separation or outplacement program, plan or agreement maintained by his Employing Company in lieu of benefits under this Plan; provided however, that the receipt of benefits under any retention plan or agreement shall not be deemed to be the receipt of benefits under any severance, separation or outplacement program for purposes of this Plan. 3.2 Benefits. Upon the Employing Company's receipt of an effective Waiver and Release, Participants shall be entitled to receive the following benefits: (a) Employee Outplacement Services. Each Participant shall be eligible to participate in the Employee Outplacement Program, which program shall not be less than six (6) months duration measured from the Participant's Termination Date. (b) Severance Benefit. Participants shall be paid in cash an amount equal to three times the Participant's 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 Employing Company shall pay to the Participant 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 the Participant under Code Section 280G exceeds three (3) times the Participant'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 the Participant's Base Amount, less all other "parachute payments" (as such term is defined under Code Section 280G) received by the Participant, 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 Section 3.2(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 Participants, Southern and the Employing Company. (c) Welfare Benefit. (i) Except as provided in Section 3.3 hereof, each Participant shall be eligible to participate in the Employing Company's Group Health Plan for a period of six (6) months for each of the Participant's Years of Service, not to exceed a period of five (5) years, beginning on the first day of the first month following the Participant's Termination Date unless otherwise specifically provided under such plan, upon the Participant's payment of both the Employing Company's and the Participant's premium under such plan. A Participant who receives this extended medical coverage shall also be entitled to elect coverage under the Group Health Plan for his dependents who are participating in the Group Health Plan on the Participant'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 the Participant's extended medical coverage under this Section 3.2(c) to the extent such dependents remain eligible for dependent coverage under the terms of the Group Health Plan. (ii) The extended medical coverage afforded to a Participant pursuant to this Section 3.2(c) as well as the premiums to be paid by the Participant 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 the Participant in connection with this extended coverage shall be due on the first day of each month; provided, however, that if a Participant fails to pay his premium within thirty (30) days of its due date, such Participant's extended coverage shall be terminated. (iii) Any Group Health Plan coverage provided under this Section 3.2(c) shall be a part of and not in addition to any COBRA Coverage which a Participant or his dependent may elect. In the event that a Participant or his 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 Employing Company's Group Health Plan available to the Participant or his dependent by virtue of the provisions of this Article 3 shall terminate, except as may otherwise be required by law, and shall not be renewed. It shall be the duty of a Participant to inform the Employing Company of his eligibility to participate in any such health plan. (iv) Except as otherwise provided in Section 3.3 hereof, regardless of whether a Participant elects the extended coverage described in Section 3.2(a) hereof, the Employing Company shall pay to each Participant a cash amount equal to the Employing Company's and the Participant's cost of premiums for three (3) years of coverage under the Group Health Plan and Group Life Insurance Plan, as such Plans were in effect as of the date of the Change in Control. (d) Stock Option Vesting. The provisions of this Section 3.2(d) shall apply to any Participant who, as of the date of the Change in Control, was a participant in the Omnibus Plan, the defined terms of which are incorporated in this Section 3.2(d) by reference. (i) Any of the Participant's Options and Stock Appreciation Rights outstanding as of the Termination Date 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 Participant holding a Stock Appreciation Right who 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 the Participant 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. (ii) The restrictions and deferral limitations applicable to any of the Participant's Restricted Stock and Restricted Stock Units as of the Termination Date shall lapse, and such Restricted Stock and Restricted Stock Units shall become free of all restrictions and limitations and become fully vested and transferable to the full extent of the original grant. (e) Performance Pay Program. The provisions of this Section 3.2(e) shall apply to any Participant who, as of the date of the Change in Control, was a participant in the Performance Pay Program, the defined terms of which are incorporated in this Section 3.2(e) by reference. Provided the Participant is not entitled to a Cash-Based Award under the PPP, if the PPP is in place as of the Participant's Termination Date and to the extent the Participant is entitled to participate therein, the Participant shall be entitled to receive cash in an amount equal to a prorated payout of his Cash-Based Award under the PPP for the performance period in which the Termination Date shall have occurred, at target performance under the PPP and prorated by the number of months which have passed since the beginning of the performance period until the Termination Date. (f) Performance Dividend Program. The provisions of this Section 3.2(f) shall apply to any Participant who, as of the date of the Change in Control, was a participant in the Performance Dividend Program, the defined terms of which are incorporated in this Section 3.2(f) by reference. Provided the Participant is not entitled to a Cash-Based Award under the PDP, if the PDP is in place through the Participant's Termination Date and to the extent the Participant is entitled to participate therein, the Participant shall be entitled to receive cash for each such Cash-Based Award under the PDP held as of such date based on a payout percentage of 50% under the PDP for the performance period in which the Termination Date shall have occurred, and the annual dividend declared prior to the Termination Date. (g) Other Short Term Incentives Under the Omnibus Plan. The provisions of this Section 3.2(g) shall apply to any Participant who, as of the date of the Change in Control is entitled to a Performance Unit or Performance Share award under the Omnibus Plan. Provided the Participant is not otherwise entitled to a Performance Unit/Share award under the Omnibus Plan, the Participant shall be entitled to receive cash in an amount equal to a prorated payout of the value of his Performance Units and/or Performance Shares for the performance period in which the Termination Date shall have occurred, at target performance and prorated by the number of months which have passed since the beginning of the performance period until the Termination Date. (h) Other Short-Term Incentive Plans. The provisions of this Section 3.2(h) shall apply to any Participant who, as of the date of the Change in Control, is a participant in any other "short term incentive compensation plan" not otherwise previously referred to in this Section 3.2. Provided the Participant is not otherwise entitled to a plan payout under any change in control provisions of such plans, if the "short term incentive compensation plan" is in place through the Participant's Termination Date and to the extent the Participant is entitled to participate therein, the Participant shall be entitled to receive cash in an amount equal to his award under his respective Employing Company's "short term incentive compensation plan" for the annual performance period in which the Termination Date shall have occurred, at the Participant's target performance level and prorated by the number of months which have passed since the beginning of the annual performance period until the Termination Date. For purposes of this Section 3.2(h), the term "short term incentive compensation plan" shall mean any incentive compensation plan or arrangement adopted in writing by an Employing Company which provides for annual, recurring compensatory bonuses to participants based upon articulated performance criteria, and which have been identified by the Board of Directors and listed on Exhibit B hereto, which may be amended from time to time to reflect plan additions, terminations and amendments. 3.3 Coordination with Retiree Medical and Life Insurance Coverage. Notwithstanding anything to the contrary above, any Participant who is otherwise eligible to retire pursuant to the terms of the Pension Plan shall be deemed to have retired for purposes of all employee benefit plans sponsored by the Employing Company of which the Participant is a participant. A Participant who is deemed to have retired in accordance with the preceding sentence shall not be eligible to receive the benefits described in Section 3.2(c) hereof if, upon his Termination Date, such Participant becomes eligible to receive the retiree medical and life insurance coverage provided to certain retirees pursuant to the terms of the Pension Plan, the Group Health Plan and the Group Life Insurance Plan. 3.4 Payment of Benefits. The amounts due a Participant under Sections 3.2(b) and (c) hereof shall be payable in one (1) lump sum payment as soon as administratively practicable within thirty (30) days of the later of the following to occur: (a) the Participant's Termination Date, or (b) the tender to the Employing Company by the Participant of an effective Waiver and Release in the form of Exhibit A 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 Employing Company. 3.5 Benefits in the Event of Death. In the event of the Participant's death prior to the payment of all benefits due under this Article 3, the Participant's estate shall be entitled to receive as due any amounts not yet paid under this Article 3 upon the tender by the executor or administrator of the estate of an effective Waiver and Release. 3.6 Legal Fees. In the event of a dispute between a Participant and his Employing Company with regard to any amounts due hereunder, if any material issue in such dispute is finally resolved in the Participant's favor, his Employing Company shall reimburse the Participant's legal fees incurred with respect to all issues in such dispute in an amount not to exceed fifty thousand dollars ($50,000). 3.7 No Mitigation. A Participant who receives benefits under Section 3.2 of this Plan shall have no duty or obligation to seek other employment following his Termination Date and, except as otherwise provided in Subsection 3.1(d) hereof, the amounts due a Participant hereunder shall not be reduced or suspended if such Participant accepts such subsequent employment. 3.8 Non-qualified Retirement and Deferred Compensation Plans. Subsequent to a Change in Control, any claims by a Participant 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 procedures and provisions set forth in Article 5 hereof and if any material issue in such dispute is finally resolved in the Participant's favor, the Company shall reimburse the Participant's legal fees in the manner provided in Section 3.6 hereof. ARTICLE IV - ADMINISTRATION 4.1 Administrative Duties. Except as otherwise provided herein, the Compensation Committee shall be responsible for the general administration of the Plan and may appoint other persons or entities to perform or assist in the performance of any of its duties, subject to its review and approval. The Compensation Committee shall have the right to remove any such appointee from his position without cause upon notice. ARTICLE V - ARBITRATION 5.1 General. Any dispute, controversy or claim arising out of or relating to the Company's obligations to pay severance benefits under this Plan, 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 Article 5 are not intended to apply to any other disputes, claims or controversies arising out of or relating to a Participant's employment by an Employing Company or the termination thereof. 5.2 Demand for Arbitration. Arbitration shall be initiated by serving a written notice of demand for arbitration to the Participant, in the case of an Employing Company, or to the Compensation Committee, in the case of a Participant. 5.3 Law and Venue. The arbitrators shall apply the laws of the State of Georgia, except to the extent pre-empted by federal law, excluding any law which would require the use of the law of another state. The arbitration shall be held in Atlanta, Georgia. 5.4 Appointment of Arbitrators. Arbitrators shall be appointed 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 the Participant, one arbitrator shall be appointed by the Employing 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. 5.5 Costs. The arbitration filing fee shall be paid by the Participant. All other costs of arbitration shall be borne equally by the Participant and his Employing Company, provided, however, that such Employing Company shall reimburse such fees and costs in the event any material issue in such dispute is finally resolved in the Participant's favor and the Participant is reimbursed legal fees under Section 3.6 hereof. 5.6 Interim and Injunctive Relief. Nothing in this Article 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 either party's interests or as otherwise may be appropriate pending the conclusion of arbitration proceedings pursuant to this Article 5 and nothing herein is intended to 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 Article 5. ARTICLE VI - MISCELLANEOUS 6.1 Funding of Benefits. Unless the Board of Directors shall in its discretion determine otherwise, the benefits payable to a Participant under the Plan shall not be funded in any manner and shall be paid by the Employing Companies out of their general assets, which assets are subject to the claims of the Employing Companies' creditors. 6.2 Withholding. There shall be deducted from the payment of any benefit due under the Plan the amount of any tax required by any governmental authority to be withheld and paid over by the Employing Companies to such governmental authority for the account of the Participant entitled to such payment. 6.3 Assignment. No Participant or beneficiary shall have any 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. 6.4 Amendment and Termination. The Plan may be amended or terminated at any time by the Board of Directors; provided, however, that any material amendment or termination of the Plan shall not be effective unless approved by the Compensation Committee upon a recommendation by the Chief Executive Officer of Southern. Notwithstanding the above, no amendment or termination of the Plan shall be effective if such amendment or termination is made or is effective within six (6) months of a Preliminary Change in Control unless such amendment has the effect of increasing benefits to Participants under the Plan or is determined by the Board of Directors to be immaterial. 6.5 Construction. The Plan 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. IN WITNESS WHEREOF, this Southern Company Senior Executive Change in Control Severance Plan has been executed by the Company through its duly authorized officers, this 16th day of May, 2003, to be effective as provided herein. SOUTHERN COMPANY SERVICES, INC. By: /s/Ellen N. Lindemann Ellen Lindemann, Senior Vice President Exhibit A SOUTHERN COMPANY SENIOR EXECUTIVE CHANGE IN CONTROL SEVERANCE PLAN Waiver and Release I understand that I am entitled to receive the Severance Benefits described in Article 3 of the Southern Company Senior Executive Change in Control Severance Plan (the "Plan") if I execute this Waiver and Release ("Waiver"). I understand that the benefits I have elected to receive under the Plan are in excess of those I would have received from ________________________ (the "Company") if I had not elected to participate in the Plan and 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 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. d/b/a Southern LINC, Southern Company Services, Inc., Southern Company Energy Solutions, L.L.C., Southern Nuclear Operating Company, Inc., Southern Telecom, Inc., Southern Company Management Development, Inc., and other direct or indirect (current and former) 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 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. I understand and agree that I am obligated to keep confidential and not disclose the terms of this Waiver, including, but not limited to, the benefits under this Plan, except to my attorneys, financial advisors, or except where such disclosure is required by law. 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 any vested or accrued benefits that I have under any workers' compensation laws or 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 except for programs specifically designed for participants in the Plan. Notwithstanding anything in this Waiver to the contrary, I understand that the Company is not discouraging or prohibiting me from engaging in any protected activity described in Section 211 of the Energy Reorganization Act. 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 forty-five (45) 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. I understand I do not have to sign this Waiver. IN WITNESS WHEREOF, the undersigned hereby executes this Waiver this _______ day of _________, in the year ______. Employee's signature Employee's printed name Acknowledged and Accepted by the Compensation Committee of the Southern Company Senior Executive Change in Control Severance Plan. By: ----------------------------------- Date: ----------------------------------- Attachment to Exhibit A TO: All Eligible Employees under the Southern Company Senior Executive Change in Control Severance Plan FROM: _____________________ RE: ADEA Information Notice DATE: _____________________ A severance plan known as the Southern Company Senior Executive Change in Control Severance Plan ("Plan") has been approved and established by The Southern Company, its affiliates and its direct and indirect subsidiaries (collectively the "Company"). You are eligible to participate in the Plan subject to the terms of the Plan. In accordance with the Age Discrimination in Employment Act ("ADEA"), the Company is providing you the following information pertaining to eligibility and participation in the Plan. This information, in conjunction with the information provided in the Plan, should allow you to make an informed decision concerning your options under the Plan. The purpose of the Plan is to provide benefits to certain key executive employees of The Southern Company and certain subsidiaries of The Southern Company and its subsidiaries ("Employing Companies") whose employment is terminated subsequent to a change in control of The Southern Company or their respective Employing Company. You are eligible to participate in the Plan because your employment has been terminated under the terms of the Plan. All eligible employees may receive severance benefits under the Plan by signing a Waiver and Release no later than 45 calendar days from the date it is received. The Waiver and Release will remain revocable by you for a seven day period after you sign it. Attached is a list sorted by job title and age of each employee eligible to participate in the Plan as well as a list of the ages of all employees in the same job classification who are not eligible to participate in the Plan. In furtherance of you making an informed decision, the Company urges you to seek a financial advisor, legal counsel and a qualified tax advisor to assist you in fully understanding your rights and benefits under the plan and the Waiver and Release that you will be required to sign to receive severance benefits under the Plan. If you have any questions or need additional information, please call me at . Sincerely, - ---------------------- [Name] - ---------------------- [Title] ADEA INFORMATION NOTICE
- ---------------------------------- --------------------------------------------- ------------------------------------- Department Job Title, Classification Age of or Category of Eligible Employees Eligible Employees - ---------------------------------- --------------------------------------------- ------------------------------------- - ---------------------------------- --------------------------------------------- ------------------------------------- - ---------------------------------- --------------------------------------------- ------------------------------------- - ---------------------------------- --------------------------------------------- ------------------------------------- List department of each eligible [List job classification, title or category [List corresponding age of each employee of all eligible employees] eligible employee] - ---------------------------------- --------------------------------------------- ------------------------------------- - ---------------------------------- --------------------------------------------- ------------------------------------- Department Job Title, Classification Age of or Category of Ineligible Employees Ineligible Employees - ---------------------------------- --------------------------------------------- ------------------------------------- - ---------------------------------- --------------------------------------------- ------------------------------------- - ---------------------------------- --------------------------------------------- ------------------------------------- - ---------------------------------- --------------------------------------------- ------------------------------------- List department of each [List job classification, title or category [List corresponding age of each ineligible employee of all ineligible employees] ineligible employee] - ---------------------------------- --------------------------------------------- -------------------------------------
Exhibit B SOUTHERN COMPANY EXECUTIVE CHANGE IN CONTROL SEVERANCE PLAN Short Term Incentive Compensation Plans EX-10.4 8 x10a4.txt AMENDMENT TO PENSION PLAN Exhibit 10(a)4 FIRST 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, as amended and restated effective as of January 1, 2002 (the "Plan"); WHEREAS, pursuant to Section 13.1 of the Plan, the Company is authorized to amend the Plan at any time; WHEREAS, the Company desires to amend the Plan to clarify that Subsections (a) and (b) of Section 1.10, "Earnings," include certain catch-up contributions made under The Southern Company Employee Savings Plan; WHEREAS, the Company further desires to amend the Plan to modify Section 1.18, "Hour of Service," to address time off under a paid time off program; WHEREAS, the Company further desires to amend the Plan to clarify provisions in Section 5.7. NOW, THEREFORE, the Company hereby amends the Plan as follows, effective as set forth in each numbered paragraph: 1. Effective April 12, 2003, subsections (a) and (b) of Section 1.10, "Earnings," shall be amended to read as follows: 1.10 (a) "Earnings" with respect to any Employee including any Employee whose service is terminated by reason of disability (as defined in Section 4.4) means (1) the highest annual rate of salary or wages of an Employee of any Affiliated Employer within any Plan Year before deductions for taxes, Social Security, etc., (2) all amounts contributed by any Affiliated Employer to The Southern Company Employee Savings Plan as Elective Employer Contributions, as said term is described under Section 4.1 of such plan, pursuant to the Employee's exercise of his deferral option made thereunder in accordance with the requirements of Section 401(k) of the Code, (3) all amounts contributed by any Affiliated Employer to The Southern Company Employee Savings Plan as catch-up contributions pursuant to the Employee's exercise of his deferral option made thereunder in accordance with the requirements of Section 414(v) of the Code, and (4) all amounts contributed by any Affiliated Employer to The Southern Company Flexible Benefits Plan on behalf of an Employee pursuant to his salary reduction election, and applied to provide one or more of the optional benefits available under such plan, but (5) shall exclude all amounts deferred under any non-qualified deferred compensation plan maintained by any Affiliated Employer. (b) Notwithstanding the above, "Earnings" with respect to any commissioned salesperson means the salary or wages of an Employee of any Affiliated Employer within any Plan Year, without including overtime, and before deductions for taxes, Social Security, etc. but applying those adjustments identified in paragraphs (a)(2), (3), (4), and (5) above. In addition, "Earnings" for any Employee who is a regular part-time employee means with regard to paragraph (a)(1) above the highest annual rate of salary or wages based on a forty (40) hour work week. "Earnings" shall also include, for appliance salespersons, certain nonproductive pay earnings types as determined from time to time by the Board of Directors and set forth on Appendix B to the Plan, which Appendix may be updated from time to time. 2. Effective April 12, 2003, Section 1.18, "Hour of Service," shall be amended to read as follows: 1.18 "Hour of Service" means an Employee shall be credited with one Hour of Service for each hour for which (a) he is paid, or entitled to payment, for the performance of duties for an Affiliated Employer, and such hours shall be credited to the Employee for the computation period or periods in which the duties are performed; (b) he is paid, or entitled to payment, by an Affiliated Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, time off under a paid time off program, incapacity (including disability), layoff, jury duty, military duty, or leave of absence in which case the Employee shall be credited with Hours of Service for the computation period or periods in which the period during which no duties were performed occurs; (c) back pay, irrespective of mitigation of damages, has been either awarded or agreed to by an Affiliated Employer, in which case the Employee shall be credited with Hours of Service for the computation period or periods to which the award or agreement pertains, rather than the computation period in which the award, agreement, or payment is made; and (d) solely for the purpose of calculating Vesting Years of Service, he was on any form of authorized leave of absence. The same Hours of Service shall not be credited under clauses (a), (b), (c), and (d). An Employee who is entitled to be credited with Hours of Service in accordance with clause (b) or (d) of this Section 1.18 shall be credited with such number of Hours of Service for the period of time during which no duties were performed as though he were in the active employment of an Employing Company during such period of time. However, an Employee shall not be credited with Hours of Service in accordance with clause (b) of this Section 1.18 for any unused vacation or unused time off under a paid time off program for which payment is received at termination of employment or upon an Employee becoming ineligible to participate in a paid time off program, or if the payment which is made to him or to which he is entitled in accordance with clause (b) is made or due under a plan maintained solely for the purpose of complying with applicable Worker's Compensation, or unemployment compensation or disability insurance laws, or if such payment is one which solely reimburses an Employee for medical or medically related expenses incurred by the Employee. Provided there is no duplication of Hours of Service credited in accordance with the foregoing provisions, if an Employee is on an approved leave of absence to serve in the Armed Forces of the United States, he shall be credited with such number of Hours of Service with respect to all or such portion of the period of his absence to serve in the Armed Forces of the United States as may be recognized under Sections 1.38(b), 2.3, and 4.2(a). The rules set forth in paragraphs (b) and (c) of Department of Labor Regulations 2530.200b-2 are incorporated in the Plan by this reference and made a part hereof. 3. Effective January 1, 2003, Section 5.7(c)(2)(iii) is amended to read as follows: (iii) Forms of distribution. Unless the Employee's interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the required beginning date, as of the first distribution calendar year distributions will be made in accordance with Subsections (c), (d) and (e) of this Section 5.7. If the Employee's interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of Section 401(a)(9) of the Code and the Treasury regulations. 4. Effective January 1, 2003, Section 5.7(c)(3)(iii) is amended to read as follows: (iii) Additional accruals after first distribution calendar year. Any additional benefits accruing to the Employee in a calendar year after the first distribution calendar year will be distributed beginning with the first payment interval ending in the calendar year immediately following the calendar year in which such amount accrues. In determining additional benefits, there shall be taken into account the value of benefit payments previously made. The receipt by an Employee of any payments or distributions as a result of his attaining age 70 1/2 prior to his actual retirement or death shall in no way affect the entitlement of an otherwise eligible Employee to additional accrued benefits. 5. Effective January 1, 2003, Section 5.7(c)(5)(iii) is amended to read as follows: (iii) Death of surviving spouse. If the Employee's surviving spouse is the Employee's sole beneficiary, and the surviving spouse dies before distributions to the surviving spouse begin but after Employee dies without having commenced payment of Retirement income, this Section 5.7(c)(5) will apply as if the surviving spouse were the Employee, except that the time by which distributions must begin will be determined without regard to Section 5.7(c)(2)(ii)(A). IN WITNESS WHEREOF, Southern Company Services, Inc., through its duly authorized officer, has adopted this First Amendment to The Southern Company Pension Plan this 11th day of July, 2003, to be effective as stated herein. SOUTHERN COMPANY SERVICES, INC. By: /s/ Robert A. Bell Title: Vice President ATTEST: By: /s/ Sam H. Dabbs, Jr. Title: Sam H. Dabbs, Jr. Assistant Secretary EX-10.1 9 x10b1.txt SUPPLEMENTAL PENSION AGREEMENT Exhibit 10(b)1 AMENDED AND RESTATED SUPPLEMENTAL PENSION AGREEMENT THIS AMENDED AND RESTATED SUPPLEMENTAL PENSION AGREEMENT, made as of the 12th day of May, 2003, by and between SOUTHERN COMPANY SERVICES, INC. ("SCS"), SOUTHERN NUCLEAR OPERATING COMPANY, INC. ("Nuclear"), ALABAMA POWER COMPANY ("Alabama") (SCS, Nuclear and Alabama are each referred to herein individually as "Company" and collectively as "Companies"), and JAMES H. MILLER, III (the "Employee"). WITNESSETH THAT WHEREAS, the Employee is currently employed by SCS as a highly compensated employee and a member of its management; WHEREAS, the Employee was previously employed by Alabama and, before such employment with Alabama, by Nuclear; WHEREAS, pursuant to the Employee's prior employment with Nuclear, Nuclear and the Employee entered into a Supplemental Pension Agreement dated May 26, 1994 for the provision of certain supplemental retirement benefits ("Nuclear Agreement"); and WHEREAS, the Companies and the Employee wish to amend and restate the Nuclear Agreement in order to recognize the Employee's transfers of employment from Nuclear to Alabama and from Alabama to SCS and to provide for the payment by SCS, Alabama and Nuclear of their proportionate shares of the benefits provided hereunder. NOW, THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties agree as follows: 1. If the Employee shall continue to serve SCS faithfully, diligently and competently to the best of his ability from the date of this Agreement until either a. such date after his service as an employee shall terminate; or b. his retirement in accordance with the provisions of The Southern Company Pension Plan ("Plan"); or c. his death while in the service of the Company if his spouse is entitled to benefits as a Provisional Payee under the Plan; then the provisions of Paragraphs 2 and 3 hereof shall be operative. 2. The Companies shall pay to the Employee an amount per month equal to the difference between the monthly amount payable to the Employee under the Plan as it shall then be in effect at the time any monthly amount shall be payable in accordance with this Paragraph and the monthly amount which would have been payable to him under the Plan if the Employee were given credit for ten additional years of Accredited Service under the Plan, less any deductions hereinafter provided. The benefit provided in the preceding sentence shall be paid to the Employee in monthly installments on the first day of each month in the same manner and commence at the same time as the Employee's election to receive Retirement Income under the Plan. For the purpose of computing a monthly amount payable to the Employee under the Plan, no limitation on benefits imposed by the Internal Revenue Code as it now exists or is hereafter amended or any other limiting legislation shall be taken into account. The computations required for the determination of the monthly payments hereunder and the periods used as periods of Accredited Service shall be calculated so as to give appropriate effect in each instance to the exclusion of any portions of such period on account of eligibility, military service, leave of absence, or otherwise as may be required under the Plan as it shall be in effect at the time such monthly payment is to be made. 3. If, in accordance with the terms of the Plan, the Employee shall have a Provisional Payee entitled to receive payments thereunder, then the Provisional Payee shall be entitled to payments under this Agreement which, when added to payments to her under the Plan, would be appropriate if the Employee were given credit for ten additional years of Accredited Service under the Plan. 4. SCS, Nuclear and Alabama agree to share the cost of any payments to the Employee and his Provisional Payee under Paragraphs 2 and 3 of this Agreement in accordance with the terms of this Paragraph 4. Each Company's share of any payment to the Employee or his Provisional Payee under Paragraphs 2 and 3 herein shall be calculated by multiplying such payment by a fraction, where the numerator of such fraction is the base rate of pay received by the Employee from the respective Company on his date of transfer or termination, as applicable, multiplied by the Employee's Accredited Service at such Company, and where the denominator of such fraction is the sum of all numerators calculated for SCS, Nuclear and Alabama. 5. Neither the entering into nor the termination of this Agreement for any cause shall affect the Employee's right to such salary, fees or other compensation for his services as an employee, officer or director of SCS as it has agreed or may agree to pay him prior to or subsequent to his termination of service nor the Employee's right to participate in and receive benefits under any plan or plans of SCS now existing, or which may hereafter exist, providing benefits for its employees. 6. The Employee shall not, under any circumstances, have any option or right to require payments hereunder otherwise than in accordance with the terms hereof and after the terms and contingencies herein specified have been met. Except as specifically allowed by law, neither the Employee nor any Provisional Payee shall have any power of anticipation, alienation, mortgage, pledge, encumbrance or assignment of payments contemplated hereunder, and all rights and benefits of the Employee and of any Provisional Payee shall be for his or her sole personal benefit, and no other person shall acquire any right, title or interest hereunder by reason of any sale, assignment, mortgage, pledge, encumbrance, transfer, claim or judgment or bankruptcy proceedings against the Employee or his Provisional Payee. 7. Nothing contained in this Agreement shall be construed to affect in any manner the existing rights of SCS or the Employee to suspend, terminate, alter or modify, whether or not for cause, the employment relationship contemplated by Paragraph 1 hereof. 8. The failure of either party to insist in any one or more instances upon performance of any of the terms or conditions of this Agreement shall not be construed as a waiver or a relinquishment of any right granted hereunder or of the future performance of any such term, covenant or condition, but the obligation of either party with respect thereto shall continue in full force and effect. 9. The parties hereto agree that the validity of this Agreement or any of the provisions hereof shall be determined under and according to the laws of the State of Alabama, and that the Agreement and its provisions shall be interpreted and construed in accordance with the laws of that State. 10. This Agreement shall be binding upon and inure to the benefit of the parties hereto and any successor to the business of SCS, Nuclear or Alabama, but neither this Agreement nor any right hereunder may be assigned by the Employee, and in any event, the Agreement shall, if not sooner terminated, terminate for all purposes upon the death of the Employee or, if his Provisional Payee shall survive the Employee and shall be entitled to receive any payments hereunder, upon the death of the Provisional Payee, and the satisfaction by SCS, Nuclear and Alabama of their obligations arising theretofore under the Agreement. IN WITNESS WHEREOF, SCS, Nuclear and Alabama have caused this Amended and Restated Supplemental Pension Agreement to be executed by their duly authorized officers and the Employee has executed this Agreement in quadruplicate on or as of the day and year first above written. ATTEST: SOUTHERN COMPANY SERVICES, INC. /s/Sam H. Dabbs, Jr. By: /s/G. Edison Holland, Jr. Its: EVP ATTEST: ALABAMA POWER COMPANY /s/William E. Zales, Jr. By: /s/William B. Hutchins, III Its: EVP ATTEST: SOUTHERN NUCLEAR OPERATING COMPANY, INC. /s/Sherry A. Mitchell By: /s/W. G. Hairston, III Its: President & CEO /s/Karan T. Thompson /s/James H. Miller, III Witness EMPLOYEE EX-24.2 10 x24c2.txt POWER OF ATTORNEY Exhibit 24(c)2 C.B. (Mike) Harreld Bin 10240 Executive Vice President and 241 Ralph McGill Boulevard NE Chief Financial Officer Atlanta, Georgia 30308-3374 (logo) Georgia Power Company A SOUTHERN COMPANY July 31, 2003 Thomas A. Fanning and Wayne Boston Dear Sirs: As an officer of Georgia Power Company, I hereby make, constitute, and appoint each of you my true and lawful Attorney in my name, place, and stead, to sign and cause to be filed with the Securities and Exchange Commission (1) this Company's Quarterly Reports on Form 10-Q during 2003, and (2) any necessary or appropriate amendment or amendments to any such reports and to this Company's Annual Report on Form 10-K for the year ended December 31, 2002, each such report or amendments to such reports to be accompanied in each case by any necessary or appropriate exhibits or schedules thereto. Yours very truly, /s/C. B. Harreld C. B. Harreld EX-31.1 11 x31a1.txt SOUTHERN COMPANY CEO CERTIFICATION Exhibit 31(a)1 THE SOUTHERN COMPANY Certification Of Chief Executive Officer Per Section 302 Of The Sarbanes-Oxley Act I, Allen Franklin, certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Southern Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 /s/H. Allen Franklin Allen Franklin Chairman and Chief Executive Officer EX-31.2 12 x31a2.txt SOUTHERN COMPANY CFO CERTIFICATION Exhibit 31(a)2 THE SOUTHERN COMPANY Certification Of Chief Financial Officer Per Section 302 Of The Sarbanes-Oxley Act I, Thomas A. Fanning, certify that: 1. I have reviewed this quarterly report on Form 10-Q of The Southern Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 /s/Thomas A. Fanning Thomas A. Fanning Executive Vice President, Chief Financial Officer and Treasurer EX-31.1 13 x31b1.txt ALABAMA POWER CEO CERTIFICATION Exhibit 31(b)1 ALABAMA POWER COMPANY Certification Of Chief Executive Officer Per Section 302 Of The Sarbanes-Oxley Act I, Charles D. McCrary, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Alabama Power Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 /s/Charles D. McCrary Charles D. McCrary President and Chief Executive Officer EX-31.2 14 x31b2.txt ALABAMA POWER CFO CERTIFICATION Exhibit 31(b)2 ALABAMA POWER COMPANY Certification Of Chief Financial Officer Per Section 302 Of The Sarbanes-Oxley Act I, William B. Hutchins, III, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Alabama Power Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 /s/William B. Hutchins, III William B. Hutchins, III Executive Vice President, Chief Financial Officer and Treasurer EX-31.1 15 x31c1.txt GEORGIA POWER CEO CERTIFICATION Exhibit 31(c)1 GEORGIA POWER COMPANY Certification Of Chief Executive Officer Per Section 302 Of The Sarbanes-Oxley Act I, David M. Ratcliffe, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Georgia Power Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 /s/David M. Ratcliffe David M. Ratcliffe President and Chief Executive Officer EX-31.2 16 x31c2.txt GEORGIA POWER CFO CERTIFICATION Exhibit 31(c)2 GEORGIA POWER COMPANY Certification Of Chief Financial Officer Per Section 302 Of The Sarbanes-Oxley Act I, C. B. Harreld, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Georgia Power Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 /s/C. B. Harreld C. B. Harreld Executive Vice President, Chief Financial Officer and Treasurer EX-31.1 17 x31d1.txt GULF POWER CEO CERTIFICATION Exhibit 31(d)1 GULF POWER COMPANY Certification Of Chief Executive Officer Per Section 302 Of The Sarbanes-Oxley Act I, Susan N. Story, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Gulf Power Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 /s/Susan N. Story Susan N. Story President and Chief Executive Officer EX-31.2 18 x31d2.txt GULF POWER CFO CERTIFICATION Exhibit 31(d)2 GULF POWER COMPANY Certification Of Chief Financial Officer Per Section 302 Of The Sarbanes-Oxley Act I, Ronnie R. Labrato, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Gulf Power Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 /s/Ronnie R. Labrato Ronnie R. Labrato Vice President, Chief Financial Officer and Comptroller EX-31.1 19 x31e1.txt MISSISSIPPI POWER CEO CERTIFICATION Exhibit 31(e)1 MISSISSIPPI POWER COMPANY Certification Of Chief Executive Officer Per Section 302 Of The Sarbanes-Oxley Act I, Michael D. Garrett, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Mississippi Power Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 /s/Michael D. Garrett Michael D. Garrett President and Chief Executive Officer EX-31.2 20 x31e2.txt MISSISSIPPI POWER CFO CERTIFICATION Exhibit 31(e)2 MISSISSIPPI POWER COMPANY Certification Of Chief Financial Officer Per Section 302 Of The Sarbanes-Oxley Act I, Michael W. Southern, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Mississippi Power Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 /s/Michael W. Southern Michael W. Southern Vice President, Treasurer and Chief Financial Officer EX-31.1 21 x31f1.txt SAVANNAH ELECTRIC CEO CERTIFICATION Exhibit 31(f)1 SAVANNAH ELECTRIC AND POWER COMPANY Certification Of Chief Executive Officer Per Section 302 Of The Sarbanes-Oxley Act I, A. R. James, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Savannah Electric and Power Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 /s/A. R. James A. R. James President and Chief Executive Officer EX-31.2 22 x31f2.txt SAVANNAH ELECTRIC CFO CERTIFICATION Exhibit 31(f)2 SAVANNAH ELECTRIC AND POWER COMPANY Certification Of Chief Financial Officer Per Section 302 Of The Sarbanes-Oxley Act I, Kirby R. Willis, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Savannah Electric and Power Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 /s/Kirby R. Willis Kirby R. Willis Vice President, Chief Financial Officer and Treasurer EX-31.1 23 x31g1.txt SOUTHERN POWER CEO CERTIFICATION Exhibit 31(g)1 SOUTHERN POWER COMPANY Certification Of Chief Executive Officer Per Section 302 Of The Sarbanes-Oxley Act I, William P. Bowers, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Southern Power Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 /s/William Paul Bowers William P. Bowers President and Chief Executive Officer EX-31.2 24 x31g2.txt SOUTHERN POWER CFO CERTIFICATION Exhibit 31(g)2 SOUTHERN POWER COMPANY Certification Of Chief Financial Officer Per Section 302 Of The Sarbanes-Oxley Act I, Cliff S. Thrasher, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Southern Power Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 /s/Cliff S. Thrasher Cliff S. Thrasher Senior Vice President, Comptroller and Chief Financial Officer EX-32 25 x32a.txt SOUTHERN COMPANY CEO & CFO CERTIFICATION Exhibit 32(a) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of The Southern Company for the quarter ended June 30, 2003, we, the undersigned, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of our knowledge and belief, that: (1) such Quarterly Report on Form 10-Q of The Southern Company for the quarter ended June 30, 2003, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of The Southern Company for the quarter ended June 30, 2003, fairly presents, in all material respects, the financial condition and results of operations of The Southern Company. /s/H. Allen Franklin Allen Franklin Chairman and Chief Executive Officer /s/Thomas A. Fanning Thomas A. Fanning Executive Vice President, Chief Financial Officer and Treasurer Date: August 13, 2003 EX-32 26 x32b.txt ALABAMA POWER COMPANY CEO & CFO CERTIFICATION Exhibit 32(b) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of Alabama Power Company for the quarter ended June 30, 2003, we, the undersigned, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of our knowledge and belief, that: (1) such Quarterly Report on Form 10-Q of Alabama Power Company for the quarter ended June 30, 2003, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of Alabama Power Company for the quarter ended June 30, 2003, fairly presents, in all material respects, the financial condition and results of operations of Alabama Power Company. /s/Charles D. McCrary Charles D. McCrary President and Chief Executive Officer /s/William B. Hutchins, III William B. Hutchins, III Executive Vice President, Chief Financial Officer and Treasurer Date: August 13, 2003 EX-32 27 x32c.txt GEORGIA POWER COMPANY CEO & CFO CERTIFICATION Exhibit 32(c) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of Georgia Power Company for the quarter ended June 30, 2003, we, the undersigned, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of our knowledge and belief, that: (1) such Quarterly Report on Form 10-Q of Georgia Power Company for the quarter ended June 30, 2003, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of Georgia Power Company for the quarter ended June 30, 2003, fairly presents, in all material respects, the financial condition and results of operations of Georgia Power Company. /s/David M. Ratcliffe David M. Ratcliffe President and Chief Executive Officer /s/C. B. Harreld C. B. Harreld Executive Vice President, Chief Financial Officer and Treasurer Date: August 13, 2003 EX-32 28 x32d.txt GULF POWER COMPANY CEO & CFO CERTIFICATION Exhibit 32(d) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of Gulf Power Company for the quarter ended June 30, 2003, we, the undersigned, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of our knowledge and belief, that: (1) such Quarterly Report on Form 10-Q of Gulf Power Company for the quarter ended June 30, 2003, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of Gulf Power Company for the quarter ended June 30, 2003, fairly presents, in all material respects, the financial condition and results of operations of Gulf Power Company. /s/Susan N. Story Susan N. Story President and Chief Executive Officer /s/Ronnie R. Labrato Ronnie R. Labrato Vice President, Chief Financial Officer and Comptroller Date: August 13, 2003 EX-32 29 x32e.txt MISSISSIPPI POWER COMPANY CEO & CFO CERTIFICATION Exhibit 32(e) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of Mississippi Power Company for the quarter ended June 30, 2003, we, the undersigned, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of our knowledge and belief, that: (1) such Quarterly Report on Form 10-Q of Mississippi Power Company for the quarter ended June 30, 2003, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of Mississippi Power Company for the quarter ended June 30, 2003, fairly presents, in all material respects, the financial condition and results of operations of Mississippi Power Company. /s/Michael D. Garrett Michael D. Garrett President and Chief Executive Officer /s/Michael W. Southern Michael W. Southern Vice President, Treasurer and Chief Financial Officer Date: August 13, 2003 EX-32 30 x32f.txt SAVANNAH ELECTRIC AND POWER COMPANY CEO & CFO CERTIFICATION Exhibit 32(f) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of Savannah Electric and Power Company for the quarter ended June 30, 2003, we, the undersigned, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of our knowledge and belief, that: (1) such Quarterly Report on Form 10-Q of Savannah Electric and Power Company for the quarter ended June 30, 2003, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of Savannah Electric and Power Company for the quarter ended June 30, 2003, fairly presents, in all material respects, the financial condition and results of operations of Savannah Electric and Power Company. /s/A. R. James A. R. James President and Chief Executive Officer /s/ Kirby R. Willis Kirby R. Willis Vice President, Chief Financial Officer and Treasurer Date: August 13, 2003 EX-32 31 x32g.txt SOUTHERN POWER COMPANY CEO & CFO CERTIFICATION Exhibit 32(g) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the accompanying Quarterly Report on Form 10-Q of Southern Power Company for the quarter ended June 30, 2003, we, the undersigned, hereby certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of our knowledge and belief, that: (1) such Quarterly Report on Form 10-Q of Southern Power Company for the quarter ended June 30, 2003, which this statement accompanies, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in such Quarterly Report on Form 10-Q of Southern Power Company for the quarter ended June 30, 2003, fairly presents, in all material respects, the financial condition and results of operations of Southern Power Company. /s/William Paul Bowers William P. Bowers President and Chief Executive Officer /s/Cliff S. Thrasher Cliff S. Thrasher Senior Vice President, Comptroller and Chief Financial Officer Date: August 13, 2003 -----END PRIVACY-ENHANCED MESSAGE-----