-----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, KOAyBvlHe15j6IEeQRuBq9Yz9sZM+fvhu2cIhFseY03XGNWo0PPs1izCaHbk/R+5 GJmNB+dgjR7I1S0PtE+jgw== 0000092122-02-000045.txt : 20020415 0000092122-02-000045.hdr.sgml : 20020415 ACCESSION NUMBER: 0000092122-02-000045 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 25 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAVANNAH ELECTRIC & POWER CO CENTRAL INDEX KEY: 0000086940 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 580418070 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05072 FILM NUMBER: 02583978 BUSINESS ADDRESS: STREET 1: 600 BAY ST EAST CITY: SAVANNAH STATE: GA ZIP: 31401 BUSINESS PHONE: 9122327171 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MISSISSIPPI POWER CO CENTRAL INDEX KEY: 0000066904 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 640205820 STATE OF INCORPORATION: MS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11229 FILM NUMBER: 02583979 BUSINESS ADDRESS: STREET 1: 2992 W BEACH CITY: GULFPORT STATE: MS ZIP: 39501 BUSINESS PHONE: 2288641211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GEORGIA POWER CO CENTRAL INDEX KEY: 0000041091 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 580257110 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06468 FILM NUMBER: 02583981 BUSINESS ADDRESS: STREET 1: 241 RALPH MCGILL BOULEVARD CITY: ATLANTA STATE: GA ZIP: 30308 BUSINESS PHONE: 4045066526 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALABAMA POWER CO CENTRAL INDEX KEY: 0000003153 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 630004250 STATE OF INCORPORATION: AL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03164 FILM NUMBER: 02583982 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: SOUTHERN CO CENTRAL INDEX KEY: 0000092122 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 580690070 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03526 FILM NUMBER: 02583977 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: GULF POWER CO CENTRAL INDEX KEY: 0000044545 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 590276810 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-02429 FILM NUMBER: 02583980 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 10-K 1 form10k.txt FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2001 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address and Telephone Number Identification No. 1-3526 The Southern Company 58-0690070 (A Delaware Corporation) 270 Peachtree Street, N.W. Atlanta, Georgia 30303 (404) 506-5000 1-3164 Alabama Power Company 63-0004250 (An Alabama Corporation) 600 North 18th Street Birmingham, Alabama 35291 (205) 257-1000 1-6468 Georgia Power Company 58-0257110 (A Georgia Corporation) 241 Ralph McGill Boulevard, N.E. Atlanta, Georgia 30308 (404) 506-6526 0-2429 Gulf Power Company 59-0276810 (A Maine Corporation) One Energy Place Pensacola, Florida 32520 (850) 444-6111 0-6849 Mississippi Power Company 64-0205820 (A Mississippi Corporation) 2992 West Beach Gulfport, Mississippi 39501 (228) 864-1211 1-5072 Savannah Electric and Power Company 58-0418070 (A Georgia Corporation) 600 East Bay Street Savannah, Georgia 31401 (912) 644-7171 =============================================================================== Securities registered pursuant to Section 12(b) of the Act:1 Each of the following classes or series of securities registered pursuant to Section 12(b) of the Act is registered on the New York Stock Exchange. Title of each class Registrant - ------------------- ----------- Common Stock, $5 par value The Southern Company Company obligated mandatorily redeemable preferred securities, $25 liquidation amount 7.75% Cumulative Quarterly Income Preferred Securities 2 7 1/8% Trust Originated Preferred Securities3 6.875% Cumulative Quarterly Income Preferred Securities4 --------------------------------------------------- Class A preferred, cumulative, $25 stated capital Alabama Power Company 5.20% Series 5.83% Series Senior Notes 7 1/8% Series A 7% Series C 7% Series B 6.75% Series J Company obligated mandatorily redeemable preferred securities, $25 liquidation amount 7.375% Trust Preferred Securities5 7.60% Trust Originated Preferred Securities6 --------------------------------------------------- Senior Notes Georgia Power Company 6 7/8% Series A 6 5/8% Series D 6.60% Series B Company obligated mandatorily redeemable preferred securities, $25 liquidation amount 7.75% Trust Preferred Securities7 7.60% Trust Preferred Securities8 7.75% Cumulative Quarterly Income Preferred Securities9 6.85% Trust Preferred Securities10 ------------------------------------------------------ =============================================================================== - ---------------------------- 1 As of December 31, 2001. 2 Issued by Southern Company Capital Trust III and guaranteed by The Southern Company. 3 Issued by Southern Company Capital Trust IV and guaranteed by The Southern Company. 4 Issued by Southern Company Capital Trust V and guaranteed by The Southern Company. 5 Issued by Alabama Power Capital Trust I and guaranteed by Alabama Power Company. 6 Issued by Alabama Power Capital Trust II and guaranteed by Alabama Power Company. 7 Issued by Georgia Power Capital Trust I and guaranteed by Georgia Power Company. 8 Issued by Georgia Power Capital Trust II and guaranteed by Georgia Power Company. 9 Issued by Georgia Power Capital Trust III and guaranteed by Georgia Power Company. 10 Issued by Georgia Power Capital Trust IV and guaranteed by Georgia Power Company. Company obligated mandatorily redeemable Gulf Power Company preferred securities, $25 liquidation amount 7.625% Cumulative Quarterly Income Preferred Securities11 7.00% Cumulative Quarterly Income Preferred Securities12 7.375% Trust Preferred Securities13 ------------------------------------------------------ Depositary preferred shares, Mississippi Power Company each representing one-fourth of a share of preferred stock, cumulative, $100 par value 6.32%Series 6.65% Series Company obligated mandatorily redeemable preferred securities, $25 liquidation amount 7.75% Trust Originated Preferred Securities14 --------------------------------------------------- Company obligated mandatorily Savannah Electric and Power Company redeemable preferred securities, $25 liquidation amount 6.85% Trust Preferred Securities15 Securities registered pursuant to Section 12(g) of the Act:16 Title of each class Registrant - ------------------- ---------- Preferred stock, cumulative, $100 par value Alabama Power Company 4.20% Series 4.60% Series 4.72% Series 4.52% Series 4.64% Series 4.92% Series Class A preferred, cumulative, $100,000 stated capital Auction (1993 Series) Class A preferred, cumulative, $100 stated capital Auction (1988 Series) ---------------------------------------------------------- Preferred stock, cumulative, Georgia Power Company $100 stated value $4.60 Series (1954) ---------------------------------------------------------- ============================================================================== - --------------------- 11 Issued by Gulf Power Capital Trust I and guaranteed by Gulf Power Company. 12 Issued by Gulf Power Capital Trust II and guaranteed by Gulf Power Company. 13 Issued by Gulf Power Capital Trust III and guaranteed by Gulf Power Company. 14 Issued by Mississippi Power Capital Trust I and guaranteed by Mississippi Power Company. 15 Issued by Savannah Electric Capital Trust I and guaranteed by Savannah Electric and Power Company. 16 As of December 31, 2001. Preferred stock, cumulative, $100 par value Gulf Power Company 4.64% Series 5.44% Series 5.16% Series ---------------------------------------------------------- Preferred stock, cumulative, $100 par value Mississippi Power Company 4.40% Series 4.60% Series 4.72% Series 7.00% Series ---------------------------------------------------------- Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) Aggregate market value of voting stock held by non-affiliates of The Southern Company at February 28, 2002: $17.8 billion. Each of such other registrants is a wholly-owned subsidiary of The Southern Company. A description of registrants' common stock follows:
Description of Shares Outstanding Registrant Common Stock at February 28, 2002 - ---------- ------------ -------------------- The Southern Company Par Value $5 Per Share 700,085,336 Alabama Power Company Par Value $40 Per Share 6,000,000 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
Documents incorporated by reference: specified portions of The Southern Company's Proxy Statement relating to the 2002 Annual Meeting of Stockholders are incorporated by reference into PART III. In addition, specified portions of the Information Statements of Alabama Power Company, Georgia Power Company, Gulf Power Company and Mississippi Power Company relating to each of their respective 2002 Annual Meeting of Shareholders are incorporated by reference into PART III. This combined Form 10-K is separately filed by The Southern Company, Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company and Savannah Electric and Power Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes no representation as to information relating to the other companies. ===============================================================================
Table of Contents Page PART I Item 1 Business Mirant Corporation........................................................ I-1 The SOUTHERN System....................................................... I-2 Operating Companies....................................................... I-2 Southern Power............................................................ I-2 Other Business............................................................ I-3 Certain Factors Affecting the Industry.................................... I-3 Construction Programs..................................................... I-4 Financing Programs........................................................ I-6 Fuel Supply............................................................... I-7 Territory Served by the Operating Companies............................... I-8 Competition............................................................... I-11 Regulation................................................................ I-13 Rate Matters.............................................................. I-16 Employee Relations........................................................ I-18 Item 2 Properties.................................................................. I-20 Item 3 Legal Proceedings........................................................... I-24 Item 4 Submission of Matters to a Vote of Security Holders......................... I-27 Executive Officers of SOUTHERN.............................................. I-28 Executive Officers of ALABAMA............................................... I-29 Executive Officers of GEORGIA............................................... I-30 Executive Officers of GULF.................................................. I-31 Executive Officers of MISSISSIPPI........................................... I-32 PART II Item 5 Market for Registrants' Common Equity and Related Stockholder Matters....... II-1 Item 6 Selected Financial Data..................................................... II-2 Item 7 Management's Discussion and Analysis of Results of Operations and Financial Condition................................................... II-2 Item 7A Quantitative and Qualitative Disclosures about Market Risk.................. II-2 Item 8 Financial Statements and Supplementary Data................................. II-3 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................................... II-4 PART III Item 10 Directors and Executive Officers of the Registrants........................ III-1 Item 11 Executive Compensation..................................................... III-3 Item 12 Security Ownership of Certain Beneficial Owners and Management............................................................... III-9 Item 13 Certain Relationships and Related Transactions............................. III-10 PART IV Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............................................................. IV-1
i
DEFINITIONS When used in Items 1 through 5 and Items 10 through 14, the following terms will have the meanings indicated. Term Meaning AEC........................................... Alabama Electric Cooperative, Inc. AFUDC......................................... Allowance for Funds Used During Construction ALABAMA....................................... Alabama Power Company AMEA.......................................... Alabama Municipal Electric Authority Clean Air Act................................. Clean Air Act Amendments of 1990 Dalton........................................ City of Dalton, Georgia DOE........................................... United States Department of Energy EMF........................................... Electromagnetic field Energy Act.................................... Energy Policy Act of 1992 Energy Solutions.............................. Southern Company Energy Solutions, Inc. Entergy Gulf States........................... Entergy Gulf States Utilities Company EPA........................................... United States Environmental Protection Agency FERC.......................................... Federal Energy Regulatory Commission FPC........................................... Florida Power Corporation FP&L.......................................... Florida Power & Light Company GEORGIA....................................... Georgia Power Company GULF.......................................... Gulf Power Company Holding Company Act........................... Public Utility Holding Company Act of 1935, as amended IBEW.......................................... International Brotherhood of Electrical Workers IPP........................................... Independent power producer IRP........................................... Integrated Resource Plan IRS........................................... Internal Revenue Service JEA........................................... Jacksonville Electric Authority MEAG.......................................... Municipal Electric Authority of Georgia MESH.......................................... Mobile Energy Services Holdings Mirant........................................ Mirant Corporation (formerly Southern Energy, Inc.) MISSISSIPPI................................... Mississippi Power Company NRC........................................... Nuclear Regulatory Commission OPC........................................... Oglethorpe Power Corporation operating companies........................... ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH PPA........................................... Purchased Power Agreements PSC........................................... Public Service Commission RFP........................................... Request for Proposal RTO........................................... Regional Transmission Organization RUS........................................... Rural Utility Service (formerly Rural Electrification Administration)
ii
DEFINITIONS (continued) SAVANNAH...................................... Savannah Electric and Power Company SCS........................................... Southern Company Services, Inc. (the system service company) SEC........................................... Securities and Exchange Commission SEGCO......................................... Southern Electric Generating Company SEPA.......................................... Southeastern Power Administration SERC.......................................... Southeastern Electric Reliability Council SMEPA......................................... South Mississippi Electric Power Association SOUTHERN...................................... The Southern Company Southern LINC................................. Southern Communications Services, Inc. Southern Management Development............... Southern Management Development, Inc. Southern Nuclear.............................. Southern Nuclear Operating Company, Inc. Southern Power................................ Southern Power Company SOUTHERN system............................... SOUTHERN, the operating companies, Southern Power, SEGCO, Southern Nuclear, SCS, Southern LINC, Energy Solutions and other subsidiaries Southern Telecom.............................. Southern Telecom, Inc. TVA........................................... Tennessee Valley Authority
iii CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION This Annual Report on Form 10-K contains forward-looking and historical information. Forward-looking information includes, among other things, statements concerning the strategic goals for SOUTHERN's new wholesale business and also SOUTHERN's goals for dividend payout ratio, earnings per share and earnings growth. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "could," "should," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential" or "continue" or the negative of these terms or other comparable terminology. SOUTHERN cautions 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 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 action against certain SOUTHERN subsidiaries and the race discrimination litigation against certain SOUTHERN subsidiaries; the effects, extent and timing of the entry of additional competition in the markets in which SOUTHERN'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 or its subsidiaries; the effects of, and changes in, economic conditions in the areas in which SOUTHERN's subsidiaries operate; the direct or indirect effects on SOUTHERN'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's new product and service offerings; the ability of SOUTHERN to obtain additional generating capacity at competitive prices; weather and other natural phenomena; and other factors discussed elsewhere herein and in other reports filed from time to time with the SEC. iv PART I Item 1. BUSINESS SOUTHERN was incorporated under the laws of Delaware on November 9, 1945. SOUTHERN is domesticated under the laws of Georgia and is qualified to do business as a foreign corporation under the laws of Alabama. SOUTHERN owns all the outstanding common stock of ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH, each of which is an operating public utility company. The operating companies supply electric service in the states of Alabama, Georgia, Florida, Mississippi and Georgia, respectively. More particular information relating to each of the operating companies is as follows: ALABAMA is a corporation organized under the laws of the State of Alabama on November 10, 1927, by the consolidation of a predecessor Alabama Power Company, Gulf Electric Company and Houston Power Company. The predecessor Alabama Power Company had had a continuous existence since its incorporation in 1906. GEORGIA was incorporated under the laws of the State of Georgia on June 26, 1930, and admitted to do business in Alabama on September 15, 1948. GULF is a corporation which was organized under the laws of the State of Maine on November 2, 1925, and admitted to do business in Florida on January 15, 1926, in Mississippi on October 25, 1976, and in Georgia on November 20, 1984. MISSISSIPPI was incorporated under the laws of the State of Mississippi on July 12, 1972, was admitted to do business in Alabama on November 28, 1972, and effective December 21, 1972, by the merger into it of the predecessor Mississippi Power Company, succeeded to the business and properties of the latter company. The predecessor Mississippi Power Company was incorporated under the laws of the State of Maine on November 24, 1924, and was admitted to do business in Mississippi on December 23, 1924, and in Alabama on December 7, 1962. SAVANNAH is a corporation existing under the laws of the State of Georgia; its charter was granted by the Secretary of State on August 5, 1921. SOUTHERN also owns all the outstanding common stock of Southern LINC, Southern Nuclear, SCS, Southern Management Development (formerly Energy Solutions), Southern Telecom, Southern Power and other direct and indirect subsidiaries. Southern LINC provides digital wireless communications services to SOUTHERN's operating companies and also markets these services to the public within the Southeast. Southern Nuclear provides services to ALABAMA's and GEORGIA's nuclear plants. Southern Management Development focuses on new and existing programs to enhance customer satisfaction, efficiency and stockholder value. Southern Telecom provides wholesale fiber optic solutions to telecommunication providers in the Southeastern United States. In January 2001, SOUTHERN formed a new subsidiary, Southern Power. This subsidiary constructs, owns and manages wholesale generating assets in the Southeast. Southern Power will be the primary growth engine for SOUTHERN's competitive wholesale market-based energy business. ALABAMA and GEORGIA each own 50% of the outstanding common stock of SEGCO. SEGCO owns electric generating units with an aggregate capacity of 1,019,680 kilowatts at Plant Gaston on the Coosa River near Wilsonville, Alabama, and ALABAMA and GEORGIA are each entitled to one-half of SEGCO's capacity and energy. ALABAMA acts as SEGCO's agent in the operation of SEGCO's units and furnishes coal to SEGCO as fuel for its units. SEGCO also owns three 230,000 volt transmission lines extending from Plant Gaston to the Georgia state line at which point connection is made with the GEORGIA transmission line system. Reference is made to Note 12 to the financial statements of SOUTHERN in Item 8 herein for additional information regarding SOUTHERN's segment and related information. Mirant Corporation In April 2000, SOUTHERN announced an initial public offering of up to 19.9 percent of Mirant and its intentions to spin off the remaining ownership of Mirant to SOUTHERN stockholders within 12 months of the initial stock offering. On October 2, 2000, Mirant completed its initial public offering of 66.7 million I-1 shares of common stock priced at $22 per share. This represented 19.7 percent of the 338.7 million shares outstanding. As a result of the stock offering, SOUTHERN recorded a $560 million increase in paid-in capital with no gain or loss being recognized. On February 19, 2001, SOUTHERN's board of directors approved the spin off of its remaining ownership of 272 million Mirant shares. On April 2, 2001, the tax-free distribution of Mirant shares was completed at a ratio of approximately 0.4 for every share of SOUTHERN common stock held at record date. The distribution resulted in charges of approximately $3.2 billion and $0.4 billion to SOUTHERN's paid-in capital and retained earnings, respectively. As a result of the spin off, SOUTHERN's financial statements reflect Mirant's results of operations, balance sheets and cash flows as discontinued operations. The SOUTHERN System Operating Companies The transmission facilities of each of the operating companies are connected to the respective company's own generating plants and other sources of power and are interconnected with the transmission facilities of the other operating companies and SEGCO by means of heavy-duty high voltage lines. (In the case of GEORGIA's integrated transmission system, see Item 1 - BUSINESS - "Territory Served by the Operating Companies" herein.) Operating contracts covering arrangements in effect with principal neighboring utility systems provide for capacity exchanges, capacity purchases and sales, transfers of economy energy and other similar transactions. Additionally, the operating companies have entered into voluntary reliability agreements with the subsidiaries of Entergy Corporation, Florida Electric Power Coordinating Group and TVA and with Carolina Power & Light Company, Duke Energy Corporation, South Carolina Electric & Gas Company and Virginia Electric and Power Company, each of which provides for the establishment and periodic review of principles and procedures for planning and operation of generation and transmission facilities, maintenance schedules, load retention programs, emergency operations and other matters affecting the reliability of bulk power supply. The operating companies have joined with other utilities in the Southeast (including those referred to above) to form the SERC to augment further the reliability and adequacy of bulk power supply. Through the SERC, the operating companies are represented on the National Electric Reliability Council. An intra-system interchange agreement provides for coordinating operations of the power producing facilities of the operating companies and the capacities available to such companies from non-affiliated sources and for the pooling of surplus energy available for interchange. Coordinated operation of the entire interconnected system is conducted through a central power supply coordination office maintained by SCS. The available sources of energy are allocated to the operating companies to provide the most economical sources of power consistent with good operation. The resulting benefits and savings are apportioned among the operating companies. SCS has contracted with SOUTHERN, each operating company, various of the other subsidiaries, Southern Nuclear, Southern Power and SEGCO to furnish, at cost and upon request, the following services: general executive and advisory services, power pool operations, general and design engineering, purchasing, accounting and statistical, finance and treasury, tax, information resources, marketing, auditing, insurance and pensions, corporate, rates, budgeting, public relations, human resources, systems and procedures and other services with respect to business and operations and power pool operations. Southern Management Development and Southern LINC have also secured from the operating companies certain services which are furnished at cost. Southern Nuclear has contracts with ALABAMA to operate the Farley Nuclear Plant, and with GEORGIA to operate Plants Hatch and Vogtle. See Item 1 - BUSINESS - "Regulation - Atomic Energy Act of 1954" herein. Southern Power As stated above, Southern Power will be the primary growth engine for SOUTHERN's competitive wholesale market-based energy business. Southern Power intends to sell the output of its generating assets under long-term, market-based contracts I-2 both to unaffiliated wholesale purchasers as well as the operating companies (under power purchase agreements approved by the respective public service commissions). Southern Power's wholesale generating assets will not be placed in the operating companies' rate bases, and Southern Power will only be able to recover costs from the operating companies based on the terms of the market-based contracts for its wholesale generating assets. The market-based contracts typically pass the cost of fuel to the wholesale energy purchasers and reduce Southern Power's business risks, but its overall profit will depend on the parameters of the wholesale market and its efficient operation of its wholesale generating assets. By the end of 2003, Southern Power plans to have approximately 4,700 megawatts of generating capacity in commercial operation. At December 31, 2001, 800 megawatts were in commercial operation and some 3,900 megawatts of capacity are under construction. Other Business In March 2001, Energy Solutions changed its name to Southern Management Development. Southern Management Development then created a separate entity, Southern Company Energy Solutions LLC (SCES LLC) for its energy business. SCES LLC provides energy related services such as energy outsourcing, energy conservation, facility maintenance, energy management and turnkey services for industrial, commercial, and governmental customers. Southern Management Development focuses on new and existing programs to enhance customer satisfaction, efficiency and stockholder value. Examples are: Bill Payment Protection, an insurance product that protects a residential customer by paying the electric bill in the event the customer becomes involuntarily unemployed, disabled or goes on unpaid leave; and Electric Vehicle Chargers, a program to supply electric vehicle charging units to industrial customers. In 1996, Southern LINC began serving SOUTHERN's operating companies and marketing its services to non-affiliates within the Southeast. Its system covers approximately 127,000 square miles and combines the functions of two-way radio dispatch, cellular phone, short text and numeric messaging and wireless data transfer. These continuing efforts to invest in and develop new business opportunities offer the potential of earning returns which may exceed those of rate-regulated operations. However, these activities also involve a higher degree of risk. SOUTHERN expects to make substantial investments over the period 2002-2004 in these and other new businesses. In 1999, MESH, a subsidiary of SOUTHERN, filed a petition for Chapter 11 bankruptcy relief in the U.S. Bankruptcy Court. On August 4, 2000, MESH filed a proposed plan of reorganization with the U.S. Bankruptcy Court. The proposed plan of reorganization was most recently amended on October 15, 2001. SOUTHERN expects that approval of a plan of reorganization would result in either a termination of SOUTHERN's ownership interest in MESH or the exchange of all assets of MESH for the cancellation of securities held by the bondholders, but would not affect SOUTHERN's continuing guarantee obligations. Reference is made to Item 3 - "Legal Proceedings" herein for additional information relating to this matter. Certain Factors Affecting the Industry Various factors are currently affecting the electric utility industry in general, including increasing competition and the regulatory changes related thereto, costs required to comply with environmental regulations and the potential for new business opportunities (with their associated risks) outside of traditional rate-regulated operations. The effects of these and other factors on the SOUTHERN system are described herein. Particular reference is made to Item 1 - BUSINESS - "Other Business", "Competition" and "Environmental Regulation." See also "Cautionary Statement Regarding Forward-Looking Information." In December 1999, the FERC issued its final rule on RTOs. The order encouraged utilities owning transmission systems to form RTOs on a voluntary basis. SOUTHERN has submitted a series of status reports informing the FERC of progress toward the development of a Southeastern RTO. In these status reports, SOUTHERN explained that it is developing a for-profit RTO known as SeTrans with a number of non-jurisdictional cooperative and public power entities. Recently, Entergy Corporation and Cleco Power joined the SeTrans development process. In January 2002, the sponsors of SeTrans held a public meeting to form a I-3 Stakeholder Advisory Committee, which will participate in the development of the RTO. SOUTHERN continues to work with the other sponsors to develop the SeTrans RTO. The creation of SeTrans is not expected to have a material impact on SOUTHERN's financial statements. The outcome of this matter cannot now be determined. Construction Programs The subsidiary companies of SOUTHERN are engaged in continuous construction programs to accommodate existing and estimated future loads on their respective systems. Construction additions or acquisitions of property during 2002 through 2004 by the operating companies, SEGCO, SCS, Southern LINC, Southern Power and other subsidiaries are estimated as follows: (in millions) ------------------------------ -------- --------- ---------- 2002 2003 2004 -------- --------- ---------- ALABAMA $ 671 $ 592 $673 GEORGIA 971 752 809 GULF 103 72 107 MISSISSIPPI 84 72 85 SAVANNAH 35 38 43 SEGCO 15 17 23 SCS 27 23 25 Southern LINC 29 28 23 Southern Power 834 488 473 Other 29 14 2 --------------------------- ----------- --------- ---------- SOUTHERN system $2,798 $2,096 $ 2,263 =========================== =========== ========= ========== I-4
Estimated construction costs in 2002 are expected to be apportioned approximately as follows: (in millions) ---------------------------- --------------- --------------- ------------- --------- --------------- ---------------- ------------ SOUTHERN Southern system* ALABAMA GEORGIA GULF MISSISSIPPI SAVANNAH Power --------------- --------------- ------------- --------- --------------- ---------------- ------------ New generation $ 833 $ - $ - $24 $- $- $809 Other generating facilities including associated plant substations 703 248 383 24 25 8 - New business 365 127 182 23 15 18 - Transmission 378 141 210 9 16 2 - Joint line and substation 55 - 45 7 3 - - Distribution 162 68 61 10 17 6 - Nuclear fuel 123 63 60 - - - - General plant 179 24 30 6 8 1 25 --------------- --------------- ------------- --------- --------------- ---------------- ------------ $2,798 $671 $971 $103 $84 $35 $834 =============== =============== ============= ========= =============== ================ ============
* SCS, Southern LINC and other businesses plan capital additions to general plant in 2002 of $27 million, $29 million and $29 million, respectively, while SEGCO plans capital additions of $15 million to generating facilities. (See Item 1 - BUSINESS - "Other Business" herein.) The construction programs are subject to periodic review and revision, and actual construction costs may vary from the above estimates because of numerous factors. These factors include: changes in business conditions; acquisitions of additional generating assets; revised load growth estimates; changes in environmental regulations; changes in existing nuclear plants to meet new regulatory requirements; increasing costs of labor, equipment and materials; and cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. SOUTHERN has approximately 4,500 megawatts of new generating capacity scheduled to be placed in service by 2003. Approximately 3,900 megawatts of additional new capacity will be dedicated to the wholesale market and owned by Southern Power. Significant construction of transmission and distribution facilities and upgrading of generating plants will be continuing. Under Georgia law, GEORGIA and SAVANNAH each are required to file an Integrated Resource Plan for approval by the Georgia PSC. Under the plan rules, the Georgia PSC must pre-certify the construction of new power plants and new purchase power contracts. (See Item 1 - BUSINESS - "Rate Matters - Integrated Resource Planning" herein.) See Item 1 - BUSINESS - "Regulation - Environmental Regulation" herein for information with respect to certain existing and proposed environmental requirements and Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein for additional information concerning ALABAMA's, GEORGIA's and Southern Power's joint ownership of certain generating units and related facilities with certain non-affiliated utilities. I-5 Financing Programs The amount and timing of additional equity capital to be raised in 2002, as well as in subsequent years, will be contingent on SOUTHERN's investment opportunities. Equity capital can be provided from any combination of public offerings, private placements or SOUTHERN's stock plans. The operating companies plan to obtain the funds required for construction and other purposes from sources similar to those used in the past, which were primarily from internal sources and by the issuances of new debt and preferred equity securities, term loans and short-term borrowings. However, the type and timing of any financings -- if needed -- will depend on market conditions and regulatory approval. In recent years, financings primarily have utilized unsecured debt and trust preferred securities. Southern Power will use both external funds and equity capital from SOUTHERN to finance its construction program. In addition, Southern Power has an $850 million revolving credit facility which extends through November 2004. Short-term debt is often utilized as appropriate at SOUTHERN, the operating companies, SEGCO and Southern Power. The maximum amounts of short-term and term-loan indebtedness authorized by the appropriate regulatory authorities are shown on the following table: Amount Outstanding at Authorized December 31, 2001 -------------- --------------------- (in millions) ALABAMA $1,000(1) $ 10 GEORGIA 1,700(2) 748 GULF 300(1) 87 MISSISSIPPI 350(1) 16 SAVANNAH 205(2) 32 Southern Power 2,500(3) 1 SOUTHERN 2,000(1) 950 ------------------- ------------- -- ------------------- Notes: (1) ALABAMA's authority is based on authorization received from the Alabama PSC, which expires December 31, 2003. No SEC authorization is required for ALABAMA. GULF, MISSISSIPPI and SOUTHERN have received SEC authorization to issue from time to time short-term and/or term-loan notes to banks and commercial paper to dealers in the amounts shown through December 31, 2003, December 31, 2002 and December 31, 2004, respectively. (2) GEORGIA and SAVANNAH have received SEC authorization to issue from time to time short-term and term-loan notes to banks and commercial paper to dealers in the amounts shown through December 31, 2002. Authorization for term-loan indebtedness is also required by the Georgia PSC. SAVANNAH received authority from the Georgia PSC for $115 million in term loans expiring December 31, 2003. As a part of a financing request from the Georgia PSC, GEORGIA has asked for financing authority of $1.765 billion in term loans. (3) Southern Power has been authorized by the SEC to enter into various financing arrangements, including short-term loans, through June 30, 2005, which in the aggregate may not exceed $2.5 billion. Reference is made to Note 8 to the financial statements for SOUTHERN, Note 8 to the financial statements for ALABAMA, GULF and MISSISSIPPI and Note 6 to the financial statements for SAVANNAH and Note 9 to the financial statements for GEORGIA in Item 8 herein for information regarding the registrants' bank credit arrangements. I-6 Fuel Supply The operating companies' and SEGCO's supply of electricity is derived predominantly from coal. The sources of generation for the years 1999 through 2001 are shown below: Oil and ALABAMA Coal Nuclear Hydro Gas --------- ---------- --------- --------- 1999 72 20 5 3 2000 72 19 3 6 2001 64 18 6 12 GEORGIA 1999 75 22 1 2 2000 76 21 1 2 2001 75 23 1 1 GULF 1999 97 ** ** 3 2000 98 ** ** 2 2001 99 ** ** 1 MISSISSIPPI 1999 81 ** ** 19 2000 83 ** ** 17 ** 2001 59 ** ** 41 SAVANNAH 1999 78 ** ** 22 2000 88 ** ** 12 2001 93 ** ** 7 SEGCO 1999 100 ** ** * 2000 100 ** ** * 2001 100 ** ** * SOUTHERN system*** 1999 78 17 2 3 2000 78 16 2 4 2001 72 16 3 9 ---------- ------- --------- ---------- --------- --------- *Less than 0.5%. **Not applicable. *** Amounts shown for the SOUTHERN system are weighted averages of the operating companies, Southern Power and SEGCO. The average costs of fuel in cents per net kilowatt-hour generated for 1999 through 2001 are shown below: 1999 2000 2001 -------------- ------------- ------------- ALABAMA 1.44 1.54 1.56 GEORGIA 1.34 1.39 1.38 GULF 1.60 1.68 1.76 MISSISSIPPI 1.65 1.80 1.89 SAVANNAH 2.20 2.28 2.16 SEGCO 1.77 1.51 1.44 SOUTHERN System* 1.45 1.51 1.56 - ------------------- -------------- ------------- ------------- * Amounts shown for the SOUTHERN system are weighted averages of the operating companies, Southern Power and SEGCO. I-7 The operating companies have long-term agreements in place from which they expect to receive approximately 78% of their coal burn requirements in 2002. These agreements cover remaining terms up to 9 years. In 2001, the weighted average sulfur content of all coal burned by the operating companies was 0.76% sulfur. This sulfur level, along with banked sulfur dioxide allowances, allowed the operating companies to remain within limits as set forth by Phase II of the Clear Air Act. As more and more strict environmental regulations are proposed that impact the utilization of coal, the fuel mix will be monitored to insure that sufficient quantities of the proper type of coal or natural gas are in place to remain in compliance with applicable laws and regulations. See Item 1 - BUSINESS - "Regulation - Environmental Regulation" herein. The operating companies and Southern Power also have long-term agreements in place for their natural gas burn requirements. For 2002, the operating companies and Southern Power have contracted for 163.6 billion cubic feet of natural gas supply. These agreements cover remaining terms up to 5 years. In addition to gas supply, the operating companies have contracts in place for both firm gas transportation and firm gas storage. Management believes that these contracts provide sufficient natural gas supplies, transportation and storage to ensure normal operations of the SOUTHERN system's natural gas generating units. Changes in fuel prices are generally reflected in fuel adjustment clauses contained in rate schedules. See Item 1 - BUSINESS - "Rate Matters - Rate Structure" herein. ALABAMA and GEORGIA have numerous contracts covering a portion of their nuclear fuel needs for uranium, conversion services, enrichment services and fuel fabrication. These contracts have varying expiration dates and most are short to medium term (less than 10 years). Management believes that sufficient capacity for nuclear fuel supplies and processing exists to preclude the impairment of normal operations of the SOUTHERN system's nuclear generating units. ALABAMA and GEORGIA have contracts with the DOE that provide for the permanent disposal of spent nuclear fuel. The DOE failed to begin disposing of spent fuel in January 1998, as required by the contracts, and the companies are pursuing legal remedies against the government for breach of contract. Sufficient pool storage capacity is available at Plant Farley to maintain full-core discharge capability until the refueling outages scheduled for 2006 and 2008 for units 1 & 2, respectively. Sufficient pool storage capacity currently for spent fuel is available at Plant Vogtle to maintain full-core discharge capability for both units into 2014. To maintain pool discharge capability at Plant Hatch, effective June 2000, an on-site dry storage facility became operational. Sufficient dry storage capacity is believed to be available to continue dry storage operations at Plant Hatch through the life of the plant. Procurement of on-site dry storage capacity at Plant Vogtle will begin in sufficient time to maintain pool full-core discharge capability. The Energy Act required the establishment of a Uranium Enrichment Decontamination and Decommissioning Fund, which is funded in part by a special assessment on utilities with nuclear plants, including ALABAMA and GEORGIA. This assessment is being paid over a 15-year period which began in 1993. This fund will be used by the DOE for the decontamination and decommissioning of its nuclear fuel enrichment facilities. The law provides that utilities will recover these payments in the same manner as any other fuel expense. Territory Served by the Operating Companies The territory in which the operating companies provide electric service comprises most of the states of Alabama and Georgia together with the northwestern portion of Florida and southeastern Mississippi. In this territory there are non-affiliated electric distribution systems which obtain some or all of their power requirements either directly or indirectly from the operating companies. The territory has an area of approximately 120,000 square miles and an estimated population of approximately 11 million. ALABAMA is engaged, within the State of Alabama, in the generation and purchase of electricity and the distribution and sale of such electricity at retail in over 1,000 communities (including Anniston, Birmingham, Gadsden, Mobile, Montgomery and Tuscaloosa) and at wholesale to 15 municipally-owned electric distribution systems, 11 of which are served indirectly through sales to AMEA, and two rural distributing cooperative associations. ALABAMA also I-8 supplies steam service in downtown Birmingham. ALABAMA also sells, and cooperates with dealers in promoting the sale of, electric appliances. GEORGIA is engaged in the generation and purchase of electricity and the distribution and sale of such electricity within the State of Georgia at retail in over 600 communities, as well as in rural areas, and at wholesale currently to OPC, MEAG, Dalton and the City of Hampton. GULF is engaged, within the northwestern portion of Florida, in the generation and purchase of electricity and the distribution and sale of such electricity at retail in 71 communities (including Pensacola, Panama City and Fort Walton Beach), as well as in rural areas, and at wholesale to a non-affiliated utility and a municipality. MISSISSIPPI is engaged in the generation and purchase of electricity and the distribution and sale of such energy within the 23 counties of southeastern Mississippi, at retail in 123 communities (including Biloxi, Gulfport, Hattiesburg, Laurel, Meridian and Pascagoula), as well as in rural areas, and at wholesale to one municipality, six rural electric distribution cooperative associations and one generating and transmitting cooperative. SAVANNAH is engaged, within a five-county area in eastern Georgia, in the generation and purchase of electricity and the distribution and sale of such electricity at retail and, as a member of the SOUTHERN system power pool, the transmission and sale of wholesale energy. For information relating to kilowatt-hour sales by classification for each registrant, reference is made to "Management's Discussion and Analysis-Results of Operations" in Item 7 herein. Also, for information relating to the sources of revenues for the SOUTHERN system and each of the operating companies, reference is made to Item 6 herein. A portion of the area served by the operating companies adjoins the area served by TVA and its municipal and cooperative distributors. An Act of Congress limits the distribution of TVA power, unless otherwise authorized by Congress, to specified areas or customers which generally were those served on July 1, 1957. The RUS has authority to make loans to cooperative associations or corporations to enable them to provide electric service to customers in rural sections of the country. There are 71 electric cooperative organizations operating in the territory in which the operating companies provide electric service at retail or wholesale. One of these, AEC, is a generating and transmitting cooperative selling power to several distributing cooperatives, municipal systems and other customers in south Alabama and northwest Florida. AEC owns generating units with approximately 840 megawatts of nameplate capacity, including an undivided ownership interest in ALABAMA's Plant Miller Units 1 and 2. AEC's facilities were financed with RUS loans secured by long-term contracts requiring distributing cooperatives to take their requirements from AEC to the extent such energy is available. Two of the 14 distributing cooperatives operating in ALABAMA's service territory obtain a portion of their power requirements directly from ALABAMA. Four electric cooperative associations, financed by the RUS, operate within GULF's service area. These cooperatives purchase their full requirements from AEC and SEPA (a federal power marketing agency). A non-affiliated utility also operates within GULF's service area and purchases its full requirements from GULF. ALABAMA and GULF have entered into separate agreements with AEC involving interconnection between the respective systems. The delivery of capacity and energy from AEC to certain distributing cooperatives in the service areas of ALABAMA and GULF is governed by the SOUTHERN/AEC Network Transmission Service Agreement. The rates for this service to AEC are based on the negotiated agreement on file with the FERC. See Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein for details of ALABAMA's joint-ownership with AEC of a portion of Plant Miller. MISSISSIPPI has an interchange agreement with SMEPA, a generating and transmitting cooperative, pursuant to which various services are provided, including the furnishing of protective capacity by MISSISSIPPI to SMEPA. SMEPA has a generating capacity of 1,947 megawatts and a transmission system estimated to be 1,549 miles in length. I-9 There are 43 electric cooperative organizations operating in, or in areas adjoining, territory in the State of Georgia in which GEORGIA provides electric service at retail or wholesale. Three of these organizations obtain their power from TVA and one from other sources. OPC has a wholesale power contract with the remaining 39 of these cooperative organizations. OPC utilizes self-owned generation acquired from GEORGIA, megawatt capacity purchases from GEORGIA under power supply agreements, and other arrangements to meet its power supply obligations. Pursuant to the latest agreement entered into in April 1999, OPC will purchase 250 megawatts of steam capacity through March 2006. There are 65 municipally-owned electric distribution systems operating in the territory in which the operating companies provide electric service at retail or wholesale. AMEA was organized under an act of the Alabama legislature and is comprised of 11 municipalities. In 1986, ALABAMA entered into a firm power sales contract with AMEA entitling AMEA to scheduled amounts of capacity (to a maximum of 100 megawatts) for a period of 15 years (1986 Contract). In October 1991, ALABAMA entered into a second firm power purchase contract with AMEA entitling AMEA to scheduled amounts of additional capacity (to a maximum 80 megawatts) for a period of 15 years (1991 Contract). Under the terms of the contracts, ALABAMA received payments from AMEA representing the net present value of the revenues associated with the respective capacity entitlements. The 1986 Contract expired in July 2001, however, the payments for the 1991 Contract will continue as scheduled capacity is made available over the terms of the 1991 Contract. See Note 6 to ALABAMA's financial statements in Item 8 herein for further information on these contracts. Forty-eight municipally-owned electric distribution systems and one county-owned system receive their requirements through MEAG, which was established by a state statute in 1975. MEAG serves these requirements from self-owned generation facilities acquired from GEORGIA, power purchased from GEORGIA and purchases from other resources. In August 1997, a pseudo scheduling and services agreement was implemented between GEORGIA and MEAG that replaced the partial requirements tariff pursuant to which GEORGIA previously sold wholesale energy to MEAG. Since 1977, Dalton has filled its requirements from self-owned generation facilities acquired from GEORGIA and through purchases from GEORGIA pursuant to their partial requirements tariff. One municipally-owned electric distribution system's full requirements are served under a market-based contract by GEORGIA. (See Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein.) GEORGIA has entered into substantially similar agreements with Georgia Transmission Corporation (formerly OPC's transmission division), MEAG and Dalton providing for the establishment of an integrated transmission system to carry the power and energy of each. The agreements require an investment by each party in the integrated transmission system in proportion to its respective share of the aggregate system load. (See Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein.) SCS, acting on behalf of ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH, also has a contract with SEPA providing for the use of those companies' facilities at government expense to deliver to certain cooperatives and municipalities, entitled by federal statute to preference in the purchase of power from SEPA, quantities of power equivalent to the amounts of power allocated to them by SEPA from certain United States government hydroelectric projects. The retail service rights of all electric suppliers in the State of Georgia are regulated by the 1973 State Territorial Electric Service Act. Pursuant to the provisions of this Act, all areas within existing municipal limits were assigned to the primary electric supplier therein on March 29, 1973 (451 municipalities, including Atlanta, Columbus, Macon, Augusta, Athens, Rome and Valdosta, to GEORGIA; 115 to electric cooperatives; and 50 to publicly-owned systems). Areas outside of such municipal limits were either to be assigned or to be declared open for customer choice of supplier by action of the Georgia PSC pursuant to standards set forth in the Act. Consistent with such standards, the Georgia PSC has assigned substantially all of the land area in the state to a supplier. Notwithstanding such assignments, the Act provides that any new customer locating outside of 1973 municipal limits and having a connected load of at least 900 kilowatts may receive electric service from the supplier of its choice. (See also Item 1 - BUSINESS - "Competition" herein.) I-10 Under and subject to the provisions of its franchises and concessions and the 1973 State Territorial Electric Service Act, SAVANNAH has the full but nonexclusive right to serve the City of Savannah, the Towns of Bloomingdale, Pooler, Garden City, Guyton, Newington, Oliver, Port Wentworth, Rincon, Tybee Island, Springfield, Thunderbolt and Vernonburg, and in conjunction with a secondary supplier, the Town of Richmond Hill. In addition, SAVANNAH has been assigned certain unincorporated areas in Chatham, Effingham, Bryan, Bulloch and Screven Counties by the Georgia PSC. (See also Item 1 - BUSINESS - "Competition" herein.) Pursuant to the 1956 Utility Act, the Mississippi PSC issued "Grandfather Certificates" of public convenience and necessity to MISSISSIPPI and to six distribution rural cooperatives operating in southeastern Mississippi, then served in whole or in part by MISSISSIPPI, authorizing them to distribute electricity in certain specified geographically described areas of the state. The six cooperatives serve approximately 300,000 retail customers in a certificated area of approximately 10,300 square miles. In areas included in a "Grandfather Certificate," the utility holding such certificate may, without further certification, extend its lines up to five miles; other extensions within that area by such utility, or by other utilities, may not be made except upon a showing of, and a grant of a certificate of, public convenience and necessity. Areas included in such a certificate which are subsequently annexed to municipalities may continue to be served by the holder of the certificate, irrespective of whether it has a franchise in the annexing municipality. On the other hand, the holder of the municipal franchise may not extend service into such newly annexed area without authorization by the Mississippi PSC. Long-Term Power Sales and Lease Agreements The operating companies have long-term contractual agreements for the sale and lease of capacity to certain non-affiliated utilities located outside the SOUTHERN system service area. These agreements are firm and related to specific generating units. Because the energy is generally provided at cost under these agreements, profitability is primarily affected by capacity revenues. Unit power from specific generating plants is currently being sold to FP&L, FPC and JEA. Under these agreements, approximately 1,500 megawatts of capacity is scheduled to be sold annually unless reduced by FP&L, FPC and JEA for the periods after 2001 with a minimum of three years notice, until the expiration of the contracts in 2010. Southern Power and MISSISSIPPI have operating leases for portions of their generating unit capacity. Reference is made to Note 5 to the financial statements for SOUTHERN; Note 6 to the financial statements for ALABAMA, GULF and MISSISSIPPI and Note 7 to the financial statements for GEORGIA in Item 8 herein for additional information regarding contracts for the sales and lease of capacity and energy to non-territorial customers. Competition The electric utility industry in the United States is continuing to evolve as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Act. The Energy Act allows IPPs to access a utility's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for a utility's large industrial and commercial customers and sell energy generation to other utilities. Also, electricity sales for resale rates are affected by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. Although the Energy Act does not permit retail customer access, it has been a major catalyst for the recent restructuring and consolidations taking place within the utility industry. Numerous federal and state initiatives are in varying stages that promote wholesale and retail competition. Among other things, these initiatives allow customers to choose their electricity provider. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While various restructuring and competition initiatives have been discussed in Alabama, Florida, Georgia and Mississippi, none have been enacted. Enactment would require numerous issues to be resolved, including significant ones relating to recovery of any stranded investments, full cost recovery of energy produced and I-11 other issues related to the energy crisis that occurred in California. As a result of that crisis, many states have either discontinued or delayed implementation of initiatives involving retail deregulation. Reference is made to Item 1 - BUSINESS - "Certain Factors Affecting the Industry" herein for information relating to SOUTHERN's RTO filing with the FERC. Continuing to be a low-cost producer could provide opportunities to increase market share and profitability in markets that evolve with changing regulation. Conversely, if SOUTHERN's electric utilities do not remain low-cost producers and provide quality service, then energy sales growth could be limited, and this could significantly erode earnings. Reference is made to ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH, "Management's Discussion and Analysis - Future Earnings Potential" in Item 7 herein for further discussion of rate matters. To adapt to a less regulated, more competitive environment, SOUTHERN continues to evaluate and consider a wide array of potential business strategies. These strategies may include business combinations, acquisitions involving other utility or non-utility businesses or properties, internal restructuring, disposition of certain assets or some combination thereof. Furthermore, SOUTHERN may engage in new business ventures that arise from competitive and regulatory changes in the utility industry. Pursuit of any of the above strategies, or any combination thereof, may significantly affect the business operations and financial condition of SOUTHERN. (See Item 1 - BUSINESS - - "Southern Power" and "Other Business" herein.) As a result of the foregoing factors, SOUTHERN has experienced increasing competition for available off-system sales of capacity and energy from neighboring utilities and alternative sources of energy. Additionally, the future effect of cogeneration and small-power production facilities on the SOUTHERN system cannot currently be determined but may be adverse. SOUTHERN is working to maintain and expand its share of wholesale energy sales in the Southeastern power markets. In January 2001, SOUTHERN formed a new subsidiary - Southern Power. This subsidiary constructs, owns and manages wholesale generating assets in the Southeast. Southern Power will be the primary growth engine for SOUTHERN's competitive wholesale market-based energy business. By the end of 2003, Southern Power plans to have approximately 4,700 megawatts of generating capacity in commercial operation. At December 31, 2001, 800 megawatts were in commercial operation and some 3,900 megawatts of capacity are under construction. ALABAMA currently has cogeneration contracts in effect with 10 industrial customers. Under the terms of these contracts, ALABAMA purchases excess generation of such companies. During 2001, ALABAMA purchased approximately 154 million kilowatt-hours from such companies at a cost of $5.5 million. GEORGIA currently has contracts in effect with nine small power producers whereby GEORGIA purchases their excess generation. During 2001, GEORGIA purchased 13.6 million kilowatt-hours from such companies at a cost of $355,000. GEORGIA has purchased power agreements for electricity with two cogeneration facilities. Payments are subject to reductions for failure to meet minimum capacity output. During 2001, GEORGIA purchased 621.7 million kilowatt-hours at a cost of $52.3 million from these facilities. Reference is made to Note 4 to the financial statements for GEORGIA in Item 8 herein for information regarding purchased power commitments. GULF currently has agreements in effect with four industrial customers pursuant to which GULF purchases "as available" energy from customer-owned generation. During 2001, GULF purchased 114 million kilowatt-hours from such companies for $3.4 million. SAVANNAH currently has cogeneration contracts in effect with four large customers. Under the terms of these contracts, SAVANNAH purchases excess generation of such companies. During 2001, SAVANNAH purchased 41.2 million kilowatt-hours from such companies at a cost of $1.4 million. The competition for retail energy sales among competing suppliers of energy is influenced by various factors, including price, availability, technological advancements and reliability. These factors are, in turn, affected by, among other influences, regulatory, political and environmental considerations, taxation and supply. I-12 The operating companies have experienced, and expect to continue to experience, competition in their respective retail service territories in varying degrees as the result of self-generation (as described above) and fuel switching by customers and other factors. (See also Item 1 - BUSINESS - "Territory Served by the Operating Companies" herein for information concerning suppliers of electricity operating within or near the areas served at retail by the operating companies.) Regulation State Commissions The operating companies are subject to the jurisdiction of their respective state regulatory commissions, which have broad powers of supervision and regulation over public utilities operating in the respective states, including their rates, service regulations, sales of securities (except for the Mississippi PSC) and, in the cases of the Georgia PSC and Mississippi PSC, in part, retail service territories. (See Item 1 - BUSINESS - "Rate Matters" and "Territory Served by the Operating Companies" herein.) Holding Company Act SOUTHERN is registered as a holding company under the Holding Company Act, and it and its subsidiary companies are subject to the regulatory provisions of said Act, including provisions relating to the issuance of securities, sales and acquisitions of securities and utility assets, services performed by SCS and Southern Nuclear and the activities of certain of SOUTHERN's other subsidiaries. While various proposals have been introduced in Congress regarding the Holding Company Act, the prospects for legislative reform or repeal are uncertain at this time. Federal Power Act The Federal Power Act subjects the operating companies, Southern Power and SEGCO to regulation by the FERC as companies engaged in the transmission or sale at wholesale of electric energy in interstate commerce, including regulation of accounting policies and practices. ALABAMA and GEORGIA are also subject to the provisions of the Federal Power Act or the earlier Federal Water Power Act applicable to licensees with respect to their hydroelectric developments. Among the hydroelectric projects subject to licensing by the FERC are 14 existing ALABAMA generating stations having an aggregate installed capacity of 1,593,600 kilowatts and 18 existing GEORGIA generating stations having an aggregate installed capacity of 1,074,696 kilowatts. GEORGIA started the relicensing process for the Middle Chattahoochee Project in 1998. This project consists of the Goat Rock, Oliver and North Highlands facilities. GEORGIA and OPC also have a license, expiring in 2027, for the Rocky Mountain Plant, a pure pumped storage facility of 847,800 kilowatt capacity which began commercial operation in 1995. (See Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein.) Licenses for all projects, excluding those discussed above, expire in the period 2007-2033 in the case of ALABAMA's projects and in the period 2005-2039 in the case of GEORGIA's projects. Upon or after the expiration of each license, the United States Government, by act of Congress, may take over the project or the FERC may relicense the project either to the original licensee or to a new licensee. In the event of takeover or relicensing to another, the original licensee is to be compensated in accordance with the provisions of the Federal Power Act, such compensation to reflect the net investment of the licensee in the project, not in excess of the fair value of the property taken, plus reasonable damages to other property of the licensee resulting from the severance therefrom of the property taken. Atomic Energy Act of 1954 ALABAMA, GEORGIA and Southern Nuclear are subject to the provisions of the Atomic Energy Act of 1954, as amended, which vests jurisdiction in the NRC over the construction and operation of nuclear reactors, particularly with regard to certain public health and safety and antitrust matters. The National Environmental Policy Act has been construed to expand the jurisdiction of the NRC to consider the environmental impact of a facility licensed under the Atomic Energy Act of 1954, as amended. I-13 NRC operating licenses currently expire in June 2017 and March 2021 for Plant Farley units 1 and 2, respectively, and in January 2027 and February 2029 for Plant Vogtle units 1 and 2, respectively. In January 2002, the NRC granted GEORGIA a 20-year extension of the licenses for both units at Plant Hatch which permits the operation of units 1 and 2 until 2034 and 2038, respectively. Reference is made to Notes 1 and 10 to SOUTHERN's financial statements, Notes 1 and 9 to ALABAMA's financial statements and Notes 1 and 5 to GEORGIA's financial statements in Item 8 herein for information on nuclear decommissioning costs and nuclear insurance. Additionally, Note 3 to GEORGIA's financial statements contains information regarding nuclear performance standards imposed by the Georgia PSC that may impact retail rates. Environmental Regulation The operating companies' and SEGCO's operations are subject to federal, state and local environmental requirements which, among other things, control emissions of particulates, sulfur dioxide and nitrogen oxides into the air; the use, transportation, storage and disposal of hazardous and toxic waste; and discharges of pollutants, including thermal discharges, into waters of the United States. The operating companies and SEGCO expect to comply with such requirements, which generally are becoming increasingly stringent, through technical improvements, the use of appropriate combinations of low-sulfur fuel and chemicals, addition of environmental control facilities, changes in control techniques and reduction of the operating levels of generating facilities. Failure to comply with such requirements could result in the complete shutdown of individual facilities not in compliance as well as the imposition of civil and criminal penalties. In November 1990, the Clean Air Act was signed into law. Title IV of the Clean Air Act - the acid rain compliance provision of the law - significantly affected SOUTHERN. Reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants were required in two phases. Phase I compliance began in 1995. SOUTHERN achieved Phase I compliance at its affected plants by primarily switching to low-sulfur coal and with some equipment upgrades. Construction expenditures for Phase I nitrogen oxide and sulfur dioxide emissions compliance totaled approximately $300 million. Phase II sulfur dioxide compliance was required in 2000. SOUTHERN used emission allowances and fuel switching to comply with Phase II requirements. Also, equipment to control nitrogen oxide emissions was installed on additional system fossil-fired units as necessary to meet Phase II limits and ozone non-attainment requirements for metropolitan Atlanta through 2000. Compliance for Phase II and initial ozone non-attainment requirements increased total construction expenditures through 2000 by approximately $100 million. Respective state plans to address the one-hour ozone non-attainment standards for the Atlanta and Birmingham areas have been established and must be implemented in May 2003. Seven generating plants in the Atlanta area and two plants in the Birmingham area will be affected. Construction expenditures for compliance with these new rules are currently estimated at approximately $940 million, of which $520 million remains to be spent. A significant portion of costs related to the acid rain and ozone non-attainment provisions of the Clean Air Act is expected to be recovered through existing ratemaking provision. However, there can be no assurance that all Clean Air Act costs will be recovered. In July 1997, the EPA revised the national ambient air quality standards for ozone and particulate matter. This revision made the standards significantly more stringent. In the subsequent litigation of these standards, the U.S. Supreme Court found the EPA's implementation program for the new ozone standard unlawful and remanded it to the EPA. In addition, the Federal District of Columbia Circuit Court of Appeals is considering other legal challenges to these standards. A court decision is expected in the spring of 2002. If the standards are eventually upheld, implementation could be required by 2007 to 2010. In September 1998, the EPA issued regional nitrogen oxide reduction rules to the states for implementation. The final rule affects 21 states, including Alabama and Georgia. Compliance is required by May 31, 2004, for most states, including Alabama. For Georgia, further rulemaking was required, and proposed I-14 compliance was delayed until May 1, 2005. Additional construction expenditures for compliance with these new rules are currently estimated at approximately $190 million. In December 2000, having completed its utility studies for mercury and other hazardous air pollutants (HAPS), the EPA issued a determination that an emission control program for mercury and, perhaps, other HAPS is warranted. The program is being developed under the Maximum Achievable Control Technology provisions of the Clear Air Act, and the regulations are scheduled to be finalized by the end of 2004 with implementation to take place around 2007. In January 2001, the EPA proposed guidance for the determination of Best Available Retrofit Technology (BART) emission controls under the Regional Haze Regulations. Installation of BART controls is expected to take place around 2010. Litigation of the Regional Haze Regulations, including the BART provisions, is ongoing in the Federal District of Columbia Circuit Court of Appeals. A court decision is expected in mid-2002. Implementation of the final state rules for these initiatives could require substantial further reduction in nitrogen oxide and sulfur dioxide and reductions in mercury and other HAPS emission from fossil-fired generating facilities and other industries in these states. Additional compliance costs and capital expenditures resulting from the implementation of these rules and standards cannot be determined until the results of legal challenges are known, and the states have adopted their final rules. In October 1997, the EPA issued regulations setting forth requirements for Compliance Assurance Monitoring in its state and federal operating permit programs. These regulations were amended by the EPA in March 2001 in response to a court order resolving challenges to the rules brought by environmental groups and the utility industry. Generally, this rule affects the operation and maintenance of electrostatic precipitators and could involve significant additional ongoing expense. The EPA and state environmental regulatory agencies are reviewing and evaluating various other matters including: control strategies to reduce regional haze; limits on pollutant discharges to impaired waters; cooling water intake restrictions; and hazardous waste disposal requirements. The impact of any new standards will depend on the development and implementation of applicable regulations. SOUTHERN must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the subsidiaries could incur substantial costs to clean up properties. The subsidiaries conduct studies to determine the extent of any required cleanup and have recognized in their respective financial statements costs to clean up known sites. These costs for SOUTHERN amounted to $1 million in 2001 and $4 million in both 2000 and 1999. Additional sites may require environmental remediation for which the subsidiaries may be liable for a portion or all required cleanup costs. Several major pieces of environmental legislation are periodically considered for reauthorization or amendment by Congress. These include : the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of SOUTHERN's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electromagnetic fields, and other environmental and health concerns could significantly affect SOUTHERN. The impact of new legislation - if any - will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for liability as a result of lawsuits alleging damages caused by electromagnetic fields. Reference is made to each registrant's "Management's Discussion and Analysis" in Item 7 herein for a discussion of the Clean Air Act and other environmental legislation and proceedings. Also see Item 3 - "Legal Proceedings", herein for information about a lawsuit brought on behalf of the EPA. The operating companies' and SEGCO's estimated capital expenditures for environmental quality control I-15 facilities for the years 2002, 2003 and 2004 are as follows: (in millions) ----------------------------------------------------------- 2002 2003 2004 --------------------------------- ALABAMA $157 $95 $112 GEORGIA 320 93 66 GULF 5 15 26 MISSISSIPPI 4 9 1 SAVANNAH 4 6 2 SEGCO * * * ---------------------------------------------------------- Total $490 $218 $207 =========================================================== * Amounts are less than $1 million. The foregoing estimates are included in the current construction programs. (See Item 1 - BUSINESS - "Construction Programs" herein.) Additionally, each operating company and SEGCO has incurred costs for environmental remediation of various sites. Reference is made to each registrant's "Management's Discussion and Analysis" in Item 7 herein for information regarding the registrants' environmental remediation efforts. Also, see Note 3 to SOUTHERN's and GEORGIA's financial statements in Item 8 herein for information regarding the identification of sites that may require environmental remediation by GEORGIA. The operating companies and SEGCO are unable to predict at this time what additional steps they may be required to take as a result of the implementation of existing or future quality control requirements for air, water and hazardous or toxic materials, but such steps could adversely affect system operations and result in substantial additional costs. The outcome of the matters mentioned above under "Regulation" cannot now be determined, except that these developments may result in delays in obtaining appropriate licenses for generating facilities, increased construction and operating costs, or reduced generation, the nature and extent of which, while not determinable at this time, could be substantial. Rate Matters Rate Structure The rates and service regulations of the operating companies are uniform for each class of service throughout their respective service areas. Rates for residential electric service are generally of the block type based upon kilowatt-hours used and include minimum charges. Residential and other rates contain separate customer charges. Rates for commercial service are presently of the block type and, for large customers, the billing demand is generally used to determine capacity and minimum bill charges. These large customers' rates are generally based upon usage by the customer including those with special features to encourage off-peak usage. Additionally, the operating companies are allowed by their respective PSCs to negotiate the terms and compensation of service to large customers. Such terms and compensation of service, however, are subject to final PSC approval. ALABAMA, GEORGIA and SAVANNAH are allowed by state law to recover fuel and net purchased energy costs through fuel cost recovery provisions which are adjusted to reflect increases or decreases in such costs. GULF recovers from retail customers costs of fuel, net purchased power, energy conservation and environmental compliance through provisions which are adjusted to reflect increases or decreases in such costs. GULF's recovery of these costs is based upon an annual projection - any over/under recovery during such period is reflected in a subsequent annual period with interest. With respect to MISSISSIPPI's retail rates, fuel and purchased power costs are billed to such customers under the fuel adjustment clause and energy costs management clause. The adjustment factors for MISSISSIPPI's retail and wholesale rates are generally levelized based on the estimated energy cost for the year, adjusted for any actual over/under collection from the previous year. Revenues are adjusted for differences between recoverable fuel costs and amounts actually recovered in current rates. Rate Proceedings Reference is made to MISSISSIPPI's "Management's Discussion and Analysis" in Item 7 and to Note 3 to each registrant's financial statements in Item 8 herein for a discussion of rate matters. I-16 In February 2002, MISSISSIPPI reached an agreement with certain of its wholesale customers to increase its wholesale tariff rates effective June 2002. MISSISSIPPI filed the settlement agreement with the FERC on March 5, 2002. The FERC has 60 days to either set the issue for hearing with the proposed rates subject to refund or let the new rates go into effect as filed. The agreement results in an annual increase of approximately $10.5 million and the adoption of an Energy Cost Management Clause similar to the one approved by MISSISSIPPI's retail jurisdiction (see Note 1 to MISSISSIPPI's financial statements in Item 8 herein). In addition, MISSISSIPPI and its customers agreed that neither party would seek a unilateral change to the new rates prior to December 31, 2003, except for changes due to the operation of the fuel adjustment and energy cost management clauses. Though the FERC has accepted settlement agreements as filed in the past, the ultimate outcome of this matter before the FERC cannot now be determined. On March 5, 2002, the Alabama PSC approved a revision to ALABAMA's rates that provide for periodic adjustments based upon ALABAMA's earned return on end-of-period retail common equity. This revision provides for an annual, rather than quarterly, adjustment and imposes a 3 percent limit on any such annual adjustment. A 2 percent increase in retail rates will become effective in April 2002 in accordance with the Rate Stabilization Equalization Plan. The return on common equity range of 13.0 to 14.5 percent remains unchanged. The Alabama PSC also accepted ALABAMA's proposal to lower the energy cost recovery factor for the billing months April 2002 through December 2002. Integrated Resource Planning In July 2001, the Georgia PSC approved the GEORGIA and SAVANNAH 2001 Integrated Resource Plan, which was filed on January 31, 2001. The plans specify how GEORGIA and SAVANNAH each intends to meet the future electrical needs of its customers through a combination of demand-side and supply-side resources. The Georgia PSC must pre-certify these new resources. Once certified, all prudently incurred construction costs and purchase power costs will be recoverable through rates. In July 2001, the Georgia PSC approved GEORGIA's 2003/04 certification request, which was filed December 15, 2000, for approximately 1,800 megawatts of purchased power and 12 megawatts of upgraded hydro generation. This certification request included a seven-year PPA with Southern Power for two gas-fired combined cycle units that will be constructed at Plant Goat Rock. The first unit is designed to produce approximately 570 megawatts starting in 2003, with approximately 370 megawatts being available by June 2002. The second unit is designed to produce approximately 610 megawatts starting in 2004, with approximately 400 megawatts being available by June 2003. Also, a capacity upgrade of 12 megawatts was approved for the existing Goat Rock hydro units 1 and 2. In addition, this certification request included a seven-year PPA with Southern Power for a gas fired combined cycle generating unit to be constructed at Plant Autaugaville in Alabama. The unit is designed to produce approximately 610 megawatts starting in 2004. Based on an agreement with the Georgia PSC, the seven-year term of the PPA was modified to be 15 years. In April 2001, GEORGIA and SAVANNAH issued an RFP for their 2005/06 resource needs of approximately 2,500 megawatts. At the request of the Georgia PSC, this RFP requested all types of generation resources including coal and nuclear. The bids received from this RFP totaled more than 25,000 megawatts including over 1,800 megawatts of coal offers. As required by the Georgia PSC's 2001 IRP order, GEORGIA developed a self-build coal offer to be compared to the bid received through the RFP. In conjunction with the Georgia PSC, an economic analysis of the coal proposals was completed and the results indicated that the coal resources were not economical as compared to gas-fired generation at this point in time. Therefore, the Georgia PSC relieved GEORGIA of its obligation to continue to develop a coal self-build proposal. At the present time, the bids from this RFP are being analyzed and the best-cost projects will be selected. Once the PPAs have been completed for the selected projects, GEORGIA and SAVANNAH will file for certification of these PPAs by summer of 2002. GEORGIA and SAVANNAH expect the Georgia PSC to approve the certification request in the fall of 2002. I-17 Environmental Cost Recovery Plans In 1993, the Florida Legislature adopted legislation for an Environmental Cost Recovery Clause (ECRC), which allows a utility, including GULF, to petition the Florida PSC for recovery of prudent environmental compliance costs that are not being recovered through base rates or any other recovery mechanism. Such environmental costs include operation and maintenance expense, emission allowance expense, depreciation and a return on invested capital. In 1992, the Mississippi PSC approved MISSISSIPPI's Environmental Compliance Overview Plan (ECO Plan). The ECO Plan establishes procedures to facilitate the Mississippi PSC's overview of MISSISSIPPI's environmental strategy and provides for recovery of costs (including costs of capital associated with environmental projects approved by the Mississippi PSC). Under the ECO Plan, any increase in the annual revenue requirement is limited to 2 percent of retail revenues. However, the ECO Plan also provides for carryover of any amount over the 2 percent limit into the next year's revenue requirement. MISSISSIPPI conducts studies, when possible, to determine the extent of any required environmental remediation. Should such remediation be determined to be probable, reasonable estimates of costs to clean up such sites are developed and recognized in the financial statements. MISSISSIPPI recovers such costs under the ECO Plan as they are incurred, as provided for in MISSISSIPPI's 1995 ECO Plan order. MISSISSIPPI filed its 2002 ECO Plan in January 2002, which, if approved as filed, will result in a slight increase in customer prices. Employee Relations The SOUTHERN system had a total of 26,122 employees on its payroll at December 31, 2001. -------------------------------------------------------------- Employees at December 31, 2001 ------------------------- ALABAMA 6,706 GEORGIA 9,048 GULF 1,309 MISSISSIPPI 1,316 SAVANNAH 550 SCS 3,569 Southern Nuclear 3,045 Other 579 -------------------------------------------------------------- Total 26,122 ============================================================== The operating companies have separate agreements with local unions of the IBEW generally covering wages, working conditions and procedures for handling grievances and arbitration. These agreements apply with certain exceptions to operating, maintenance and construction employees. ALABAMA has agreements with the IBEW on a three-year contract extending to August 14, 2005. Upon notice given at least 60 days prior to that date, negotiations may be initiated with respect to agreement terms to be effective after such date. GEORGIA has an agreement with the IBEW covering wages and working conditions, which is in effect through June 30, 2002. GULF has an agreement with the IBEW on a three-year contract extending to August 15, 2005. MISSISSIPPI has an agreement with the IBEW on a four-year contract extending to August 16, 2002. SAVANNAH has four-year labor agreements with the IBEW and the Office and Professional Employees International Union that expire April 15, 2003 and December 1, 2003, respectively. Southern Nuclear has agreements with the IBEW on a five-year contract extending to August 15, 2006 for Plant Farley and a three-year contract extending to June 30, 2002 for Plants Hatch and Vogtle. Upon notice given at I-18 least 60 days prior to these dates, negotiations may be initiated with respect to agreement terms to be effective after such dates. Southern Nuclear is currently in negotiations with the Security, Police and Fire Professionals of America (formerly the United Plant Guard Workers of America) at Plant Hatch. The prior contract with the United Plant Guard Workers of America which extended to September 30, 2001 was not terminated, so the terms of the existing agreement have continued as negotiations of the new agreement continues. The parties will have the opportunity to terminate the agreement 60 days prior to October 1, 2002 if no agreement is reached prior to that time. The agreements also subject the terms of the pension plans for the companies discussed above to collective bargaining with the unions at five-year intervals. I-19 Item 2. PROPERTIES Electric Properties - The Electric Utilities The operating companies, Southern Power and SEGCO, at December 31, 2001, owned and/or operated 34 hydroelectric generating stations, 34 fossil fuel generating stations, three nuclear generating stations and five combined cycle/cogeneration stations. The amounts of capacity for each company are shown in the table below. ------------------------- ------------------------------------- Nameplate Generating Station Location Capacity (1) ------------------------- ------------------- ----------------- (Kilowatts) Fossil Steam Gadsden Gadsden, AL 120,000 Gorgas Jasper, AL 1,221,250 Barry Mobile, AL 1,525,000 Greene County Demopolis, AL 300,000 (2) Gaston Unit 5 Wilsonville, AL 880,000 Miller Birmingham, AL 2,532,288 (3) --------- ALABAMA Total 6,578,538 --------- Arkwright Macon, GA 160,000 Atkinson Atlanta, GA 180,000 Bowen Cartersville, GA 3,160,000 Branch Milledgeville, GA 1,539,700 Hammond Rome, GA 800,000 McDonough Atlanta, GA 490,000 McManus Brunswick, GA 115,000 Mitchell Albany, GA 170,000 Scherer Macon, GA 750,924 (4) Wansley Carrollton, GA 925,550 (5) Yates Newnan, GA 1,250,000 --------- GEORGIA Total 9,541,174 --------- Crist Pensacola, FL 1,045,000 Lansing Smith Panama City, FL 305,000 Scholz Chattahoochee, FL 80,000 Daniel Pascagoula, MS 500,000 (6) Scherer Unit 3 Macon, GA 204,500 (4) --------- GULF Total 2,134,500 --------- Eaton Hattiesburg, MS 67,500 Sweatt Meridian, MS 80,000 Watson Gulfport, MS 1,012,000 Daniel Pascagoula, MS 500,000 (6) Greene County Demopolis, AL 200,000 (2) ----------- MISSISSIPPI Total 1,859,500 ----------- ---------------------------------------------- ---------------- ------------------------- ----------------------------------------- Nameplate Generating Station Location Capacity ---------------------- ------------------------- ------------------ (Kilowatts) McIntosh Effingham County, GA 163,117 Kraft Port Wentworth, GA 281,136 Riverside Savannah, GA 102,278 ----------- SAVANNAH Total 546,531 ----------- Gaston Units 1-4 Wilsonville, AL SEGCO Total 1,000,000 (7) ----------- Total Fossil Steam 21,660,243 ----------- Nuclear Steam Farley Dothan, AL ALABAMA Total 1,720,000 ----------- Hatch Baxley, GA 899,612 (8) Vogtle Augusta, GA 1,060,240 (9) ----------- GEORGIA Total 1,959,852 ----------- Total Nuclear Steam 3,679,852 ----------- Combustion Turbines Greene County Demopolis, AL ALABAMA Total 720,000 ----------- Arkwright Macon, GA 30,580 Atkinson Atlanta, GA 78,720 Bowen Cartersville, GA 39,400 Intercession City Intercession City, FL 47,333 (10) McDonough Atlanta, GA 78,800 McIntosh Units 1,2,3,4,7,8 Effingham County, GA 480,000 McManus Brunswick, GA 481,700 Mitchell Albany, GA 118,200 Robins Warner Robins, GA 160,000 Wilson Augusta, GA 354,100 Wansley Carrollton, GA 26,322 (5) ----------- GEORGIA Total 1,895,155 ----------- Lansing Smith Unit A Panama City, FL 39,400 Pea Ridge Units 1-3 Pea Ridge, FL 14,250 ------ GULF Total 53,650 ------ Chevron Cogenerating Station Pascagoula, MS 147,292 (11) Sweatt Meridian, MS 39,400 Watson Gulfport, MS 39,360 --------- MISSISSIPPI Total 226,052 --------- ------------------------------------------------- ----------------- I-20 --------------------------- -------------------- ----------------- Nameplate Generating Station Location Capacity --------------------------- -------------------- ----------------- (Kilowatts) Boulevard Savannah, GA 59,100 Kraft Port Wentworth, GA 22,000 McIntosh Units 5&6 Effingham County, GA 160,000 ------- SAVANNAH Total 241,100 ------- Dahlberg 800,000 ------- Southern Power Total 800,000 ------- Gaston (SEGCO) Wilsonville, AL 19,680 (7) ----------- Total Combustion Turbines 3,955,637 ----------- Cogeneration Washington County Washington County, AL 123,428 GE Plastics Project Burkeville, AL 104,800 Theodore Theodore, AL 236,418 ----------- Total Cogeneration 464,646 ----------- Combined Cycle Barry Mobile, AL ALABAMA Total 1,070,424 --------- Daniel (Leased) Pascagoula, MS Mississippi Total 1,070,424 --------- Total Combined Cycle 2,140,848 --------- Hydroelectric Facilities Weiss Leesburg, AL 87,750 Henry Ohatchee, AL 72,900 Logan Martin Vincent, AL 128,250 Lay Clanton, AL 177,000 Mitchell Verbena, AL 170,000 Jordan Wetumpka, AL 100,000 Bouldin Wetumpka, AL 225,000 Harris Wedowee, AL 135,000 Martin Dadeville, AL 154,200 Yates Tallassee, AL 32,000 Thurlow Tallassee, AL 60,000 Lewis Smith Jasper, AL 157,500 Bankhead Holt, AL 54,000 Holt Holt, AL 46,000 ---------- ALABAMA Total 1,599,600 ---------- --------------------------- -------------------- ----------------- --------------------------- -------------------- ----------------- Nameplate Generating Station Location Capacity --------------------------- -------------------- ----------------- Barnett Shoals (Leased) Athens, GA 2,800 Bartletts Ferry Columbus, GA 173,000 Goat Rock Columbus, GA 26,000 Lloyd Shoals Jackson, GA 14,400 Morgan Falls Atlanta, GA 16,800 North Highlands Columbus, GA 29,600 Oliver Dam Columbus, GA 60,000 Rocky Mountain Rome, GA 215,256 (12) Sinclair Dam Milledgeville, GA 45,000 Tallulah Falls Clayton, GA 72,000 Terrora Clayton, GA 16,000 Tugalo Clayton, GA 45,000 Wallace Dam Eatonton, GA 321,300 Yonah Toccoa, GA 22,500 6 Other Plants 18,080 ----------- GEORGIA Total 1,077,736 ----------- Total Hydroelectric Facilities 2,677,336 ----------- Total Generating Capacity 34,578,562 =========== ------------------------------------------------ ----------------- Notes: (1) For additional information regarding facilities jointly-owned with non-affiliated parties, see Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein. (2) Owned by ALABAMA and MISSISSIPPI as tenants in common in the proportions of 60% and 40%, respectively. (3) Excludes the capacity owned by AEC. (4) Capacity shown for GEORGIA is 8.4% of Units 1 and 2 and 75% of Unit 3. Capacity shown for GULF is 25% of Unit 3. (5) Capacity shown is GEORGIA's portion (53.5%) of total plant capacity. (6) Represents 50% of the plant which is owned as tenants in common by GULF and MISSISSIPPI. (7) SEGCO is jointly-owned by ALABAMA and GEORGIA. (See Item 1 - BUSINESS herein.) (8) Capacity shown is GEORGIA's portion (50.1%) of total plant capacity. (9) Capacity shown is GEORGIA's portion (45.7%) of total plant capacity. (10) Capacity shown represents 33-1/3% of total plant capacity. GEORGIA owns a 1/3 interest in the unit with 100% use of the unit from June through September. FPC operates the unit. (11) Generation is dedicated to a single industrial customer. (12) Capacity shown is GEORGIA's portion (25.4%) of total plant capacity. OPC operates the plant. I-21 Except as discussed below under "Titles to Property," the principal plants and other important units of the operating companies, Southern Power and SEGCO are owned in fee by the respective companies. It is the opinion of management of each such company that its operating properties are adequately maintained and are substantially in good operating condition. MISSISSIPPI owns a 79-mile length of 500-kilovolt transmission line which is leased to Entergy Gulf States. The line, completed in 1984, extends from Plant Daniel to the Louisiana state line. Entergy Gulf States is paying a use fee over a forty-year period covering all expenses and the amortization of the original $57 million cost of the line. At December 31, 2001, the unamortized portion of this cost was approximately $33.3 million. The all-time maximum demand on the operating companies and SEGCO was 31,359,000 kilowatts and occurred in August 2000. This amount excludes demand served by capacity retained by MEAG and Dalton and excludes demand associated with power purchased from OPC and SEPA by its preference customers. The reserve margin for the operating companies and SEGCO at that time was 8.1%. For additional information on peak demands, reference is made to Item 6 - SELECTED FINANCIAL DATA herein. ALABAMA and GEORGIA will incur significant costs in decommissioning their nuclear units at the end of their useful lives. (See Item 1 - BUSINESS - "Regulation - Atomic Energy Act of 1954" and Note 1 to SOUTHERN's, ALABAMA's and GEORGIA's financial statements in Item 8 herein.) Jointly-Owned Facilities ALABAMA and GEORGIA have sold and GEORGIA has purchased undivided interests in certain generating plants and other related facilities to or from non-affiliated parties. The percentages of ownership resulting from these transactions are as follows:
Total Percentage Ownership ---------------- -------- ------------ -------- --------- ------------ -------- Capacity ALABAMA AEC GEORGIA OPC MEAG DALTON FPC -------------- ---------------- -------- ------------ -------- --------- ------------ -------- (Megawatts) Units 1 and 2 1,320 91.8% 8.2% -% -% -% -% -% Plant Hatch 1,796 - - 50.1 30.0 17.7 2.2 - Plant Vogtle 2,320 - - 45.7 30.0 22.7 1.6 - Plant Scherer Units 1 and 2 1,636 - - 8.4 60.0 30.2 1.4 - Plant Wansley 1,779 - - 53.5 30.0 15.1 1.4 - Rocky Mountain 848 - - 25.4 74.6 - - - Intercession City, FL 142 - - 33.3 - - - 66.7 ----------------------------- -------------- -- ---------------- -------- ------------ -------- --------- ------------ --------
ALABAMA and GEORGIA have contracted to operate and maintain the respective units in which each has an interest (other than Rocky Mountain and Intercession City, as described below) as agent for the joint owners. In addition, GEORGIA has commitments regarding a portion of a 5 percent interest in Plant Vogtle owned by MEAG that are in effect until the later of retirement of the plant or the latest stated maturity date of MEAG's bonds issued to finance such ownership interest. The payments for capacity are required whether any capacity is available. The energy cost is a function of each unit's variable operating costs. Except for the portion of the capacity payments related to the 1987 and 1990 write-offs of Plant Vogtle costs, the cost of such capacity and energy is included in purchased power from non-affiliates in GEORGIA's Statements of Income in Item 8 herein. I-22 Additional jointly-owned facilities also include Southern Power's 65% undivided interest in Stanton Unit A and related facilities jointly owned with the Orlando Utilities Commission, the Kissimmee Utility Authority and the Florida Municipal Power Agency. Currently under construction near Orlando, Florida, this project will be a 610 megawatt combined cycle unit and is scheduled for commerical operation in October 2003. Titles to Property The operating companies', Southern Power's and SEGCO's interests in the principal plants (other than certain pollution control facilities, one small hydroelectric generating station leased by GEORGIA, MISSISSIPPI's combined cycle units at Plant Daniel and the land on which five combustion turbine generators of MISSISSIPPI are located, which is held by easement) and other important units of the respective companies are owned in fee by such companies, subject only to the liens of applicable mortgage indentures of ALABAMA, GULF, MISSISSIPPI and SAVANNAH and to excepted encumbrances as defined therein. The operating companies own the fee interests in certain of their principal plants as tenants in common. (See Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein.) Properties such as electric transmission and distribution lines and steam heating mains are constructed principally on rights-of-way which are maintained under franchise or are held by easement only. A substantial portion of lands submerged by reservoirs is held under flood right easements. In substantially all of its coal reserve lands, SEGCO owns or will own the coal only, with adequate rights for the mining and removal thereof. I-23 Item 3. LEGAL PROCEEDINGS (1) United States of America v. ALABAMA (United States District Court for the Northern District of Alabama) On November 3, 1999, the EPA brought a civil action in the U.S. District Court in Georgia against ALABAMA. The complaint alleges violations of the New Source Review provisions of the Clean Air Act with respect to coal-fired generating facilities at ALABAMA's Plants Miller, Barry and Gorgas. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The Clean Air Act authorizes civil penalties of up to $27,500 per day, per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. The EPA concurrently issued a notice of violation relating to these specific facilities, as well as Plants Greene County and Gaston. On August 1, 2000, the U.S. District Court granted ALABAMA's motion to dismiss for lack of jurisdiction in Georgia. On January 12, 2001, the EPA re-filed its claims against ALABAMA in federal district court in Birmingham, Alabama. ALABAMA's case has been stayed since the spring of 2001, pending a ruling by the U.S. Court of Appeals for the Eleventh Circuit in the appeal of a very similar New Source Review enforcement action against the TVA. The TVA case involves many of the same legal issues raised by the actions against ALABAMA. Because the outcome of the TVA case could have a significant adverse impact on ALABAMA, ALABAMA is party to that case as well. ALABAMA believes that it complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. (2) United States of America v. GEORGIA and SAVANNAH (United States District Court for the Northern District of Georgia) On November 3, 1999, the EPA brought a civil action in the U.S. District Court in Georgia against GEORGIA. The complaint alleges violation of the New Source Review provisions of the Clean Air Act with respect to coal-fired generating facilities at GEORGIA's Plants Bowen and Scherer. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The Clean Air Act authorizes civil penalties of up to $27,500 per day, per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. On March 27, 2001, the U.S. District Court granted the EPA's motion to amend its complaint to add the alleged violations at SAVANNAH's Plant Kraft and to add SAVANNAH as a defendant. The EPA concurrently issued a notice of violation relating to these two GEORGIA plants and SAVANNAH's Plant Kraft. The case has been stayed since the spring of 2001, pending a ruling by the U.S. Court of Appeals for the Eleventh Circuit in the appeal of a very similar New Source Review enforcement action against the TVA. The TVA case involves many of the same legal issues raised by the actions against GEORGIA and SAVANNAH. Because the outcome of the TVA case could have a significant adverse impact on GEORGIA and SAVANNAH, both GEORGIA and SAVANNAH are party to that case as well. GEORGIA and SAVANNAH believe that they complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. I-24 Item 3. LEGAL PROCEEDINGS (continued) (3) Cooper et al. v. GEORGIA, SOUTHERN, SCS and Energy Solutions (Superior Court of Fulton County, Georgia) On July 28, 2000, a lawsuit alleging race discrimination was filed by three GEORGIA employees against GEORGIA, SOUTHERN, and SCS in the Superior Court of Fulton County, Georgia. Shortly thereafter, the lawsuit was removed to the United States District Court for the Northern District of Georgia. The lawsuit also raised claims on behalf of a purported class. The plaintiffs seek compensatory and punitive damages in an unspecified amount, as well as injunctive relief. On August 14, 2000, the lawsuit was amended to add four more plaintiffs. Also, an additional subsidiary of SOUTHERN, Energy Solutions (now Southern Management Development), was named a defendant. On October 11, 2001, the district court denied the plaintiffs' motion for class certification. The plaintiffs filed a motion to reconsider the order denying class certification, and the court denied the plaintiffs' motion to reconsider. On December 28, 2001, the plaintiffs filed a petition in the United States Court of Appeals for the Eleventh Circuit seeking permission to file an appeal of the October 11 decision. On March 15, 2002, the Eleventh Circuit denied the plaintiffs' petition; thus, the plaintiffs may not appeal the October 11 decision until the seven individual cases are resolved in the district court. Discovery on the seven named plaintiffs' individual claims that remain in the case is ongoing. The final outcome of the case cannot now be determined. (4) GEORGIA has been designated as a potentially responsible party at sites governed by the Georgia Hazardous Site Response Act and/or by the federal Comprehensive Environmental Response, Compensation and Liability Act. In addition, in 1995 the EPA designated GEORGIA and four other unrelated entities as potentially responsible parties at a site in Brunswick, Georgia that is listed on the federal National Priorities List. GEORGIA has contributed to the removal and remedial investigation and feasibility study costs for the site. Additional claims for recovery of natural resource damages at the site are anticipated. The final outcome of these matters cannot now be determined. Reference is made to Note 3 to SOUTHERN's and GEORGIA's financial statements in Item 8 herein under the captions "Georgia Power Potentially Responsible Party Status" and "Other Environmental Contingencies," respectively. (5) In re: Mobile Energy Services Company, LLC; In re: Mobile Energy Services Holdings, Inc. (U.S. Bankruptcy Court for the Southern District of Alabama). On August 4, 2000, MESH filed a proposed plan of reorganization with the U.S. Bankruptcy Court. The proposed plan of reorganization was most recently amended on October 15, 2001. SOUTHERN expects that approval of a plan of reorganization would result in either a termination of SOUTHERN's ownership interest in MESH or the exchange of all assets of MESH for the cancellation of securities held by the bondholders, but would not affect SOUTHERN's continuing guarantee obligations. The final outcome of this matter cannot now be determined. Reference is made to Note 3 to SOUTHERN's financial statements in Item 8 herein under the caption "Mobile Energy Services' Petition for Bankruptcy." I-25 Item 3. LEGAL PROCEEDINGS (continued) (6) Gordon v. SOUTHERN et al. (United States District Court for the Southern District of California) and (7) Pier 23 Restaurant v. SOUTHERN et al. (United States District Court for the Northern District of California) Prior to the spin off of Mirant, SOUTHERN was named as a defendant in two lawsuits filed in the superior courts of California alleging that certain owners of electric generation facilities in California, including SOUTHERN, engaged in various unlawful and anticompetitive acts that served to manipulate wholesale power markets and inflate wholesale electricity prices in California. One lawsuit naming SOUTHERN, Mirant and other generators as defendants alleged that, as a result of the defendants' conduct, customers paid approximately $4 billion more for electricity that they otherwise would have and sought an award of treble damages, as well as other injunctive and equitable relief. The other suit likewise sought treble damages and equitable relief. The allegations in the two lawsuits in which SOUTHERN was named seemed to be directed to activities of subsidiaries of Mirant. On September 28 and November 6, 2001, the plaintiffs voluntarily dismissed SOUTHERN without prejudice from the two lawsuits in which it had been named as a defendant. Prior to being dismissed, SOUTHERN had notified Mirant of its claim for indemnification for costs associated with the lawsuits under the terms of the master separation agreement that governs the spin off of Mirant. Mirant had undertaken the defense of the lawsuits. Plaintiffs would not be barred by their own dismissal from naming SOUTHERN in some future lawsuit, but management believes that the likelihood of SOUTHERN having to pay damages in any such lawsuit is remote. See Item 1 - BUSINESS - "Construction Programs," "Fuel Supply," "Regulation - - Federal Power Act" and "Rate Matters" as well as Note 3 to each registrant's financial statements in Item 8 herein for a description of certain other administrative and legal proceedings discussed therein. Additionally, each of the operating companies, SCS, Southern Nuclear, Southern Power, Energy Solutions and Southern LINC are, in the normal course of business, engaged in litigation or administrative proceedings that include, but are not limited to, acquisition of property, injuries and damages claims, and complaints by present and former employees. I-26 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. ALABAMA ALABAMA held a special meeting of shareholders on November 21, 2001 for the purpose of amending its charter to effect certain changes in the Auction Procedures for ALABAMA's 1988 Auction Series Class A Preferred Stock and 1993 Auction Series Class A Preferred Stock. The amendment was passed and the vote tabulation was as follows: Votes ------------------------------------------------ For Against Abstain --- ------- ------- Common Stock 6,000,000 0 0 Preferred Stock 377,000 0 0 ---------- - - Total 6,377,000 0 0 ========= = = I-27 EXECUTIVE OFFICERS OF SOUTHERN (Identification of executive officers of SOUTHERN is inserted in Part I in accordance with Regulation S-K, Item 401(b), Instruction 3.) The ages of the officers set forth below are as of December 31, 2001. H. Allen Franklin Chairman, President, Chief Executive Officer and Director Age 57 Elected Director in 1988 and Chief Executive Officer effective March 1, 2001. Previously served as President and Chief Operating Officer of SOUTHERN from June 1999 to March 2001; and as President and Chief Executive Officer of GEORGIA from January 1994 to June 1999. Dwight H. Evans Executive Vice President Age 53 Elected in 2001. Previously served as President and Chief Executive Officer of MISSISSIPPI from March 1995 to May 2001. David M. Ratcliffe Executive Vice President Age 53 Elected in 1999. He also has served as President and Chief Executive Officer of GEORGIA since June 1999. Previously served as Executive Vice President, Treasurer and Chief Financial Officer of GEORGIA from March 1998 to June 1999; and as Senior Vice President of SOUTHERN from March 1995 to March 1998. Leonard J. Haynes Executive Vice President and Chief Marketing Officer Age 51 Elected in 2001. Previously served as Senior Vice President of GEORGIA from October 1998 to May 2001; and Vice President of GEORGIA from October 1992 to October 1998. G. Edison Holland, Jr. Executive Vice President Age 49 Elected in 2001. Previously served as President and Chief Executive Officer of SAVANNAH from 1997 until 2001. Gale E. Klappa Executive Vice President, Chief Financial Officer and Treasurer Age 51 Elected in 2001. Previously served as Financial Vice President, Chief Financial Officer and Treasurer form March 2001 to May 2001; Senior Vice President and Chief Strategic Officer of SOUTHERN from October 1999 to March 2001; President of Mirant's North America Group and Senior Vice President of Mirant from December 1998 to October 1999; and as President and Chief Executive Officer of Western Power Distribution, a subsidiary of Mirant located in Bristol, England, from September 1995 to December 1998. Charles D. McCrary Executive Vice President Age 50 Elected in 1998; serves as President and Chief Executive Officer of ALABAMA. Previously served as President and Chief Operating Officer of ALABAMA from May 2001 to October 2001; Vice President of SOUTHERN from February 1998 to April 2001; and as Executive Vice President of ALABAMA from 1994 through February 1998. W. Paul Bowers Age 44 Executive Vice President of SCS and President and Chief Executive Officer of Southern Power since May 2001. Previously served as Senior Vice President of SCS and Chief Marketing Officer of SOUTHERN from March 2000 to May 2001; President and Chief Executive Officer of Western Power Distribution, a subsidiary of Mirant located in Bristol, England, from December 1998 to 2000; and Senior Vice President of Retail Marketing for GEORGIA from 1995 to 1998. W. G. Hairston, III Age 57 President and Chief Executive Officer of Southern Nuclear since 1993. The officers of SOUTHERN were elected for a term running from the first meeting of the directors following the last annual meeting (May 23, 2001) for one year until the first board meeting after the next annual meeting or until their successors are elected and have qualified. I-28 EXECUTIVE OFFICERS OF ALABAMA (Identification of executive officers of ALABAMA is inserted in Part I in accordance with Regulation S-K, Item 401(b), Instruction 3.) The ages of the officers set forth below are as of December 31, 2001. Elmer B. Harris Chairman and Director* Age 62 Elected in 1989. Served as President and Chief Executive Officer from 1989 to 2001. Elected Executive Vice President of SOUTHERN in 1991. Served as a Director of SOUTHERN since 1989. Charles D. McCrary President, Chief Executive Officer and Director Age 50 Elected in 2001. Served as President and Chief Operating Officer of ALABAMA from April 2001 to October 2001 and Vice President of SOUTHERN from February 1998 to April 2001. Previously served as Executive Vice President of External Affairs at ALABAMA from April 1994 through February 1998. William B. Hutchins, III Executive Vice President, Chief Financial Officer and Treasurer Age 58 Elected in 1991. Served as Treasurer since 1998 in addition to Executive Vice President and Chief Financial Officer since 1991. C. Alan Martin Executive Vice President Age 53 Elected in 1999. Served as Executive Vice President of External Affairs since January 2000. Previously served as Executive Vice President and Chief Marketing Officer for SOUTHERN from 1998 to 1999; and Vice President of Human Resources for SOUTHERN from May 1995 to March 1998. Steve R. Spencer Executive Vice President Age 46 Elected in 2001. Served as Senior Vice President of External Affairs from July 2000 to April 2001. Previously served as Vice President of SOUTHERN's external affairs organization from 1998 to 2001. Jerry L. Stewart Senior Vice President Age 52 Elected in 1999. Served as Senior Vice President of Fossil and Hydro Generation since 1999. Previously served as Vice President of SCS from 1992 to 1999. The officers of ALABAMA were elected for a term running from the last annual meeting of the directors (April 27, 2001) for one year until the next annual meeting or until their successors are elected and have qualified, except for Mr. McCrary who was elected Chief Executive Officer on October 25, 2001. *Retired effective January 11, 2002. I-29 EXECUTIVE OFFICERS OF GEORGIA (Identification of executive officers of GEORGIA is inserted in Part I in accordance with Regulation S-K, Item 401(b), Instruction 3.) The ages of the officers set forth below are as of December 31, 2001. David M. Ratcliffe President, Chief Executive Officer and Director Age 53 Elected as an Executive Officer in 1998 and as Director in 1999. Served as President and Chief Executive Officer since June 1999. Previously served as Executive Vice President, Treasurer and Chief Financial Officer of GEORGIA from 1998 to 1999; and as Senior Vice President of SOUTHERN from March 1995 to March 1998. William C. Archer, III Executive Vice President Age 53 Elected in 1995. Served as Executive Vice President of External Affairs since 1995. Thomas A. Fanning Executive Vice President, Treasurer and Chief Financial Officer Age 44 Elected in 1999. Previously served as Senior Vice President of SCS and Chief Information Officer for SOUTHERN from March 1995 to June 1999. Judy M. Anderson Senior Vice President Age 53 Elected in 2001. Served as Senior Vice President of Charitable Giving since 2001. Previously served as Vice President and Corporate Secretary of GEORGIA from 1989 to 2001. Ronnie L. Bates Senior Vice President Age 47 Elected in 2001. Served as Senior Vice President, Marketing since 2001. Previously served as Vice President, Transmission from 2000 to 2001; and as General Manager, Transmission and Construction from 1995 to 2000. Mickey A. Brown Senior Vice President Age 54 Elected in 2001. Served as Senior Vice President of Distribution since 2001. Previously served as Vice President, Distribution from 2000 to 2001; and as Vice President, Northern Region from 1993 to 2000. James K. Davis Senior Vice President Age 61 Elected in 1993. Served as Senior Vice President of Corporate Relations since 1993, with Employee Relations being added to his responsibilities in 2000. Fred D. Williams Senior Vice President Age 57 Elected in 1992. Served as Senior Vice President of Resource Policy and Planning since 1997. Previously served as Senior Vice President of Wholesale Energy from 1995 to 1997. Leslie R. Sibert Vice President Age 39 Elected in 2001. Served as Vice President, Transmission since 2001. Previously served as Decatur Region Manager from 1999 to 2001; and as Assistant to Senior Vice President, Southern Wholesale Energy from 1996 to 1999. Christopher C. Womack Senior Vice President Age 43 Elected in 2001. Served as Senior Vice President of Fossil and Hydro since 2001. Previously served as Vice President and Chief People Officer of SOUTHERN from 1998 to 2001; and as Senior Vice President of Public Relations and Corporate Services at ALABAMA from 1995 to 1998. The officers of GEORGIA were elected for a term running from the last annual meeting of the directors (May 16, 2001) for one year until the next annual meeting or until their successors are elected and have qualified, except for Ms. Anderson, whose election was effective June 1, 2001; Mr. Bates, whose election was effective October 8, 2001; Ms. Sibert, whose election was effective November 14, 2001; and Mr. Womack, whose election was effective December 17, 2001. I-30 EXECUTIVE OFFICERS OF GULF (Identification of executive officers of GULF is inserted in Part I in accordance with Regulation S-K, Item 401(b), Instruction 3.) The ages of the officers set forth below are as of December 31, 2001. Travis J. Bowden President, Chief Executive Officer and Director Age 63 Elected in 1994. Served as President and Chief Executive Officer since 1994. Francis M. Fisher, Jr. Vice President Age 53 Elected in 1989. Served as Vice President of Power Delivery and Customer Operations since 1996. John E. Hodges, Jr. Vice President Age 58 Elected in 1989. Served as Vice President of Marketing and Employee/External Affairs since 1996. Ronnie R. Labrato Vice President, Chief Financial Officer and Comptroller Age 48 Elected in 2000. Served as Vice President, Chief Financial Officer and Comptroller since 2001. Previously served as Comptroller and Chief Financial Officer from 2000 to 2001 and Controller from 1992 to 2000. Robert G. Moore Vice President Age 52 Elected in 1997. Served as Vice President of Power Generation and Transmission of GULF and Vice President of Fossil Generation of SCS since 1997. Previously served as Plant Manager of Plant Bowen at GEORGIA from March 1993 to August 1997. Warren E. Tate Vice President, Secretary/Treasurer and Regional Chief Information Officer Age 59 Elected in 2000. Served as Vice President since 2001, also serves as Secretary/Treasurer and Regional Chief Information Officer since 1996. The officers of GULF were elected for a term running from the last annual meeting of the directors (July 27, 2001) for one year until the next annual meeting or until their successors are elected and have qualified. I-31 EXECUTIVE OFFICERS OF MISSISSIPPI (Identification of executive officers of MISSISSIPPI is inserted in Part I in accordance with Regulation S-K, Item 401(b), Instruction 3.) The ages of the officers set forth below are as of December 31, 2001. Michael D. Garrett President, Chief Executive Officer and Director Age 52 Elected in 2001. Previously served as Executive Vice President - Customer Service of ALABAMA from January 2000 to May 2001; Executive Vice President of External Affairs of ALABAMA from March 1998 to January 2000; and Senior Vice President of External Affairs of ALABAMA from February 1994 to March 1998. H. E. Blakeslee Vice President Age 61 Elected in 1984. Served as Vice President of Customer Services and Retail Marketing since 1984. Don E. Mason Vice President Age 60 Elected in 1983. Served as Vice President of External Affairs and Corporate Services since 1983. Michael W. Southern Vice President, Treasurer and Chief Financial Officer Age 49 Elected in 1995. Served as Vice President, Treasurer and Chief Financial Officer since 2001. Previously served as Vice President, Secretary, Treasurer and Chief Financial Officer from 1995 to 2001. Gene L. Ussery, Jr. Vice President Age 52 Elected in 2000. Served as Vice President of Power Generation and Delivery since September 2000. Previously served as Northern Cluster Manager at GEORGIA for Plants Hammond, Bowen and McDonough-Atkinson from July 2000 to September 2000. He served as Manager of Plant Bowen at GEORGIA from 1997 to 2000; and Manager of Plant McDonough at GEORGIA from 1996 to 1997. The officers of MISSISSIPPI were elected for a term running from the last annual meeting of the directors (April 25, 2001) for one year until the next annual meeting or until their successors are elected and have qualified. I-32 PART II Item 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) The common stock of SOUTHERN is listed and traded on the New York Stock Exchange. The stock is also traded on regional exchanges across the United States. High and low stock prices, per the New York Stock Exchange Composite Tape during each quarter for the past two years were as follows: ------------------------ ------------ -- -------------- High Low ------------ -------------- 2001 First Quarter (Note) $21.650 $16.152 Second Quarter 23.880 20.890 Third Quarter 26.000 22.050 Fourth Quarter 25.980 22.300 2000 First Quarter $25.875 $20.375 Second Quarter 27.875 21.688 Third Quarter 35.000 23.406 Fourth Quarter 33.880 27.500 ---------------------- -------------- -- -------------- Note: The common stock high and low prices have been adjusted to give effect to the Mirant spin off. Reference is made to Note 11 to the financial statements for SOUTHERN in Item 8 herein for additional information. There is no market for the other registrants' common stock, all of which is owned by SOUTHERN. On February 28, 2002, the closing price of SOUTHERN's common stock was $25.40. (b) Number of SOUTHERN's common stockholders of record at December 31, 2001: 150,242 Each of the other registrants have one common stockholder, SOUTHERN. (c) Dividends on each registrant's common stock are payable at the discretion of their respective board of directors. The dividends on common stock declared by SOUTHERN and the operating companies to their stockholder(s) for the past two years were as follows: (in thousands) ------------------- --------- ------------- ---------- Registrant Quarter 2001 2000 ------------------- --------- ------------- ---------- SOUTHERN First $228,320 $220,557 Second 229,611 217,289 Third 231,192 217,289 Fourth 232,935 218,098 ALABAMA First 101,200 103,600 Second 97,600 105,200 Third 97,600 104,400 Fourth 97,500 103,900 GEORGIA First 134,500 136,500 Second 130,900 138,600 Third 130,900 137,600 Fourth 131,000 136,900 GULF First 13,500 14,600 Second 13,300 14,900 Third 13,300 14,800 Fourth 13,175 14,700 MISSISSIPPI First 12,800 13,600 Second 12,500 13,800 Third 12,500 13,700 Fourth 12,400 13,600 SAVANNAH First 5,500 6,100 Second 5,400 6,200 Third 5,400 6,000 Fourth 5,400 6,000 ------------------- --------- ------------- ---------- The dividend paid per share by SOUTHERN was 33.5(cent) for each quarter of 2000 and 2001. The dividend paid on SOUTHERN's common stock for the first quarter of 2002 was 33.5(cent) per share. The amount of dividends on their common stock that may be paid by the subsidiary registrants (except GEORGIA effective February 27, 2002) is restricted in accordance with their respective first mortgage bond indenture. The amounts of earnings retained in the II-1 business and the amounts restricted against the payment of cash dividends on common stock at December 31, 2001 were as follows: -------------------- ------------------ --- -------------- Retained Restricted Earnings Amount ------------------ -------------- (in millions) ALABAMA $1,220 $ 796 GEORGIA 1,871 1,037 GULF 161 127 MISSISSIPPI 186 118 SAVANNAH 110 68 Consolidated 4,517 2,145 -------------------- ------------------ --- -------------- Item 6. SELECTED FINANCIAL DATA SOUTHERN. Reference is made to information under the heading "Selected Consolidated Financial and Operating Data," contained herein at pages II-43 and II-44. ALABAMA. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-78 and II-79. GEORGIA. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-114 and II-115. GULF. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-145 and II-146. MISSISSIPPI. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-178 and II-179. SAVANNAH. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-207 and II-208. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SOUTHERN. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-8 through II-18. ALABAMA. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-48 through II-57. GEORGIA. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-83 through II-92. GULF. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-119 through II-128. MISSISSIPPI. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-150 through II-159. SAVANNAH. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-183 through II-191. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to information in SOUTHERN's "Management's Discussion and Analysis - Market Price Risk" and to Note 1 to SOUTHERN's financial statements under the heading "Financial Instruments" contained herein on pages II-14 and II-29 through II-30, respectively. Reference is also made to "Management's Discussion and Analysis - Exposure to Market Risks" in Item 7 of ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH contained herein at pages II-53, II-87 through II-88, II-124, II-155 and II-187, respectively. II-2
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO 2001 FINANCIAL STATEMENTS Page The Southern Company and Subsidiary Companies: Report of Independent Public Accountants................................................................................ II-7 Consolidated Statements of Income for the Years Ended December 31, 2001, 2000 and 1999.................................. II-19 Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999.............................. II-20 Consolidated Balance Sheets at December 31, 2001 and 2000............................................................... II-21 Consolidated Statements of Capitalization at December 31, 2001 and 2000................................................. II-23 Consolidated Statements of Common Stockholders' Equity for the Years Ended December 31, 2001, 2000 and 1999..................................................................................... II-25 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2001, 2000 and 1999..................................................................................... II-25 Notes to Financial Statements........................................................................................... II-26 ALABAMA: Report of Independent Public Accountants .............................................................................. II-47 Statements of Income for the Years Ended December 31, 2001, 2000 and 1999............................................... II-58 Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999........................................... II-59 Balance Sheets at December 31, 2001 and 2000 ........................................................................... II-60 Statements of Capitalization at December 31, 2001 and 2000 ............................................................. II-62 Statements of Common Stockholder's Equity for the Years Ended December 31, 2001, 2000 and 1999.................................................................................... II-64 Notes to Financial Statements........................................................................................... II-65 GEORGIA: Report of Independent Public Accountants................................................................................ II-82 Statements of Income for the Years Ended December 31, 2001, 2000 and 1999............................................... II-93 Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999........................................... II-94 Balance Sheets at December 31, 2001 and 2000............................................................................ II-95 Statements of Capitalization at December 31, 2001 and 2000 ............................................................. II-97 Statements of Comprehensive Income for the Years Ended December 31, 2001, 2000 and 1999.................................................................................... II-99 Statements of Common Stockholder's Equity for the Years Ended December 31, 2001, 2000 and 1999.................................................................................... II-99 Notes to Financial Statements........................................................................................... II-100 GULF: Report of Independent Public Accountants................................................................................ II-118 Statements of Income for the Years Ended December 31, 2001, 2000 and 1999............................................... II-129 Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999........................................... II-130 Balance Sheets at December 31, 2001 and 2000 ........................................................................... II-131 Statements of Capitalization at December 31, 2001 and 2000 ............................................................. II-133 Statements of Common Stockholder's Equity for the Years Ended December 31, 2001, 2000 and 1999.................................................................................... II-134 Notes to Financial Statements........................................................................................... II-135 II-3 Page MISSISSIPPI: Report of Independent Public Accountants................................................................................ II-149 Statements of Income for the Years Ended December 31, 2001, 2000 and 1999............................................... II-160 Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999........................................... II-161 Balance Sheets at December 31, 2001 and 2000 ........................................................................... II-162 Statements of Capitalization at December 31, 2001 and 2000 ............................................................. II-164 Statements of Common Stockholder's Equity for the Years Ended December 31, 2001, 2000 and 1999.................................................................................... II-166 Notes to Financial Statements........................................................................................... II-167 SAVANNAH: Report of Independent Public Accountants................................................................................ II-182 Statements of Income for the Years Ended December 31, 2001, 2000 and 1999............................................... II-192 Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999........................................... II-193 Balance Sheets at December 31, 2001 and 2000 ........................................................................... II-194 Statements of Capitalization at December 31, 2001 and 2000 ............................................................. II-196 Statements of Common Stockholder's Equity for the Years Ended December 31, 2001, 2000 and 1999.................................................................................... II-197 Notes to Financial Statements........................................................................................... II-198
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. II-4 SOUTHERN COMPANY FINANCIAL SECTION II-5 MANAGEMENT'S REPORT Southern Company and Subsidiary Companies 2001 Annual Report The management of Southern Company has prepared -- and is responsible for -- the consolidated financial statements and related information included in this report. These statements were prepared in accordance with accounting principles generally accepted in the United States and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that the accounting records reflect only authorized transactions of the company. Limitations exist in any system of internal controls, however, based on a recognition that the cost of the system should not exceed its benefits. The company believes its system of internal accounting controls maintains an appropriate cost/benefit relationship. The company's system of internal accounting controls is evaluated on an ongoing basis by the company's internal audit staff. The company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, composed of four independent directors, provides a broad overview of management's financial reporting and control functions. Periodically, this committee meets with management, the internal auditors, and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal controls, and financial reporting matters. The internal auditors and independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the company's operations are conducted according to a high standard of business ethics. In management's opinion, the consolidated financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of Southern Company and its subsidiary companies in conformity with accounting principles generally accepted in the United States. /s/H. Allen Franklin H. Allen Franklin Chairman, President, and Chief Executive Officer /s/Gale E. Klappa Gale E. Klappa Executive Vice President, Chief Financial Officer, and Treasurer February 13, 2002 II-6 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Southern Company: We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of Southern Company (a Delaware corporation) and subsidiary companies as of December 31, 2001 and 2000, and the related consolidated statements of income, comprehensive income, common stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements (pages II-19 through II-42) referred to above present fairly, in all material respects, the financial position of Southern Company and subsidiary companies as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. As explained in Note 1 to the financial statements, effective January 1, 2001, Southern Company changed its method of accounting for derivative instruments and hedging activities. /s/Arthur Andersen LLP Atlanta, Georgia February 13, 2002 II-7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Southern Company and Subsidiary Companies 2001 Annual Report RESULTS OF OPERATIONS - --------------------- OVERVIEW OF CONSOLIDATED EARNINGS AND DIVIDENDS Earnings Southern Company's basic earnings per share from continuing operations increased 6.6 percent in 2001. This increase was achieved by cost containment and lower interest rates despite the mild temperatures and the economic downturn. Basic earnings per share from continuing operations were $1.62 in 2001 compared with $1.52 in 2000. Dilution -- which factors in additional shares related to stock options -- decreased earnings per share by 1 cent in 2001 and had no impact in 2000. In April 2000, Southern Company announced an initial public offering of up to 19.9 percent of Mirant Corporation -- formerly Southern Energy, Inc. -- and intentions to spin off its remaining ownership of 272 million Mirant shares. On April 2, 2001, the tax-free distribution of Mirant shares was completed at a ratio of approximately 0.4 for every share of Southern Company common stock. As a result of the spin off, Southern Company's financial statements and related information reflect Mirant as discontinued operations. Therefore, the focus of Management's Discussion and Analysis is on Southern Company's continuing operations. The following chart shows earnings from continuing and discontinued operations: Consolidated Basic Earnings Net Income Per Share -------------- ----------------- 2001 2000 2001 2000 -------------- ----------------- (in millions) Earnings from -- Continuing operations $1,120 $ 994 $1.62 $1.52 Discontinued operations 142 319 0.21 0.49 - ---------------------------------------------------------------- Total earnings $1,262 $1,313 $1.83 $2.01 ================================================================ Dividends Southern Company has paid dividends on its common stock since 1948. Dividends paid on common stock in 2001 and 2000 were $1.34 per share or 331/2 cents per quarter. In January 2002, Southern Company declared a quarterly dividend of 331/2 cents per share. This is the 217th consecutive quarter that Southern Company has paid a dividend equal to or higher than the previous quarter. Our dividend payout ratio goal is 75 percent. SOUTHERN COMPANY BUSINESS ACTIVITIES Discussion of the results of continuing operations is focused on Southern Company's primary business of electricity sales by the operating companies -- Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Savannah Electric -- and Southern Power. Southern Power is a new electric wholesale generation subsidiary with market-based rates. The remaining portion of Southern Company's other business activities include telecommunications, energy products and services, leveraged leasing activities, and as the parent holding company. The net impact of these other business activities on the consolidated results of operations is not significant. See Note 12 to the financial statements for additional information. Electricity Business Southern Company's electric utilities generate and sell electricity to retail and wholesale customers in the Southeast. A condensed income statement for these six companies is as follows: Increase (Decrease) Amount From Prior Year ------- ---------------------- 2001 2001 2000 - ----------------------------------------------------------------- (in millions) Operating revenues $9,906 $ 46 $735 - ----------------------------------------------------------------- Fuel 2,577 13 236 Purchased power 718 41 268 Other operation and maintenance 2,489 19 40 Depreciation and amortization 1,144 9 89 Taxes other than income taxes 533 1 11 - ----------------------------------------------------------------- Total operating expenses 7,461 83 644 - ----------------------------------------------------------------- Operating income 2,445 (37) 91 Other income, net 15 51 2 - ----------------------------------------------------------------- Earnings before interest and taxes 2,460 14 93 Interest expenses and other, net 609 (25) 29 Income taxes 702 (1) 28 - ----------------------------------------------------------------- Net income $1,149 $ 40 $ 36 ================================================================= II-8 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 2001 Annual Report Revenues Operating revenues for the core business of selling electricity in 2001 and the amount of change from the prior year are as follows: Increase (Decrease) Amount From Prior Year ------ ---------------------- 2001 2001 2000 - ---------------------------------------------------------------- (in millions) Retail -- Base revenues $5,921 $ (93) $174 Fuel cost recovery and other 2,519 (67) 336 - ---------------------------------------------------------------- Total retail 8,440 (160) 510 - ---------------------------------------------------------------- Sales for resale -- Within service area 338 (39) 27 Outside service area 836 236 127 - ---------------------------------------------------------------- Total sales for resale 1,174 197 154 Other operating revenues 292 9 71 - ---------------------------------------------------------------- Operating revenues $9,906 $ 46 $735 ================================================================ Percent change 0.5% 8.1% - ---------------------------------------------------------------- Base revenues declined by $93 million in 2001 because of mild temperatures and the economic downturn. Total base revenues of $6.0 billion in 2000 increased as a result of continued customer growth in the service area and the positive impact of weather on energy sales. Electric rates -- for the operating companies -- include provisions to adjust billings for fluctuations in fuel costs, the energy component of purchased power costs, and certain other costs. Under these fuel cost recovery provisions, fuel revenues generally equal fuel expenses -- including the fuel component of purchased energy -- and do not affect net income. However, cash flow is affected by the economic loss from untimely recovery of these receivables. Sales for resale revenues within the service area were $338 million in 2001, down 10.2 percent from the prior year. This sharp decline resulted primarily from the mild weather experienced in the Southeast during 2001, which significantly reduced energy requirements from these customers. Sales for resale within the service area for 2000 were up from the prior year as a result of additional demand for electricity during the hot summer. Revenues from energy sales for resale outside the service area have increased sharply the past two years with a 39 percent and 27 percent increase in 2001 and 2000, respectively. This growth was primarily driven by new contracts. As Southern Company increases its competitive wholesale generation business, sales for resale outside the service area should reflect steady increases over the near term. Recent wholesale contracts have shorter contract periods, and many are market priced compared with the traditional cost-based contracts entered into in the 1980s. Those long-term cost-based contracts are principally unit power sales to Florida utilities. Revenues from long-term unit power contracts have both capacity and energy components. Capacity revenues reflect the recovery of fixed costs and a return on investment under the contracts. Energy is generally sold at variable cost. The capacity and energy components of the unit power contracts were as follows: 2001 2000 1999 - -------------------------------------------------------------- (in millions) Capacity $170 $177 $174 Energy 201 178 157 - -------------------------------------------------------------- Total $371 $355 $331 ============================================================== Capacity revenues in 2001 and 2000 varied slightly compared with the prior year as a result of adjustments and true-ups related to contractual pricing. No significant declines in the amount of capacity are scheduled until the termination of the contracts in 2010. Energy Sales Changes in revenues are influenced heavily by the amount of energy sold each year. Kilowatt-hour sales for 2001 and the percent change by year were as follows: Amount Percent Change (billions of -------- -------------------------- kilowatt-hours) 2001 2001 2000 1999 - ------------------------------ --------------------------- Residential 44.5 (3.6)% 6.5% (0.2)% Commercial 46.9 1.5 6.6 4.0 Industrial 52.9 (6.8) 1.0 1.6 Other 1.0 0.7 2.7 1.6 Total retail 145.3 (3.2) 4.3 1.7 ----- Sales for resale -- Within service area 9.4 (2.0) 1.5 (4.1) Outside service area 21.4 24.4 33.0 (0.4) ------ Total 176.1 (0.5) 6.4 1.2 ============================================================== II-9 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 2001 Annual Report Although the number of residential customers increased 43,000 in 2001, retail energy sales registered a 3.2 percent decline. This is the first decrease since 1982. Reduced retail sales in 2001 were driven by extremely mild weather and the sluggish economy, which severely impacted industrial sales. In 2000, the rate of growth in total retail energy sales was very strong. Residential energy sales reflected a substantial increase as a result of the hotter-than-normal summer weather and the increase in customers served. Also in 2000, commercial sales continued to reflect the strong economy in the Southeast. Energy sales to retail customers are projected to increase at an average annual rate of 1.8 percent during the period 2002 through 2012. Sales to customers outside the service area under long-term contracts for unit power sales increased 2.7 percent in 2001 and increased 21 percent in 2000. These changes in sales were influenced by weather -- discussed earlier -- and fluctuations in prices for oil and natural gas. These are the primary fuel sources for utilities with which the company has long-term contracts. However, these fluctuations in energy sales under long-term contracts have minimal effects on earnings because the energy is generally sold at variable cost. Expenses In 2001, operating expenses of $7.5 billion increased only $83 million compared with the prior year. The moderate increase reflected flat energy sales and tighter cost containment measures. The costs to produce electricity for the core business in 2001 increased $96 million. However, non-production operation and maintenance declined by $23 million. In 2000, operating expenses of $7.4 billion increased $644 million compared with the prior year. The costs to produce electricity in 2000 increased by $498 million to meet higher energy requirements. Non-production operation and maintenance expenses increased $46 million in 2000. Depreciation and amortization expenses in 2000 increased $89 million, of which $50 million resulted from additional accelerated amortization by Georgia Power. Fuel costs constitute the single largest expense for the six electric utilities. The mix of fuel sources for generation of electricity is determined primarily by system load, the unit cost of fuel consumed, and the availability of hydro and nuclear generating units. The amount and sources of generation and the average cost of fuel per net kilowatt-hour generated -- within the service area -- were as follows: 2001 2000 1999 - --------------------------------------------------------------- Total generation (billions of kilowatt-hours) 174 174 165 Sources of generation (percent) -- Coal 72 78 78 Nuclear 16 16 17 Oil and gas 9 4 3 Hydro 3 2 2 Average cost of fuel per net kilowatt-hour generated (cents) -- 1.56 1.51 1.45 - --------------------------------------------------------------- In 2001, fuel and purchased power costs of $3.3 billion increased $54 million. Continued efforts to control energy costs combined with additional efficient gas-fired generating units helped to hold the increase in fuel expense to $13 million in 2001. Total fuel and purchased power costs increased $504 million in 2000 as a result of 10.6 billion more kilowatt-hours being sold than in 1999. Demand was met with some 2.5 billion additional kilowatt-hours being purchased and using generation with higher unit fuel cost than in 1999. Total interest charges and other financing costs in 2001 decreased $25 million from amounts reported in the previous year. The decline reflected substantially lower short-term interest rates that offset new financing costs. Total interest charges and other financing costs in 2000 increased $29 million reflecting some additional external financing for new generating units. Effects of Inflation The operating companies are subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the company is recovering its costs of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on Southern Company because of the large investment in utility plant with long economic lives. Conventional accounting for historical cost does not recognize this economic loss nor the partially offsetting gain that arises through II-10 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 2001 Annual Report financing facilities with fixed-money obligations such as long-term debt and preferred securities. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. Future Earnings Potential General The results of continuing operations for the past three years are not necessarily indicative of future earnings potential. The level of Southern Company's future earnings depends on numerous factors. The two major factors are the ability of the operating companies to achieve energy sales growth while containing cost in a more competitive environment and the profitability of the new competitive market-based wholesale generating facilities being added. Future earnings for the electricity business in the near term will depend upon growth in energy sales, which is subject to a number of factors. These factors include weather, competition, new short and long-term contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, and the rate of economic growth in the service area. The operating companies operate as vertically integrated companies providing electricity to customers within the service area of the southeastern United States. Prices for electricity provided to retail customers are set by state public service commissions under cost-based regulatory principles. Retail rates and earnings are reviewed and adjusted periodically within certain limitations based on earned return on equity. See Note 3 to the financial statements for additional information about these and other regulatory matters. In accordance with Financial Accounting Standards Board (FASB) Statement No. 87, Employers' Accounting for Pensions, Southern Company recorded non-cash income of approximately $124 million in 2001. Future pension income is dependent on several factors including trust earnings and changes to the plan. For the operating companies, pension income is a component of the regulated rates and does not have a significant effect on net income. For more information, see Note 2 to the financial statements. Southern Company currently receives tax benefits related to investments in alternative fuel partnerships and leveraged lease agreements for energy generation, distribution, and transportation assets that contribute significantly to the economic results for these projects. Changes in Internal Revenue Service interpretations of existing regulations or challenges to the company's positions could result in reduced availability or changes in the timing of such tax benefits. The net income impact of these investments totaled $52 million, $28 million, and $11 million in 2001, 2000, and 1999, respectively. See Note 1 to the financial statements under "Leveraged Leases" and Note 6 for additional information and related income taxes. Southern Company is involved in various matters being litigated. See Note 3 to the financial statements for information regarding material issues that could possibly affect future earnings. Compliance costs related to current and future environmental laws and regulations could affect earnings if such costs are not fully recovered. The Clean Air Act and other important environmental items are discussed later under "Environmental Matters." Industry Restructuring The electric utility industry in the United States is continuing to evolve as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). The Energy Act allows independent power producers (IPPs) to access a utility's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for a utility's large industrial and commercial customers and sell energy generation to other utilities. Also, electricity sales for resale rates are affected by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. Although the Energy Act does not permit retail customer access, it has been a major catalyst for recent restructuring and consolidations taking place within the utility industry. Numerous federal and state initiatives are in varying stages that promote wholesale and retail competition. Among other things, these initiatives allow customers to choose their electricity provider. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While various restructuring and competition initiatives have been discussed in Alabama, Florida, Georgia, and Mississippi, none have been enacted. Enactment would require numerous issues to be resolved, including significant ones relating to recovery of any stranded investments, full cost recovery of energy produced, and other issues related to the energy crisis that occurred in California. As a result of that crisis, many states have either discontinued or delayed implementation of initiatives involving retail deregulation. II-11 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 2001 Annual Report Continuing to be a low-cost producer could provide opportunities to increase market share and profitability in markets that evolve with changing regulation. Conversely, if Southern Company's electric utilities do not remain low-cost producers and provide quality service, then energy sales growth could be limited, and this could significantly erode earnings. To adapt to a less regulated, more competitive environment, Southern Company continues to evaluate and consider a wide array of potential business strategies. These strategies may include business combinations, acquisitions involving other utility or non-utility businesses or properties, internal restructuring, disposition of certain assets, or some combination thereof. Furthermore, Southern Company may engage in new business ventures that arise from competitive and regulatory changes in the utility industry. Pursuit of any of the above strategies, or any combination thereof, may significantly affect the business operations and financial condition of Southern Company. The Energy Act amended the Public Utility Holding Company Act of 1935 (PUHCA) to allow holding companies to form exempt wholesale generators and foreign utilities to sell power largely free from regulation under PUHCA. These entities are able to own and operate power generating facilities and sell power to affiliates -- under certain restrictions. Southern Company is working to maintain and expand its share of wholesale energy sales in the Southeastern power markets. In January 2001, Southern Company formed a new subsidiary -- Southern Power Company. This subsidiary constructs, owns, and manages wholesale generating assets in the Southeast. Southern Power will be the primary growth engine for Southern Company's competitive wholesale market-based energy business. By the end of 2003, Southern Power plans to have approximately 4,700 megawatts of generating capacity in commercial operation. At December 31, 2001, 800 megawatts are in commercial operation and some 3,900 megawatts of capacity are under construction. In December 1999, the Federal Energy Regulatory Commission (FERC) issued its final rule on Regional Transmission Organizations (RTOs). The order encouraged utilities owning transmission systems to form RTOs on a voluntary basis. Southern Company has submitted a series of status reports informing the FERC of progress toward the development of a Southeastern RTO. In these status reports, Southern Company explained that it is developing a for-profit RTO known as SeTrans with a number of non-jurisdictional cooperative and public power entities. Recently, Entergy Corporation and Cleco Power joined the SeTrans development process. In January 2002, the sponsors of SeTrans held a public meeting to form a Stakeholder Advisory Committee, which will participate in the development of the RTO. Southern Company continues to work with the other sponsors to develop the SeTrans RTO. The creation of SeTrans is not expected to have a material impact on Southern Company's financial statements. The outcome of this matter cannot now be determined. Accounting Policies Critical Policy Southern Company's significant accounting policies are described in Note 1 to the financial statements. The company's most 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 have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. New Accounting Standards Effective January 2001, Southern Company adopted FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Statement No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. This statement requires that certain derivative instruments be recorded in the balance sheet as either an asset or liability measured at fair value and that changes in the fair value be recognized currently in earnings unless specific hedge accounting criteria are met. See Note 1 to the financial statements under "Financial Instruments" for additional information. The impact on net income in 2001 was not material. An additional interpretation of Statement No. 133 will result in a change -- effective April 1, 2002 -- in accounting for certain contracts related to fuel supplies that contain quantity options. These contracts will be accounted for as derivatives and marked to market. However, due to the existence of specific II-12 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 2001 Annual Report cost-based fuel recovery clauses for the operating companies, this change is not expected to have a material impact on net income. In June 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible Assets, which establishes new accounting and reporting standards for acquired goodwill and other intangible assets and supersedes Accounting Principles Board Opinion No. 17. Statement No. 142 addresses how intangible assets that are acquired individually or with a group of other assets -- but not those acquired in a business combination -- should be accounted for upon acquisition and on an ongoing basis. Goodwill and intangible assets that have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. Intangible assets that have finite useful lives will continue to be amortized over their useful lives, which are no longer limited to 40 years. Southern Company adopted Statement No. 142 in January 2002 with no material impact on the financial statements. Also in June 2001, the FASB issued Statement No. 143, Asset Retirement Obligations, which establishes new accounting and reporting standards for legal obligations associated with retiring assets, including decommissioning of nuclear plants. The liability 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. Changes in the liability resulting from the passage of time will be recognized as operating expenses. Statement No. 143 must be adopted by January 1, 2003. Southern Company has not yet quantified the impact of adopting Statement No. 143 on its financial statements. FINANCIAL CONDITION - ------------------ Overview Southern Company's financial condition continues to remain strong. In 2001, most of the operating companies' earnings were at the high end of their respective allowed range of return on equity. Also, earnings from new business activities made a solid contribution. These factors drove consolidated net income from continuing operations to a record $1.12 billion in 2001. The quarterly dividend declared in January 2002 was 331/2 cents per share, or $1.34 on an annual basis. Southern Company is committed to a goal of increasing the dividend over time consistent with growth in earnings. Southern Company's target is to grow earnings per share at an average annual rate of 5 percent or more. The dividend payout ratio goal is 75 percent. Gross property additions to utility plant from continuing operations were $2.6 billion in 2001. The majority of funds needed for gross property additions since 1998 has been provided from operating activities. The Consolidated Statements of Cash Flows provide additional details. Off-Balance Sheet Financing Arrangements At December 31, 2001, Southern Company utilized two separate financing arrangements that are not required to be recorded on the balance sheet. In May 2001, Mississippi Power began the initial 10-year term of an operating lease agreement signed in 1999 with Escatawpa Funding, Limited Partnership, a special purpose entity, to use a combined-cycle generating facility located at Mississippi Power's Plant Daniel. The facility cost approximately $370 million. The lease provides for a residual value guarantee -- approximately 71 percent of the completion cost -- by Mississippi Power that is due upon termination of the lease in certain circumstances. See Note 9 to the financial statements under "Operating Leases" for additional information regarding this lease. Southern Power in 2001 entered into a financial arrangement with Westdeutsche Landesbank Girozentrale (WestLB) that is in effect until September 2002. Under this agreement, Southern Power may assign up to $125 million in vendor contracts for equipment to WestLB. For accounting purposes, WestLB is the owner of the contracts. Southern Power acts as an agent for WestLB and instructs WestLB when to make payments to the vendors. At December 31, 2001, approximately $47 million of such vendor equipment contracts had been assigned to WestLB. Southern Power currently anticipates terminating this arrangement and reacquiring these assets in the first quarter of 2002. 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 contracts that could require collateral - -- but not accelerated payment -- in the event of a credit rating change to below investment grade. These contracts are primarily for physical electricity sales, fixed-price physical gas purchases, and agreements covering interest rate swaps and currency swaps. At December 31, 2001, the maximum potential collateral requirements under the electricity sale contracts were approximately $230 million. Generally, collateral may be provided for by a Southern Company guaranty, a letter of credit, or cash. At December 31, 2001, there were no II-13 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 2001 Annual Report material collateral requirements for the gas purchase contracts or other financial instrument agreements. Market Price Risk Southern Company is exposed to market risks, including changes in interest rates, currency exchange rates, and certain commodity prices. To manage the volatility attributable to these exposures, the company nets the exposures to take advantage of natural offsets and enters into various derivative transactions for the remaining exposures pursuant to the company's policies in areas such as counterparty exposure and hedging practices. Company 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. The company's market risk exposures relative to interest rate changes have not changed materially compared with the previous reporting period. In addition, the company is not aware of any facts or circumstances that would significantly affect such exposures in the near term. If the company sustained a 100 basis point change in interest rates for all variable rate long-term debt, the change would affect annualized interest expense by approximately $22 million at December 31, 2001. Based on the company's overall interest rate exposure at December 31, 2001, including derivative and other interest rate sensitive instruments, a near-term 100 basis point change in interest rates would not materially affect the consolidated financial statements. 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 for the operating companies, they 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, some of the operating companies have implemented fuel-hedging programs at the instruction of their respective public service commissions. Realized gains and losses are recognized in the income statement as incurred. At December 31, 2001, exposure from these activities was not material to the consolidated financial statements. Fair value of changes in energy trading contracts and year-end valuations are as follows: Changes During the Year - --------------------------------------------------------------- Fair Value - --------------------------------------------------------------- (in millions) Contracts beginning of year $ 1.7 Contracts realized or settled (1.4) New contracts - Changes in valuation techniques - Current period changes 1.0 - -------------------------------------------------------------- Contracts end of year $ 1.3 ============================================================== Source of Year-End Valuation Prices - -------------------------------------------------------------- Maturity Total ------------------- Fair Value Year 1 1-3 Years - -------------------------------------------------------------- (in millions) Actively quoted $(3.8) $(5.1) $1.3 External sources 5.1 5.1 - Models and other methods - - - - -------------------------------------------------------------- Contracts end of year $ 1.3 $ - $1.3 ============================================================== For additional information, see Note 1 to the financial statements under "Financial Instruments." Capital Structure During 2001, the operating companies issued $1.2 billion of senior notes. The majority of these proceeds was used to retire long-term debt. The companies continued to reduce financing costs by retiring higher-cost securities. Retirements of bonds and senior notes, including maturities, totaled $1.2 billion in 2001, $298 million during 2000, and $1.2 billion during 1999. Southern Company issued through the company's stock plans 17 million treasury shares of common stock in 2001. Proceeds were $395 million and were primarily used to reduce short-term debt. At December 31, 2001, approximately 2 million treasury shares remain unissued. At the close of 2001, the company's common stock market value was $25.35 per share, compared with book value of $11.44 per share. The market-to-book value ratio was 222 percent at the end of 2001, compared with 212 percent at year-end 2000. II-14 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 2001 Annual Report Capital Requirements for Construction The construction program of Southern Company is budgeted at $2.8 billion for 2002, $2.1 billion for 2003, and $2.3 billion for 2004. Actual construction costs may vary from this estimate because of changes in such factors as: business conditions; environmental regulations; nuclear plant regulations; load projections; the cost and efficiency of construction labor, equipment, and materials; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. Southern Company has approximately 4,500 megawatts of new generating capacity scheduled to be placed in service by 2003. Approximately 3,900 megawatts of additional new capacity will be dedicated to the wholesale market and owned by Southern Power. Significant construction of transmission and distribution facilities and upgrading of generating plants will be continuing. Other Capital Requirements In addition to the funds needed for the construction program, approximately $2.4 billion will be required by the end of 2004 for present improvement fund requirements and maturities of long-term debt. Also, the subsidiaries will continue to retire higher-cost debt and preferred stock and replace these obligations with lower-cost capital if market conditions permit. These capital requirements, lease obligations, and purchase commitments -- discussed in Notes 8 and 9 to the financial statements -- are as follows: 2002 2003 2004 - -------------------------------------------------------------- (in millions) Bonds - First mortgage $ 7 $ - $ - Pollution control 8 - - Notes 410 1,072 890 Leases - Capital 4 4 4 Operating 74 71 70 Purchase commitments - Fuel 2,399 2,185 1,541 Purchased power 97 100 95 - -------------------------------------------------------------- At the beginning of 2002, Southern Company had used $293 million of its available credit arrangements. Credit arrangements are as follows: Expires ---------------------------- Total Unused 2002 2003 & Beyond - -------------------------------------------------------------- (in millions) $5,423 $5,130 $3,658 $1,472 - -------------------------------------------------------------- Environmental Matters On November 3, 1999, the Environmental Protection Agency (EPA) brought a civil action in the U.S. District Court in Georgia against Alabama Power, Georgia Power, and the system service company. The complaint alleges violations of the New Source Review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The EPA concurrently issued to the operating companies a notice of violation related to 10 generating facilities, which includes the five facilities mentioned previously. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation and to add Gulf Power, Mississippi Power, and Savannah Electric as defendants. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities failed to secure necessary permits or install additional pollution control equipment when performing maintenance and construction at coal burning- plants constructed or under construction prior to 1978. The U.S. District Court in Georgia granted Alabama Power's motion to dismiss for lack of jurisdiction in Georgia and granted the system service company's motion to dismiss on the grounds that it neither owned nor operated the generating units involved in the proceedings. The court granted the EPA's motion to add Savannah Electric as a defendant, but it denied the motion to add Gulf Power and Mississippi Power based on lack of jurisdiction over those companies. The court directed the EPA to refile its amended complaint limiting claims to those brought against Georgia Power and Savannah Electric. The EPA refiled those claims as directed by the court. Also, the EPA refiled its claims against Alabama Power in U.S. II-15 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 2001 Annual Report District Court in Alabama. It has not refiled against Gulf Power, Mississippi Power, or the system service company. The Alabama Power, Georgia Power, and Savannah Electric cases have been stayed since the spring of 2001, pending a ruling by the U.S. Court of Appeals for the Eleventh Circuit in the appeal of a very similar New Source Review enforcement action against the Tennessee Valley Authority (TVA). The TVA case involves many of the same legal issues raised by the actions against Alabama Power, Georgia Power, and Savannah Electric. Because the outcome of the TVA case could have a significant adverse impact on Alabama Power and Georgia Power, both companies are parties to that case as well. The U.S. District Court in Alabama has indicated that it will revisit the issue of a continued stay in April 2002. The U.S. District Court in Georgia is currently considering a motion by the EPA to reopen the Georgia case. Georgia Power and Savannah Electric have opposed that motion. Southern Company believes that its operating companies complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. An adverse outcome in any one of these cases could require substantial capital expenditures that cannot be determined at this time and could possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. In November 1990, the Clean Air Act Amendments of 1990 (Clean Air Act) were signed into law. Title IV of the Clean Air Act -- the acid rain compliance provision of the law -- significantly affected Southern Company. Reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants were required in two phases. Phase I compliance began in 1995. Southern Company achieved Phase I compliance at its affected plants by primarily switching to low-sulfur coal and with some equipment upgrades. Construction expenditures for Phase I nitrogen oxide and sulfur dioxide emissions compliance totaled approximately $300 million. Phase II sulfur dioxide compliance was required in 2000. Southern Company used emission allowances and fuel switching to comply with Phase II requirements. Also, equipment to control nitrogen oxide emissions was installed on additional system fossil-fired units as necessary to meet Phase II limits and ozone non-attainment requirements for metropolitan Atlanta through 2000. Compliance for Phase II and initial ozone non-attainment requirements increased total construction expenditures through 2000 by approximately $100 million. Respective state plans to address the one-hour ozone non-attainment standards for the Atlanta and Birmingham areas have been established and must be implemented in May 2003. Seven generating plants in the Atlanta area and two plants in the Birmingham area will be affected. Construction expenditures for compliance with these new rules are currently estimated at approximately $940 million, of which $520 million remains to be spent. A significant portion of costs related to the acid rain and ozone non-attainment provisions of the Clean Air Act is expected to be recovered through existing ratemaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. In July 1997, the EPA revised the national ambient air quality standards for ozone and particulate matter. This revision made the standards significantly more stringent. In the subsequent litigation of these standards, the U.S. Supreme Court found the EPA's implementation program for the new ozone standard unlawful and remanded it to the EPA. In addition, the Federal District of Columbia Circuit Court of Appeals is considering other legal challenges to these standards. A court decision is expected in the spring of 2002. If the standards are eventually upheld, implementation could be required by 2007 to 2010. In September 1998, the EPA issued regional nitrogen oxide reduction rules to the states for implementation. The final rule affects 21 states, including Alabama and Georgia. Compliance is required by May 31, 2004, for most states, including Alabama. For Georgia, further rulemaking was required, and proposed compliance was delayed until May 1, 2005. Additional construction expenditures for compliance with these new rules are currently estimated at approximately $190 million. In December 2000, having completed its utility studies for mercury and other hazardous air pollutants (HAPS), the EPA issued a determination that an emission control program for mercury and, perhaps, other HAPS is warranted. The program is being developed under the Maximum Achievable Control Technology provisions of the Clean Air Act, and the regulations are scheduled to be finalized by the end of 2004 with implementation to take place around 2007. In January 2001, the EPA II-16 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 2001 Annual Report proposed guidance for the determination of Best Available Retrofit Technology (BART) emission controls under the Regional Haze Regulations. Installation of BART controls is expected to take place around 2010. Litigation of the Regional Haze Regulations, including the BART provisions, is ongoing in the Federal District of Columbia Circuit Court of Appeals. A court decision is expected in mid-2002. Implementation of the final state rules for these initiatives could require substantial further reductions in nitrogen oxide and sulfur dioxide and reductions in mercury and other HAPS emissions from fossil-fired generating facilities and other industries in these states. Additional compliance costs and capital expenditures resulting from the implementation of these rules and standards cannot be determined until the results of legal challenges are known, and the states have adopted their final rules. In October 1997, the EPA issued regulations setting forth requirements for Compliance Assurance Monitoring in its state and federal operating permit programs. These regulations were amended by the EPA in March 2001 in response to a court order resolving challenges to the rules brought by environmental groups and the utility industry. Generally, this rule affects the operation and maintenance of electrostatic precipitators and could involve significant additional ongoing expense. The EPA and state environmental regulatory agencies are reviewing and evaluating various other matters including: control strategies to reduce regional haze; limits on pollutant discharges to impaired waters; cooling water intake restrictions; and hazardous waste disposal requirements. The impact of any new standards will depend on the development and implementation of applicable regulations. Southern Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the subsidiaries could incur substantial costs to clean up properties. The subsidiaries conduct studies to determine the extent of any required cleanup and have recognized in their respective financial statements costs to clean up known sites. These costs for Southern Company amounted to $1 million in 2001 and $4 million in both 2000 and 1999. Additional sites may require environmental remediation for which the subsidiaries may be liable for a portion or all required cleanup costs. See Note 3 to the financial statements for information regarding Georgia Power's potentially responsible party status at sites in Georgia. Several major pieces of environmental legislation are periodically considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of Southern Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electromagnetic fields, and other environmental and health concerns could significantly affect Southern Company. The impact of new legislation -- if any -- will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electromagnetic fields. Sources of Capital The amount and timing of additional equity capital to be raised in 2002 -- as well as in subsequent years -- will be contingent on Southern Company's investment opportunities. Equity capital can be provided from any combination of public offerings, private placements, or the company's stock plans. The operating companies plan to obtain the funds required for construction and other purposes from sources similar to those used in the past, which were primarily from internal sources. However, the type and timing of any financings - -- if needed -- will depend on market conditions and regulatory approval. In recent years, financings primarily have utilized unsecured debt and trust preferred securities. Southern Power will use both external funds and equity capital from Southern Company to finance its construction program. To meet short-term cash needs and contingencies, Southern Company had at the beginning of 2002 approximately $354 million of cash and cash equivalents and $5.1 billion of unused credit arrangements with banks. II-17 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 2001 Annual Report Cautionary Statement Regarding Forward-Looking Information Southern Company's 2001 Annual Report includes forward-looking statements in addition to historical information. Forward-looking information includes, among other things, statements concerning the strategic goals for Southern Company's new wholesale business and also Southern Company's goals for dividend payout ratio, earnings per share, and earnings growth. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "could," "should," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential," or "continue" or the negative of these terms or other comparable terminology. Southern Company cautions 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 action against certain Southern Company subsidiaries and the race discrimination litigation 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 effects of, and changes in, economic conditions in the areas in which Southern Company's subsidiaries operate; 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 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 by Southern Company with the Securities and Exchange Commission. II-18
CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 2001, 2000, and 1999 Southern Company and Subsidiary Companies 2001 Annual Report - ------------------------------------------------------------------------------------------------------------------------------ 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------ (in millions) Operating Revenues: Retail sales $ 8,440 $ 8,600 $8,090 Sales for resale 1,174 977 823 Other revenues 541 489 404 - ------------------------------------------------------------------------------------------------------------------------------ Total operating revenues 10,155 10,066 9,317 - ------------------------------------------------------------------------------------------------------------------------------ Operating Expenses: Fuel 2,577 2,564 2,328 Purchased power 718 677 409 Other operations 1,852 1,861 1,838 Maintenance 909 852 829 Depreciation and amortization 1,173 1,171 1,139 Taxes other than income taxes 535 536 523 - ------------------------------------------------------------------------------------------------------------------------------ Total operating expenses 7,764 7,661 7,066 - ------------------------------------------------------------------------------------------------------------------------------ Operating Income 2,391 2,405 2,251 Other Income: Interest income 27 29 30 Other, net 3 (21) (45) - ------------------------------------------------------------------------------------------------------------------------------ Earnings From Continuing Operations Before Interest and Income Taxes 2,421 2,413 2,236 - ------------------------------------------------------------------------------------------------------------------------------ Interest and Other: Interest expense, net 557 643 527 Distributions on capital and preferred securities of subsidiaries 169 169 175 Preferred dividends of subsidiaries 18 19 20 - ------------------------------------------------------------------------------------------------------------------------------ Total interest and other 744 831 722 - ------------------------------------------------------------------------------------------------------------------------------ Earnings From Continuing Operations Before Income Taxes 1,677 1,582 1,514 Income taxes 558 588 599 - ------------------------------------------------------------------------------------------------------------------------------ Earnings From Continuing Operations Before Cumulative Effect of Accounting Change 1,119 994 915 Cumulative effect of accounting change -- less income taxes of less than $1 1 - - - ------------------------------------------------------------------------------------------------------------------------------ Earnings From Continuing Operations 1,120 994 915 Earnings from discontinued operations, net of income taxes of $93, $86, and $127 for 2001, 2000, and 1999, respectively 142 319 361 - ------------------------------------------------------------------------------------------------------------------------------ Consolidated Net Income $ 1,262 $ 1,313 $1,276 ============================================================================================================================== Common Stock Data: Earnings per share from continuing operations - Basic $1.62 $1.52 $1.33 Diluted 1.61 1.52 1.33 Earnings per share including discontinued operations - Basic $1.83 $2.01 $1.86 Diluted 1.82 2.01 1.86 - ------------------------------------------------------------------------------------------------------------------------------ Average number of shares of common stock outstanding - (in millions) Basic 689 653 685 Diluted 694 654 686 - ------------------------------------------------------------------------------------------------------------------------------ Cash dividends paid per share of common stock $1.34 $1.34 $1.34 - ------------------------------------------------------------------------------------------------------------------------------ The accompanying notes are an integral part of these statements.
II-19
CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2001, 2000, and 1999 Southern Company and Subsidiary Companies 2001 Annual Report - ------------------------------------------------------------------------------------------------------------------------------ 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------ (in millions) Operating Activities: Consolidated net income $ 1,262 $ 1,313 $ 1,276 Adjustments to reconcile consolidated net income to net cash provided from operating activities -- Less income from discontinued operations 142 319 361 Depreciation and amortization 1,358 1,337 1,216 Deferred income taxes and investment tax credits (22) 97 10 Other, net (192) 18 118 Changes in certain current assets and liabilities -- Receivables, net 344 (379) (141) Fossil fuel stock (199) 78 (41) Materials and supplies (43) (15) (37) Accounts payable (51) 180 (65) Other 69 66 244 - ------------------------------------------------------------------------------------------------------------------------------ Net cash provided from operating activities of continuing operations 2,384 2,376 2,219 - ------------------------------------------------------------------------------------------------------------------------------ Investing Activities: Gross property additions (2,617) (2,225) (1,881) Other (119) (81) (362) - ------------------------------------------------------------------------------------------------------------------------------ Net cash used for investing activities of continuing operations (2,736) (2,306) (2,243) - ------------------------------------------------------------------------------------------------------------------------------ Financing Activities: Increase (decrease) in notes payable, net 223 (275) 831 Proceeds -- Long-term senior notes 1,242 650 840 Other long-term debt 757 93 629 Capital and preferred securities 30 - 250 Common stock 395 910 24 Redemptions -- First mortgage bonds (616) (211) (890) Other long-term debt (569) (204) (483) Capital and preferred securities - - (100) Preferred stock - - (86) Common stock repurchased - (415) (862) Payment of common stock dividends (922) (873) (921) Other (33) (54) (50) - ------------------------------------------------------------------------------------------------------------------------------ Net cash provided from (used for) financing activities of continuing operations 507 (379) (818) - ------------------------------------------------------------------------------------------------------------------------------ Cash provided from (used for) discontinued operations - 354 684 - ------------------------------------------------------------------------------------------------------------------------------ Net Increase (Decrease) in Cash and Cash Equivalents 155 45 (158) Cash and Cash Equivalents at Beginning of Year 199 154 312 - ------------------------------------------------------------------------------------------------------------------------------ Cash and Cash Equivalents at End of Year $ 354 $ 199 $ 154 ============================================================================================================================== Supplemental Cash Flow Information From Continuing Operations: Cash paid during the year for -- Interest (net of amount capitalized) $624 $802 $684 Income taxes $721 $666 $656 - ------------------------------------------------------------------------------------------------------------------------------ The accompanying notes are an integral part of these statements.
II-20
CONSOLIDATED BALANCE SHEETS At December 31, 2001 and 2000 Southern Company and Subsidiary Companies 2001 Annual Report - ------------------------------------------------------------------------------------------------------------------- Assets 2001 2000 - ------------------------------------------------------------------------------------------------------------------- (in millions) Current Assets: Cash and cash equivalents $ 354 $ 199 Special deposits 23 6 Receivables, less accumulated provisions for uncollectible accounts of $24 in 2001 and $22 in 2000 1,132 1,312 Under recovered retail fuel clause revenue 280 418 Fossil fuel stock, at average cost 394 195 Materials and supplies, at average cost 550 507 Other 223 188 - ------------------------------------------------------------------------------------------------------------------- Total current assets 2,956 2,825 - ------------------------------------------------------------------------------------------------------------------- Property, Plant, and Equipment: In service 35,813 34,188 Less accumulated depreciation 15,020 14,350 - ------------------------------------------------------------------------------------------------------------------- 20,793 19,838 Nuclear fuel, at amortized cost 202 215 Construction work in progress 2,089 1,569 - ------------------------------------------------------------------------------------------------------------------- Total property, plant, and equipment 23,084 21,622 - ------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Nuclear decommissioning trusts, at fair value 682 690 Net assets of discontinued operations - 3,320 Leveraged leases 655 596 Other 193 161 - ------------------------------------------------------------------------------------------------------------------- Total other property and investments 1,530 4,767 - ------------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes 924 957 Prepaid pension costs 547 398 Debt expense, being amortized 103 99 Premium on reacquired debt, being amortized 280 280 Other 400 312 - ------------------------------------------------------------------------------------------------------------------- Total deferred charges and other assets 2,254 2,046 - ------------------------------------------------------------------------------------------------------------------- Total Assets $29,824 $31,260 =================================================================================================================== The accompanying notes are an integral part of these balance sheets.
II-21
CONSOLIDATED BALANCE SHEETS (continued) At December 31, 2001 and 2000 Southern Company and Subsidiary Companies 2001 Annual Report - ----------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity 2001 2000 - ----------------------------------------------------------------------------------------------------------------- (in millions) Current Liabilities: Securities due within one year $ 429 $ 67 Notes payable 1,902 1,680 Accounts payable 847 869 Customer deposits 153 140 Taxes accrued -- Income taxes 160 88 Other 193 208 Interest accrued 118 121 Vacation pay accrued 125 119 Other 445 426 - ----------------------------------------------------------------------------------------------------------------- Total current liabilities 4,372 3,718 - ----------------------------------------------------------------------------------------------------------------- Long-term debt (See accompanying statements) 8,297 7,843 - ----------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 4,088 4,074 Deferred credits related to income taxes 500 551 Accumulated deferred investment tax credits 634 664 Employee benefits provisions 450 401 Prepaid capacity revenues 41 58 Other 814 647 - ---------------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 6,527 6,395 - ---------------------------------------------------------------------------------------------------------------- Company or subsidiary obligated mandatorily redeemable capital and preferred securities (See accompanying statements) 2,276 2,246 - ---------------------------------------------------------------------------------------------------------------- Cumulative preferred stock of subsidiaries (See accompanying statements) 368 368 - ---------------------------------------------------------------------------------------------------------------- Common stockholders' equity (See accompanying statements) 7,984 10,690 - ---------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholders' Equity $29,824 $31,260 ================================================================================================================ Commitments and Contingent Matters (Notes 1, 2, 3, 5, 8, 9, and 10) - ---------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these balance sheets.
II-22
CONSOLIDATED SATEEMENTS OF CAPITALIZATION At December 31, 2001 and 2000 Southern Company and Subsidiary Companies 2001 Annual Report - ---------------------------------------------------------------------------------------------------------------------------- 2001 2000 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------- (in millions) (percent of total) Long-Term Debt of Subsidiaries: First mortgage bonds -- Maturity Interest Rates -------- -------------- 2003 6.13% to 6.63% $ - $ 325 2004 6.60% - 35 2005 6.07% 2 10 2006 6.50% to 6.90% 45 45 2007 through 2011 6.88% - 50 2021 through 2025 6.88% to 9.00% 437 635 2026 through 2030 6.88% 30 30 - ---------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 514 1,130 - ---------------------------------------------------------------------------------------------------------------------------- Long-term senior notes payable -- 4.69% to 9.75% due 2002-2005 1,834 766 5.38% to 8.58% due 2006-2009 595 744 6.10% to 7.63% due 2010-2017 305 170 6.38% to 8.12% due 2018-2038 788 793 6.63% to 7.13% due 2039-2048 1,029 1,029 Adjustable rates (1.98% to 3.44% at 1/1/02) due 2002-2005 1,078 734 - ---------------------------------------------------------------------------------------------------------------------------- Total long-term senior notes payable 5,629 4,236 - ---------------------------------------------------------------------------------------------------------------------------- Other long-term debt -- Pollution control revenue bonds -- Collateralized: 5.00% to 6.75% due 2005-2026 168 539 Variable rates (1.61% to 1.95% at 1/1/02) due 2015-2025 90 90 Non-collateralized: 4.20% to 6.75% due 2015-2034 726 406 Variable rates (1.75% to 2.05% at 1/1/02) due 2011-2037 1,566 1,475 - ---------------------------------------------------------------------------------------------------------------------------- Total other long-term debt 2,550 2,510 - ---------------------------------------------------------------------------------------------------------------------------- Capitalized lease obligations 92 95 - ---------------------------------------------------------------------------------------------------------------------------- Unamortized debt (discount), net (59) (61) - ---------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $443 million) 8,726 7,910 Less amount due within one year 429 67 - ---------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year 8,297 7,843 43.9% 37.1% - ----------------------------------------------------------------------------------------------------------------------------
II-23
CONSOLIDATED STATEMENTS OF CAPITALIZATION (continued) At December 31, 2001 and 2000 Southern Company and Subsidiary Companies 2001 Annual Report - --------------------------------------------------------------------------------------------------------------------------- 2001 2000 2001 2000 - --------------------------------------------------------------------------------------------------------------------------- (in millions) (percent of total) Company or Subsidiary Obligated Mandatorily Redeemable Capital and Preferred Securities: $25 liquidation value -- 6.85% to 7.00% 435 435 7.13% to 7.38% 327 297 7.60% to 7.63% 415 415 7.75% 649 649 8.14% to 8.19% 400 400 Auction rate (3.60% at 1/1/02) 50 50 - --------------------------------------------------------------------------------------------------------------------------- Total company or subsidiary obligated mandatorily redeemable capital and preferred securities (annual distribution requirement -- $170 million) 2,276 2,246 12.0 10.6 - --------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock of Subsidiaries: $100 par or stated value -- 4.20% to 7.00% 98 98 $25 par or stated value -- 5.20% to 5.83% 200 200 Adjustable and auction rates -- at 1/1/02: 3.10% to 3.56% 70 70 - --------------------------------------------------------------------------------------------------------------------------- Total cumulative preferred stock of subsidiaries (annual dividend requirement -- $18 million) 368 368 1.9 1.7 - --------------------------------------------------------------------------------------------------------------------------- Common Stockholders' Equity: Common stock, par value $5 per share -- Authorized -- 1 billion shares Issued -- 2001: 701 million shares -- 2000: 701 million shares Treasury -- 2001: 2 million shares -- 2000: 19 million shares Par value 3,503 3,503 Paid-in capital 14 3,153 Treasury, at cost (57) (545) Retained earnings 4,517 4,672 Accumulated other comprehensive income -- From continuing operations 7 - From discontinued operations - (93) - --------------------------------------------------------------------------------------------------------------------------- Total common stockholders' equity 7,984 10,690 42.2 50.6 - --------------------------------------------------------------------------------------------------------------------------- Total Capitalization $18,925 $21,147 100.0% 100.0% =========================================================================================================================== The accompanying notes are an integral part of these statements.
II-24
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY For the Years Ended December 31, 2001, 2000, and 1999 Southern Company and Subsidiary Companies 2001 Annual Report Accumulated Other Comprehensive Common Stock Income From -------------------------- ----------------------------- Par Paid-In Retained Continuing Discontinued Value Capital Treasury Earnings Operations Operations Total - ------------------------------------------------------------------------------------------------------------------------------- (in millions) Balance at December 31, 1998 $3,499 $2,463 $ (58) $3,878 $ - $ 15 $ 9,797 Net income - - - 1,276 - - 1,276 Other comprehensive income - - - - - (107) (107) Stock issued 4 17 1 - - - 22 Stock repurchased, at cost - - (861) - - - (861) Cash dividends - - - (921) - - (921) Other - - (1) (1) - - (2) - ------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 3,503 2,480 (919) 4,232 - (92) 9,204 Net income - - - 1,313 - - 1,313 Other comprehensive income - - - - - (1) (1) Stock issued - 121 789 - - - 910 Stock repurchased, at cost - - (414) - - - (414) Cash dividends - - - (873) - - (873) Other - 552 (1) - - - 551 - ------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 3,503 3,153 (545) 4,672 - (93) 10,690 Net income - - - 1,262 - - 1,262 Other comprehensive income - - - - 7 93 100 Stock issued - - 488 (93) - - 395 Mirant spin off distribution - (3,168) - (391) - - (3,559) Cash dividends - - - (922) - - (922) Other - 29 - (11) - - 18 - ------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2001 $3,503 $ 14 $ (57) $4,517 $ 7 $ - $ 7,984 ===============================================================================================================================
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Years Ended December 31, 2001, 2000, and 1999 Southern Company and Subsidiary Companies 2001 Annual Report - -------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 - -------------------------------------------------------------------------------------------------------------------------- (in millions) Consolidated Net Income $1,262 $1,313 $1,276 - -------------------------------------------------------------------------------------------------------------------------- Other comprehensive income -- continuing operations: Changes in fair value of qualifying cash flow hedges, net of tax of $4 7 - - - -------------------------------------------------------------------------------------------------------------------------- Total other comprehensive income -- continuing operations 7 - - - -------------------------------------------------------------------------------------------------------------------------- Other comprehensive income -- discontinued operations: Cumulative effect of accounting change for qualifying hedges, net of tax of $(121) (249) - - Changes in fair value of qualifying hedges, net of tax of $(51) (104) - - Less: Reclassification adjustment for amounts included in net income, net of tax of $29 60 - - Foreign currency translation adjustments, net of tax of $(22), $(1), and $(58) for the years 2001, 2000, and 1999, respectively (22) (1) (107) - -------------------------------------------------------------------------------------------------------------------------- Total other comprehensive income -- discontinued operations (315) (1) (107) - -------------------------------------------------------------------------------------------------------------------------- Consolidated Comprehensive Income $ 954 $1,312 $1,169 ========================================================================================================================== The accompanying notes are an integral part of these statements.
II-25 NOTES TO FINANCIAL STATEMENTS Southern Company and Subsidiary Companies 2001 Annual Report 1. Summary of Significant Accounting Policies General Southern Company is the parent company of five operating companies, a system service company, Southern Communications Services (Southern LINC), Southern Nuclear Operating Company (Southern Nuclear), Southern Power Company (Southern Power), and other direct and indirect subsidiaries. The operating companies -- Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Savannah Electric -- provide electric service in four Southeastern states. Contracts among the operating companies -- related to jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power -- are regulated by the Federal Energy Regulatory Commission (FERC) and/or the Securities and Exchange Commission. The system service company provides, at cost, specialized services to Southern Company and subsidiary companies. Southern LINC provides digital wireless communications services to the operating companies and also markets these services to the public within the Southeast. Southern Nuclear provides services to Southern Company's nuclear power plants. Southern Power was established in 2001 to construct, own, and manage Southern Company's competitive generation assets and sell electricity at market-based rates in the wholesale market. On April 2, 2001, the spin off of Mirant Corporation (Mirant) was completed. As a result of the spin off, Southern Company's financial statements and related information reflect Mirant as discontinued operations. For additional information, see Note 11. The financial statements reflect Southern Company's investments in the subsidiaries on a consolidated basis. All material intercompany items have been eliminated in consolidation. Certain prior years' data presented in the consolidated financial statements have been reclassified to conform with the current year presentation. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both the company and its subsidiaries are subject to the regulatory provisions of the PUHCA. The operating companies also are subject to regulation by the FERC and their respective state public service commissions. The companies follow accounting principles generally accepted in the United States and comply with the accounting policies and practices prescribed by their respective commissions. The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires the use of estimates, and the actual results may differ from those estimates. Regulatory Assets and Liabilities The operating companies are subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are expected to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Consolidated Balance Sheets at December 31 relate to the following: 2001 2000 - --------------------------------------------------------------- (in millions) Deferred income tax charges $ 924 $ 957 Premium on reacquired debt 280 280 Department of Energy assessments 39 46 Vacation pay 95 92 Postretirement benefits 28 30 Deferred income tax credits (500) (551) Accelerated amortization (311) (220) Storm damage reserves (34) (34) Other, net 125 121 - --------------------------------------------------------------- Total $ 646 $ 721 =============================================================== In the event that a portion of a company's operations is no longer subject to the provisions of FASB Statement No. 71, the company would be required to write off related regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the company would be required to determine if any impairment to other assets exists, including plant, and write down the assets, if impaired, to their fair value. Revenues and Fuel Costs Revenues are recognized as services are rendered. Unbilled revenues are accrued at the end of each fiscal period. Fuel costs are expensed as the fuel is used. Electric rates for the operating companies include provisions to adjust billings for fluctuations in fuel costs, the energy component of purchased power costs, and certain other costs. Revenues are adjusted for differences between II-26 NOTES (continued) Southern Company and Subsidiary Companies 2001 Annual Report recoverable fuel costs and amounts actually recovered in current regulated rates. Southern Company has a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. For all periods presented, uncollectible accounts continued to average less than 1 percent of revenues. Fuel expense includes the amortization of the cost of nuclear fuel and a charge, based on nuclear generation, for the permanent disposal of spent nuclear fuel. Total charges for nuclear fuel included in fuel expense amounted to $133 million in 2001, $136 million in 2000, and $137 million in 1999. Alabama Power and Georgia Power have contracts with the U.S. Department of Energy (DOE) that provide for the permanent disposal of spent nuclear fuel. The DOE failed to begin disposing of spent nuclear fuel in January 1998 as required by the contracts, and the companies are pursuing legal remedies against the government for breach of contract. Sufficient pool storage capacity for spent fuel is available at Plant Farley to maintain full-core discharge capability until the refueling outages scheduled for 2006 and 2008 for units 1 and 2, respectively. Sufficient pool storage capacity for spent fuel is available at Plant Vogtle to maintain full-core discharge capability for both units into 2014. At Plant Hatch, an on-site dry storage facility became operational in 2000. Sufficient dry storage capacity is believed to be available to continue dry storage operations at Plant Hatch through the life of the plant. Procurement of on-site dry storage capacity at Plant Farley is in progress, with the intent to place the capacity in operation in 2005. Procurement of on-site dry storage capacity at Plant Vogtle will begin in sufficient time to maintain pool full-core discharge capability. Also, the Energy Policy Act of 1992 required the establishment of a Uranium Enrichment Decontamination and Decommissioning Fund, which is funded in part by a special assessment on utilities with nuclear plants. This assessment is being paid over a 15-year period, which began in 1993. This fund will be used by the DOE for the decontamination and decommissioning of its nuclear fuel enrichment facilities. The law provides that utilities will recover these payments in the same manner as any other fuel expense. Alabama Power and Georgia Power -- based on its ownership interests -- estimate their respective remaining liability at December 31, 2001, under this law to be approximately $21 million and $16 million. These obligations are recorded in the Consolidated Balance Sheets. Depreciation and Nuclear Decommissioning Depreciation of the original cost of plant in service is provided primarily by using composite straight-line rates, which approximated 3.4 percent a year in 2001, 2000, and 1999. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its original cost -- together with the cost of removal, less salvage -- is charged to accumulated depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Depreciation expense includes an amount for the expected costs of decommissioning nuclear facilities and removal of other facilities. Georgia Power recorded accelerated amortization and depreciation amounting to $91 million in 2001, $135 million in 2000, and $85 million in 1999. See Note 3 under "Georgia Power Retail Rate Orders" for additional information. The Nuclear Regulatory Commission (NRC) requires all licensees operating commercial nuclear power reactors to establish a plan for providing, with reasonable assurance, funds for decommissioning. Alabama Power and Georgia Power have external trust funds to comply with the NRC's regulations. Amounts previously recorded in internal reserves are being transferred into the external trust funds over periods approved by the respective state public service commissions. The NRC's minimum external funding requirements are based on a generic estimate of the cost to decommission the radioactive portions of a nuclear unit based on the size and type of reactor. Alabama Power and Georgia Power have filed plans with the NRC to ensure that -- over time -- the deposits and earnings of the external trust funds will provide the minimum funding amounts prescribed by the NRC. Site study cost is the estimate to decommission a specific facility as of the site study year, and ultimate cost is the estimate to decommission a specific facility as of its retirement date. The estimated costs of decommissioning -- both site study costs and ultimate costs -- based on the most current study as II-27 NOTES (continued) Southern Company and Subsidiary Companies 2001 Annual Report of December 31, 2001, for Alabama Power's Plant Farley and Georgia Power's ownership interests in plants Hatch and Vogtle were as follows: Plant Plant Plant Farley Hatch Vogtle - ---------------------------------------------------------------- Site study basis (year) 1998 2000 2000 Decommissioning periods: Beginning year 2017 2014 2027 Completion year 2031 2042 2045 - ---------------------------------------------------------------- (in millions) Site study costs: Radiated structures $629 $486 $420 Non-radiated structures 60 37 48 - ---------------------------------------------------------------- Total $689 $523 $468 ================================================================ (in millions) Ultimate costs: Radiated structures $1,868 $1,004 $1,468 Non-radiated structures 178 79 166 - ---------------------------------------------------------------- Total $2,046 $1,083 $1,634 ================================================================ Significant assumptions: Inflation rate 4.5% 4.7% 4.7% Trust earning rate 7.0 6.5 6.5 - ---------------------------------------------------------------- The decommissioning cost estimates are based on prompt dismantlement and removal of the plant from service. The actual decommissioning costs may vary from the above estimates because of changes in the assumed date of decommissioning, changes in NRC requirements, or changes in the assumptions used in making these estimates. Annual provisions for nuclear decommissioning are based on an annuity method as approved by the respective state public service commissions. The amount expensed in 2001 and fund balances were as follows: Plant Plant Plant Farley Hatch Vogtle - ----------------------------------------------------------------- (in millions) Amount expensed in 2001 $ 18 $ 20 $ 9 Accumulated provisions: External trust funds, at fair value $318 $229 $135 Internal reserves 36 20 12 - ----------------------------------------------------------------- Total $354 $249 $147 ================================================================= Alabama Power's decommissioning costs for ratemaking are based on the site study. Effective January 1, 2002, the Georgia Public Service Commission (GPSC) decreased Georgia Power's annual provision for decommissioning expenses to $8 million. This amount is based on the NRC generic estimate to decommission the radioactive portion of the facilities as of 2000. The estimates are $383 million and $282 million for plants Hatch and Vogtle, respectively. The ultimate costs associated with the 2000 NRC minimum funding requirements are $823 million and $1.03 billion for plants Hatch and Vogtle, respectively. Alabama Power and Georgia Power expect their respective state public service commissions to periodically review and adjust, if necessary, the amounts collected in rates for the anticipated cost of decommissioning. In January 2002, Georgia Power received NRC approval for a 20-year extension of the license at Plant Hatch, which would permit the operation of units 1 and 2 until 2034 and 2038, respectively. The decommissioning costs disclosed above do not reflect this extension. Income Taxes Southern Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. Property, Plant, and Equipment Property, plant, and equipment is stated at original cost less regulatory disallowances and impairments. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and the estimated cost of funds used during construction. The cost of funds capitalized was $67 million in 2001, $71 million in 2000, and $36 million in 1999. The cost of maintenance, repairs, and replacement of minor items of property is charged to maintenance expense as incurred or performed. The cost of replacements of property -- exclusive of minor items of property -- is capitalized. Leveraged Leases Southern Company has several leveraged lease agreements -- ranging up to 30 years -- that relate to international energy generation, distribution, and transportation assets. Southern Company receives federal income tax deductions for depreciation and amortization and for interest on long-term debt related to these investments. II-28 NOTES (continued) Southern Company and Subsidiary Companies 2001 Annual Report Southern Company's net investment in leveraged leases consists of the following at December 31: 2001 2000 - ------------------------------------------------------------------ (in millions) Net rentals receivable $1,430 $1,430 Unearned income (775) (834) - ------------------------------------------------------------------ Investment in leveraged leases 655 596 Deferred taxes arising from leveraged leases (193) (128) - ------------------------------------------------------------------ Net investment in leveraged leases $ 462 $ 468 ================================================================== A summary of the components of income from leveraged leases is as follows: 2001 2000 1999 - ------------------------------------------------------------------ (in millions) Pretax leveraged lease income $59 $61 $28 Income tax expense 21 21 10 - ------------------------------------------------------------------ Income from leveraged leases $38 $40 $18 ================================================================== Impairment of Long-Lived Assets and Intangibles Southern Company evaluates long-lived assets for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. The determination of whether an impairment has occurred is based on an estimate of undiscounted future cash flows attributable to the assets, as compared with the carrying value of the assets. If an impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value of the assets and recording a provision for loss if the carrying value is greater than the fair value. For assets identified as held for sale, the carrying value is compared to the estimated fair value less the cost to sell in order to determine if an impairment provision is required. Until the assets are disposed of, their estimated fair value is reevaluated when circumstances or events change. Cash and Cash Equivalents For purposes of the consolidated financial statements, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. Materials and Supplies Generally, materials and supplies include the costs of transmission, distribution, and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when installed. Comprehensive Income Comprehensive income -- consisting of net income and changes in the fair value of marketable securities and qualifying cash flow hedges, net of income taxes -- is presented in the consolidated financial statements. Also, comprehensive income from discontinued operations includes foreign currency translation adjustments, net of income taxes. The objective of comprehensive income is to report a measure of all changes in common stock equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners. Financial Instruments Effective January 2001, Southern Company adopted FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. The impact on net income was immaterial. Southern Company uses derivative financial instruments to hedge exposures to fluctuations in interest rates, foreign currency exchange rates, and certain commodity prices. Gains and losses on qualifying hedges are deferred and recognized either in income or as an adjustment to the carrying amount of the hedged item when the transaction occurs. At December 31, 2001, Southern Company had $450 million notional amount of interest rate swaps outstanding with deferred gains of $12 million. Southern Company is exposed to losses related to financial instruments in the event of counterparties' nonperformance. The company has established controls to determine and monitor the creditworthiness of counterparties in order to mitigate the company's exposure to counterparty credit risk. The operating companies and Southern Power enter into commodity related forward and option contracts to limit exposure to changing prices on certain fuel purchases and electricity purchases and sales. Substantially all of Southern Company's bulk energy purchases and sales contracts meet the definition of a derivative under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. In many cases, these fuel and electricity contracts qualify for normal purchase and sale exceptions under Statement No. 133 and are accounted for under the accrual method. Other contracts qualify as cash flow hedges of anticipated transactions, resulting in the deferral of related gains and losses, and are recorded in other comprehensive income until the hedged transactions occur. Any ineffectiveness is recognized currently in II-29 NOTES (continued) Southern Company and Subsidiary Companies 2001 Annual Report net income. Contracts that do not qualify for the normal purchase and sale exception and that do not meet the hedge requirements are marked to market through current period income. Southern Company has firm purchase commitments for equipment that require payment in euros. As a hedge against fluctuations in the exchange rate for euros, the company entered into forward currency swaps. The total notional amount is 48 million euros maturing in 2002 and 2003. At December 31, 2001, the gain on these swaps was less than $1 million. Other Southern Company financial instruments for which the carrying amount did not equal fair value at December 31 were as follows: Carrying Fair Amount Value - ---------------------------------------------------------------- (in millions) Long-term debt: At December 31, 2001 $8,634 $8,693 At December 31, 2000 7,815 7,702 Capital and preferred securities: At December 31, 2001 2,276 2,282 At December 31, 2000 2,246 2,190 - ---------------------------------------------------------------- The fair values for long-term debt and capital and preferred securities were based on either closing market price or closing price of comparable instruments. 2. RETIREMENT BENEFITS Southern Company has a defined benefit, trusteed, pension plan that covers substantially all employees. Also, Southern Company provides certain medical care and life insurance benefits for retired employees. The operating companies fund trusts to the extent required by their respective regulatory commissions. In late 2000, Southern Company adopted several pension and postretirement benefit plan changes that had the effect of increasing benefits to both current and future retirees. The measurement date for plan assets and obligations is September 30 for each year. The following disclosures exclude discontinued operations. Pension Plan Changes during the year in the projected benefit obligations and in the fair value of plan assets were as follows: Projected Benefit Obligations ---------------------- 2001 2000 - ---------------------------------------------------------------- (in millions) Balance at beginning of year $3,397 $3,248 Service cost 104 96 Interest cost 260 239 Benefits paid (176) (159) Plan amendments 173 4 Actuarial (gain) loss 2 (31) - ---------------------------------------------------------------- Balance at end of year $3,760 $3,397 ================================================================ Plan Assets ---------------------- 2001 2000 - ---------------------------------------------------------------- (in millions) Balance at beginning of year $6,157 $5,266 Actual return on plan assets (889) 1,030 Benefits paid (159) (139) - ---------------------------------------------------------------- Balance at end of year $5,109 $6,157 ================================================================ The accrued pension costs recognized in the Consolidated Balance Sheets were as follows: 2001 2000 - ------------------------------------------------------------------ (in millions) Funded status $ 1,349 $ 2,760 Unrecognized transition obligation (51) (63) Unrecognized prior service cost 269 116 Unrecognized net gain (1,020) (2,415) - ------------------------------------------------------------------ Prepaid asset recognized in the Consolidated Balance Sheets $ 547 $ 398 ================================================================== Components of the pension plan's net periodic cost were as follows: 2001 2000 1999 - ---------------------------------------------------------------- (in millions) Service cost $ 104 $ 96 $ 97 Interest cost 260 239 215 Expected return on plan assets (423) (384) (348) Recognized net gain (73) (62) (40) Net amortization 8 - (2) - ---------------------------------------------------------------- Net pension cost (income) $(124) $(111) $ (78) ================================================================ II-30 NOTES (continued) Southern Company and Subsidiary Companies 2001 Annual Report Postretirement Benefits Changes during the year in the accumulated benefit obligations and in the fair value of plan assets were as follows: Accumulated Benefit Obligations ---------------------- 2001 2000 - ----------------------------------------------------------------- (in millions) Balance at beginning of year $1,052 $ 980 Service cost 22 18 Interest cost 88 76 Benefits paid (54) (43) Plan amendments 186 69 Actuarial (gain) loss (55) (48) - ----------------------------------------------------------------- Balance at end of year $1,239 $1,052 ================================================================= Plan Assets -------------------- 2001 2000 - ----------------------------------------------------------------- (in millions) Balance at beginning of year $459 $395 Actual return on plan assets (59) 47 Employer contributions 79 59 Benefits paid (54) (42) - ----------------------------------------------------------------- Balance at end of year $425 $459 ================================================================= The accrued postretirement costs recognized in the Consolidated Balance Sheets were as follows: 2001 2000 - ----------------------------------------------------------------- (in millions) Funded status $(814) $(593) Unrecognized transition obligation 174 189 Unrecognized prior service cost 239 66 Unrecognized net loss (gain) (9) (53) Fourth quarter contributions 41 35 - ----------------------------------------------------------------- Accrued liability recognized in the Consolidated Balance Sheets $(369) $(356) ================================================================= Components of the postretirement plan's net periodic cost were as follows: 2001 2000 1999 - -------------------------------------------------------------- (in millions) Service cost $ 22 $ 18 $ 21 Interest cost 88 76 68 Expected return on plan assets (40) (34) (26) Recognized net gain - - 2 Net amortization 26 18 15 - -------------------------------------------------------------- Net postretirement cost $ 96 $ 78 $ 80 ============================================================== The weighted average rates assumed in the actuarial calculations for both the pension plan and postretirement benefits plan were: 2001 2000 - ----------------------------------------------------------------- Discount 7.50% 7.50% Annual salary increase 5.00 5.00 Long-term return on plan assets 8.50 8.50 - ----------------------------------------------------------------- An additional assumption used in measuring the accumulated postretirement benefit obligation was a weighted average medical care cost trend rate of 9.25 percent for 2001 decreasing gradually to 5.25 percent through the year 2010, and remaining at that level thereafter. An annual increase or decrease in the assumed medical care cost trend rate of 1 percent would affect the accumulated benefit obligation and the service and interest cost components at December 31, 2001, as follows: 1 Percent 1 Percent Increase Decrease - ------------------------------------------------------------------ (in millions) Benefit obligation $111 $97 Service and interest costs 10 9 - ------------------------------------------------------------------ Employee Savings Plan Southern Company also sponsors a 401(k) defined contribution plan covering substantially all employees. The company provides a 75 percent matching contribution up to 6 percent of an employee's base salary. Total matching contributions made to the plan for the years 2001, 2000, and 1999 were $51 million, $49 million, and $46 million, respectively. 3. CONTINGENCIES AND REGULATORY MATTERS General Southern Company is subject to certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on Southern Company's financial condition. Georgia Power Potentially Responsible Party Status Georgia Power has been designated as a potentially responsible party at sites governed by the Georgia Hazardous Site Response Act and/or by the federal Comprehensive Environmental Response, Compensation and Liability Act. Georgia II-31 NOTES (continued) Southern Company and Subsidiary Companies 2001 Annual Report Power has recognized $33 million in cumulative expenses through December 31, 2001 for the assessment and anticipated cleanup of sites on the Georgia Hazardous Sites Inventory. In addition, in 1995 the EPA designated Georgia Power and four other unrelated entities as potentially responsible parties at a site in Brunswick, Georgia, that is listed on the federal National Priorities List. Georgia Power has contributed to the removal and remedial investigation and feasibility study costs for the site. Additional claims for recovery of natural resource damages at the site are anticipated. As of December 31, 2001, Georgia Power had recorded approximately $6 million in cumulative expenses associated with Georgia Power's agreed-upon share of the removal and remedial investigation and feasibility study costs for the Brunswick site. The final outcome of each of these matters cannot now be determined. However, based on the currently known conditions at these sites and the nature and extent of Georgia Power's activities relating to these sites, management does not believe that the company's cumulative liability at these sites would be material to the financial statements. Environmental Litigation On November 3, 1999, the EPA brought a civil action in U.S. District Court in Georgia against Alabama Power, Georgia Power, and the system service company. The complaint alleges violations of the New Source Review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The Clean Air Act authorizes civil penalties of up to $27,500 per day, per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. The EPA concurrently issued to the operating companies a notice of violation related to 10 generating facilities, which includes the five facilities mentioned previously. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation and to add Gulf Power, Mississippi Power, and Savannah Electric as defendants. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution control equipment when performing maintenance and construction at coal-burning plants constructed or under construction prior to 1978. The U.S. District Court in Georgia granted Alabama Power's motion to dismiss for lack of jurisdiction and granted the system service company's motion to dismiss on the grounds that it neither owned nor operated the generating units involved in the proceedings. The court granted the EPA's motion to add Savannah Electric as a defendant, but it denied the motion to add Gulf Power and Mississippi Power based on lack of jurisdiction over those companies. The court directed the EPA to refile its amended complaint limiting claims to those brought against Georgia Power and Savannah Electric. The EPA refiled those claims as directed by the court. Also, the EPA refiled its claims against Alabama Power in U.S. District Court in Alabama. It has not refiled against Gulf Power, Mississippi Power, or the system service company. The Alabama Power, Georgia Power, and Savannah Electric cases have been stayed since the spring of 2001, pending a ruling by the U.S. Court of Appeals for the Eleventh Circuit in the appeal of a very similar New Source Review enforcement action against the Tennessee Valley Authority (TVA). The TVA case involves many of the same legal issues raised by the actions against Alabama Power, Georgia Power, and Savannah Electric. Because the outcome of the TVA case could have a significant adverse impact on Alabama Power and Georgia Power, both companies are parties to that case as well. The U.S. District Court in Alabama has indicated that it will revisit the issue of a continued stay in April 2002. The U.S. District Court in Georgia is currently considering a motion by the EPA to reopen the Georgia case. Georgia Power and Savannah Electric have opposed that motion. Southern Company believes that its operating companies complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. An adverse outcome in any one of these cases could require substantial capital expenditures that cannot be determined at this time and could possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. Mobile Energy Services' Petition for Bankruptcy Mobile Energy Services Holdings (MESH), a subsidiary of Southern Company, is the owner and operator of a facility that generates electricity, produces steam, and processes black liquor as part of a pulp and paper complex in Mobile, Alabama. On January 14, 1999, MESH filed a petition for Chapter 11 bankruptcy relief in the U.S. Bankruptcy Court. This action was in response to Kimberly-Clark Tissue II-32 NOTES (continued) Southern Company and Subsidiary Companies 2001 Annual Report Company's (Kimberly-Clark) announcement in May 1998 of plans to close its pulp mill, effective September 1, 1999. The pulp mill had historically provided 50 percent of MESH's revenues. As a result of settlement discussions with Kimberly-Clark and MESH's bondholders, Southern Company recorded in 1999 a $69 million after-tax write down of its investment in MESH. Southern Company recorded an additional $10 million after-tax write down in 2000. At December 31, 2001, MESH had total assets of $359 million and senior debt outstanding of $190 million of first mortgage bonds and $72 million related to tax-exempt bonds. In connection with the bond financings, Southern Company provided certain limited guarantees, in lieu of funding debt service and maintenance reserve accounts with cash. As of December 31, 2001, Southern Company had paid the full $41 million pursuant to the guarantees. Southern Company continues to have guarantees outstanding of certain potential environmental and other obligations of MESH that represent a maximum contingent liability of $19 million at December 31, 2001. Mirant has agreed to indemnify Southern Company for any future obligations incurred under such guarantees. On August 4, 2000, MESH filed a proposed plan of reorganization with the U.S. Bankruptcy Court. The proposed plan of reorganization was most recently amended on October 15, 2001. Southern Company expects that approval of a plan of reorganization would result in either a termination of Southern Company's ownership interest in MESH or the exchange of all assets of MESH for the cancellation of securities held by the bondholders but would not affect Southern Company's continuing guarantee obligations discussed earlier. The final outcome of this matter cannot now be determined. California Electricity Markets Litigation Prior to the spin off of Mirant, Southern Company was named as a defendant in two lawsuits filed in the superior courts of California alleging that certain owners of electric generation facilities in California, including Southern Company, engaged in various unlawful and anticompetitive acts that served to manipulate wholesale power markets and inflate wholesale electricity prices in California. One lawsuit naming Southern Company, Mirant, and other generators as defendants alleged that, as a result of the defendants' conduct, customers paid approximately $4 billion more for electricity than they otherwise would have and sought an award of treble damages, as well as other injunctive and equitable relief. The other suit likewise sought treble damages and equitable relief. The allegations in the two lawsuits in which Southern Company was named seemed to be directed to activities of subsidiaries of Mirant. On September 28 and November 6, 2001, the plaintiffs voluntarily dismissed Southern Company without prejudice from the two lawsuits in which it had been named as a defendant. Prior to being dismissed, Southern Company had notified Mirant of its claim for indemnification for costs associated with the lawsuits under the terms of the master separation agreement that governs the spin off of Mirant. Mirant had undertaken the defense of the lawsuits. Plaintiffs would not be barred by their own dismissal from naming Southern Company in some future lawsuit, but management believes that the likelihood of Southern Company having to pay damages in any such lawsuit is remote. Race Discrimination Litigation On July 28, 2000, a lawsuit alleging race discrimination was filed by three Georgia Power employees against Georgia Power, Southern Company, and the system service company in the Superior Court of Fulton County, Georgia. Shortly thereafter, the lawsuit was removed to the United States District Court for the Northern District of Georgia. The lawsuit also raised claims on behalf of a purported class. The plaintiffs seek compensatory and punitive damages in an unspecified amount, as well as injunctive relief. On August 14, 2000, the lawsuit was amended to add four more plaintiffs. Also, an additional subsidiary of Southern Company, Southern Company Energy Solutions, Inc., was named a defendant. On October 11, 2001, the district court denied the plaintiffs' motion for class certification. The plaintiffs filed a motion to reconsider the order denying class certification, and the court denied the plaintiffs' motion to reconsider. On December 28, 2001, the plaintiffs filed a petition in the United States Court of Appeals for the Eleventh Circuit seeking permission to file an appeal of the October 11 decision. The defendants filed a brief in opposition of the petition on January 18, 2002. Discovery of the seven named plaintiffs' individual claims that remain in the case is ongoing. The final outcome of the case cannot now be determined. Alabama Power Rate Adjustment Procedures In November 1982, the Alabama Public Service Commission (APSC) adopted rates that provide for periodic adjustments based upon Alabama Power's earned return on end-of-period retail common equity. The rates also provide for adjustments to recognize the placing of new generating facilities in retail service. Both increases and decreases have been placed into effect since the adoption of these rates. Most recently, a 2 percent increase in retail rates was effective in II-33 NOTES (continued) Southern Company and Subsidiary Companies 2001 Annual Report October 2001, in accordance with the Rate Stabilization Equalization plan. The rate adjustment procedures allow a return on common equity range of 13 percent to 14.5 percent and limit increases or decreases in rates to 4 percent in any calendar year and prohibits two consecutive quarterly adjustments in the same direction. In December 1995, the APSC issued an order authorizing Alabama Power to reduce balance sheet items -- such as plant and deferred charges -- at any time the company's actual base rate revenues exceed the budgeted revenues. During the years 2001, 2000, and 1999, Alabama Power did not record any such reductions. The ratemaking procedures will remain in effect until the APSC votes to modify or discontinue them. Georgia Power Retail Rate Orders On December 20, 2001, the GPSC approved a three-year retail rate order for Georgia Power ending December 31, 2004. Under the terms of the order, earnings will be evaluated 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. Under a previous three-year order ending December 2001, Georgia Power's earnings were evaluated against a retail return on common equity range of 10 percent to 12.5 percent. The order further provided for $85 million in each year, plus up to $50 million of any earnings above the 12.5 percent return during the second and third years, to be applied to accelerated amortization or depreciation of assets. Two-thirds of additional earnings above the 12.5 percent return were applied to rate refunds, with the remaining one-third retained by Georgia Power. Pursuant to the order, Georgia Power recorded $336 million of accelerated amortization and interest thereon, which has been credited to a regulatory liability account as mandated by the GPSC. Under the new rate order, the accelerated amortization and the interest will be amortized equally over three years as a credit to expense beginning in 2002. Effective January 1, 2002, Georgia Power discontinued recording accelerated depreciation and amortization. Georgia Power will not file for a general base rate increase unless its projected retail return on common equity falls below 10 percent. Georgia Power is required to file a general rate case on July 1, 2004, in response to which the GPSC would be expected to determine whether the rate order should be continued, modified, or discontinued. In 2000 and 1999, Georgia Power recorded $44 million and $79 million, respectively, of revenue subject to refund for estimated earnings above 12.5 percent retail return on common equity. Refunds applicable to 2000 and 1999 were made to customers in 2001 and 2000, respectively. 4. JOINT OWNERSHIP AGREEMENTS Alabama Power owns an undivided interest in units 1 and 2 of Plant Miller and related facilities jointly with Alabama Electric Cooperative, Inc. Georgia Power owns undivided interests in plants Vogtle, Hatch, Scherer, and Wansley in varying amounts jointly with Oglethorpe Power Corporation (OPC), the Municipal Electric Authority of Georgia, the city of Dalton, Georgia, Florida Power &Light Company (FP&L), and Jacksonville Electric Authority (JEA). In addition, Georgia Power has joint ownership agreements with OPC for the Rocky Mountain facilities and with Florida Power Corporation (FPC) for a combustion turbine unit at Intercession City, Florida. Southern Power owns an undivided interest in Stanton Unit A and related facilities jointly with the Orlando Utilities Commission, Kissimmee Utility Authority, and Florida Municipal Power Agency. The unit is scheduled to go into commercial operation in October 2003. At December 31, 2001, Alabama Power's and Georgia Power's ownership and investment (exclusive of nuclear fuel) in jointly owned facilities with the above entities were as follows: Jointly Owned Facilities ------------------------------------------ Percent Amount of Accumulated Ownership Investment Depreciation ------------------------------------------ (in millions) Plant Vogtle (nuclear) 45.7% $3,304 $1,793 Plant Hatch (nuclear) 50.1 881 668 Plant Miller (coal) Units 1 and 2 91.8 747 326 Plant Scherer (coal) Units 1 and 2 8.4 112 56 Plant Wansley (coal) 53.5 309 152 Rocky Mountain (pumped storage) 25.4 169 78 Intercession City (combustion turbine) 33.3 12 1 Plant Stanton (combined cycle) Unit A 65.0 31 - - ----------------------------------------------------------------- II-34 NOTES (continued) Southern Company and Subsidiary Companies 2001 Annual Report Alabama Power, Georgia Power, and Southern Power have contracted to operate and maintain the jointly owned facilities -- except for the Rocky Mountain project and Intercession City -- as agents for their respective co-owners. The companies' proportionate share of their plant operating expenses is included in the corresponding operating expenses in the Consolidated Statements of Income. 5. LONG-TERM POWER SALES AND LEASE AGREEMENTS The operating companies have long-term contractual agreements for the sale and lease of capacity to certain non-affiliated utilities located outside the system's service area. These agreements are firm and are related to specific generating units. Because the energy is generally provided at cost under these agreements, profitability is primarily affected by capacity revenues. Unit power from specific generating plants is currently being sold to FP&L, FPC, and JEA. Under these agreements, approximately 1,500 megawatts of capacity is scheduled to be sold annually unless reduced by FP&L, FPC, and JEA for the periods after 2001 with a minimum of three years notice -- until the expiration of the contracts in 2010. Capacity revenues from unit power sales amounted to $170 million in 2001, $177 million in 2000, and $174 million in 1999. Southern Power and Mississippi Power have operating leases for portions of their generating unit capacity. Capacity revenues from these operating leases amounted to $53 million in 2001 and $20 million in 2000. These amounts are included in the financial statements as sales for resale. Minimum future capacity receipts from noncancelable operating leases as of December 31, 2001, are as follows: Year Amounts - ---- ---------------- (in millions) 2002 $ 64 2003 65 2004 64 2005 23 2006 21 2007 and thereafter 97 - ------------------------------------------------------------------ Total $334 ================================================================== 6. INCOME TAXES At December 31, 2001, the tax-related regulatory assets and liabilities were $924 million and $500 million, respectively. These assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized interest. These liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. The following tables and disclosures exclude discontinued operations. Details of income tax provisions are as follows: 2001 2000 1999 - ----------------------------------------------------------------- (in millions) Total provision for income taxes: Federal -- Current $477 $421 $504 Deferred (10) 95 11 - ----------------------------------------------------------------- 467 516 515 - ----------------------------------------------------------------- State -- Current 103 71 85 Deferred (12) 1 (1) - ----------------------------------------------------------------- 91 72 84 - ----------------------------------------------------------------- Total $558 $588 $599 ================================================================= The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows: 2001 2000 - --------------------------------------------------------------- (in millions) Deferred tax liabilities: Accelerated depreciation $3,222 $3,199 Property basis differences 1,059 1,105 Other 739 650 - --------------------------------------------------------------- Total 5,020 4,954 - --------------------------------------------------------------- Deferred tax assets: Federal effect of state deferred taxes 116 111 Other property basis differences 178 206 Deferred costs 234 190 Pension and other benefits 123 125 Other 304 231 - --------------------------------------------------------------- Total 955 863 - --------------------------------------------------------------- Total deferred tax liabilities, net 4,065 4,091 Portion included in current assets (liabilities), net 23 (17) - --------------------------------------------------------------- Accumulated deferred income taxes in the Consolidated Balance Sheets $4,088 $4,074 =============================================================== In accordance with regulatory requirements, deferred investment tax credits are amortized over the lives of the related property with such amortization normally applied as a credit to reduce depreciation in the Consolidated Statements of Income. Credits amortized in this manner amounted to $30 million a year in 2001, 2000, and 1999. At December 31, 2001, all investment tax credits available to reduce federal income taxes payable had been utilized. II-35 NOTES (continued) Southern Company and Subsidiary Companies 2001 Annual Report The provision for income taxes differs from the amount of income taxes determined by applying the applicable U.S. Federal statutory rate to earnings before income taxes and preferred dividends of subsidiaries, as a result of the following: 2001 2000 1999 - ---------------------------------------------------------------- Federal statutory rate 35.0% 35.0% 35.0% State income tax, net of federal deduction 3.7 3.4 3.8 Alternative fuel tax credits (4.2) (1.3) (0.7) Non-deductible book depreciation 1.7 1.7 1.9 Difference in prior years' deferred and current tax rate (1.1) (1.3) (1.3) Other (2.2) (0.8) 0.4 - ---------------------------------------------------------------- Effective income tax rate 32.9% 36.7% 39.1% ================================================================ Southern Company files a consolidated federal income tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. In accordance with Internal Revenue Service regulations, each company is jointly and severally liable for the tax liability. Mirant was included in the consolidated federal tax return through April 2, 2001. Under the terms of the separation agreement, Mirant will indemnify Southern Company for subsequent assessment of any additional taxes related to its transactions prior to the spin off. 7. COMMON STOCK Stock Issued and Repurchased Southern Company issued 17 million and 5 million treasury shares of common stock in 2001 and 2000, respectively, through various company stock plans. Proceeds were $395 million in 2001 and $140 million in 2000. The shares were issued through various company stock plans. At December 31, 2001, approximately 2 million treasury shares remain unissued. In December 2000, Southern Company issued 28 million treasury shares of common stock through a public offering. The offering, which included an overallotment of 3 million shares, raised some $800 million and was priced at $28.50 per share. The proceeds were used to repay short-term commercial paper. In April 1999, Southern Company's Board of Directors approved the repurchase of up to 50 million shares of Southern Company's common stock over a two-year period through open market or privately negotiated transactions. Under this program, 50 million shares were repurchased by February 2000 at an average price of $25.53 per share. Shares Reserved At December 31, 2001, a total of 76 million shares was reserved for issuance pursuant to the Southern Investment Plan, the Employee Savings Plan, the Outside Directors Stock Plan, and the Omnibus Incentive Compensation Plan (stock option plan). Stock Option Plan Southern Company provides non-qualified stock options to a large segment of its employees ranging from line management to executives. As of December 31, 2001, 5,622 current and former employees participated in the stock option plan. The maximum number of shares of common stock that may be issued under this plan may not exceed 55 million. The prices of options granted to date have been at the fair market value of the shares on the dates of grant. Options granted to date become exercisable pro rata over a maximum period of three years from the date of grant. Options outstanding will expire no later than 10 years after the date of grant, unless terminated earlier by the Southern Company Board of Directors in accordance with the plan. Stock option data for the plan has been adjusted to reflect the Mirant spin off. Activity in 2000 and 2001 for the plan is summarized below: Shares Average Subject Option Price To Option Per Share - ---------------------------------------------------------------- Balance at December 31, 1999 13,419,978 $14.97 Options granted 11,042,626 14.67 Options canceled (335,282) 14.87 Options exercised (1,560,695) 13.65 - ---------------------------------------------------------------- Balance at December 31, 2000 22,566,627 14.92 Options granted 13,623,210 20.31 Options canceled (3,397,152) 15.39 Options exercised (3,161,800) 13.83 - ---------------------------------------------------------------- Balance at December 31, 2001 29,630,885 $17.46 ================================================================ Shares reserved for future grants: At December 31, 1999 54,684,999 At December 31, 2000 43,955,368 At December 31, 2001 64,795,653 - --------------------------------------------------------------- Options exercisable: At December 31, 2000 9,354,705 At December 31, 2001 11,965,858 - --------------------------------------------------------------- Southern Company accounts for its stock-based compensation plans in accordance with Accounting Principles Board Opinion No. 25. Accordingly, no compensation expense has been recognized. II-36 NOTES (continued) Southern Company and Subsidiary Companies 2001 Annual Report The following table summarizes information about options outstanding at December 31, 2001: Dollar Price Range of Options ------------------------- 11-15 15-20 20-24 - ---------------------------------------------------------------- Outstanding: Shares (in thousands) 11,742 12,882 5,007 Average remaining life (in years) 6.7 7.7 9.1 Average exercise price $14.38 $18.34 $22.43 Exerciseable: Shares (in thousands) 6,694 5,027 245 Average exercise price $14.17 $17.46 $22.42 - ---------------------------------------------------------------- The estimated fair values of stock options granted in 2001, 2000, and 1999 were derived using the Black-Scholes stock option pricing model. The following table shows the assumptions and the weighted average fair values of stock options: 2001 2000 1999 - ------------------------------------------------------------------ Interest rate 4.8% 6.7% 5.8% Average expected life of stock options (in years) 4.3 4.0 3.7 Expected volatility of common stock 25.4% 20.9% 20.7% Expected annual dividends on common stock $1.34 $1.34 $1.34 Weighted average fair value of stock options granted $2.82 $3.36 $4.61 - ------------------------------------------------------------------ The pro forma impact of fair-value accounting for options granted on earnings is as follows: Net Earnings Year Income Per Share - ---- -------------- ------------- (in millions) (cents) 2001 $17 2.4 2000 8 1.3 1999 5 0.7 - ----------------------------------------------------------------- Diluted Earnings Per Share For Southern Company, the only difference in computing basic and diluted earnings per share is attributable to outstanding options under the stock option plan. The effect of the stock options was determined using the treasury stock method. Shares used to compute diluted earnings per share are as follows: Average Common Stock Shares -------------------------------- 2001 2000 1999 - ---------------------------------------------------------------- (in thousands) As reported shares 689,352 653,087 685,163 Effect of options 4,191 1,018 530 - ---------------------------------------------------------------- Diluted shares 693,543 654,105 685,693 ================================================================ Common Stock Dividend Restrictions The income of Southern Company is derived primarily from equity in earnings of its subsidiaries. At December 31, 2001, consolidated retained earnings included $3.4 billion of undistributed retained earnings of the subsidiaries. Of this amount, $2.1 billion was restricted against the payment by the subsidiary companies of cash dividends on common stock under terms of bond indentures. However, Georgia Power expects to discharge its first mortgage bond indenture in early 2002 and to be released from all indenture requirements. The $2.1 billion restriction includes $1.0 billion for Georgia Power under the current indenture requirements. 8. FINANCING Capital and Preferred Securities Company or subsidiary obligated mandatorily redeemable capital and preferred securities have been issued by special purpose financing entities of Southern Company and its subsidiaries. Substantially all the assets of these special financing entities are junior subordinated notes issued by the related company seeking financing. Each of these companies considers that the mechanisms and obligations relating to the capital or preferred securities issued for its benefit, taken together, constitute a full and unconditional guarantee by it of the respective special financing entities' payment obligations with respect to the capital or preferred securities. At December 31, 2001, capital securities of $950 million and preferred securities of $1.3 billion were outstanding and recognized in the Consolidated Balance Sheets. Southern Company guarantees the notes related to $950 million of capital or preferred securities issued on its behalf. II-37 NOTES (continued) Southern Company and Subsidiary Companies 2001 Annual Report Long-Term Debt Due Within One Year A summary of the improvement fund requirements and scheduled maturities and redemptions of long-term debt due within one year at December 31 is as follows: 2001 2000 - ----------------------------------------------------------------- (in millions) Bond improvement fund requirements $ 5 $11 Less: Portion to be satisfied by certifying property additions 1 11 - ----------------------------------------------------------------- Cash requirements 4 - First mortgage bond maturities and redemptions 3 - Other long-term debt maturities 422 67 - ----------------------------------------------------------------- Total $429 $67 ================================================================= The first mortgage bond improvement fund requirements amount to 1 percent of each outstanding series of bonds authenticated under the indentures prior to January 1 of each year, other than those issued to collateralize pollution control revenue bonds and other obligations. The requirements may be satisfied by depositing cash or reacquiring bonds, or by pledging additional property equal to 1662/3 percent of such requirements. With respect to the collateralized pollution control revenue bonds, the operating companies have authenticated and delivered to trustees a like principal amount of first mortgage bonds as security for obligations under installment sale or loan agreements. The principal and interest on the first mortgage bonds will be payable only in the event of default under the agreements. Improvement fund requirements and/or serial maturities through 2006 applicable to total long-term debt are as follows: $429 million in 2002; $1.1 billion in 2003; $894 million in 2004; $399 million in 2005; and $226 million in 2006. Assets Subject to Lien Each of Southern Company's subsidiaries is organized as a legal entity, separate and apart from Southern Company and its other subsidiaries. The subsidiary companies' mortgages, which secure the first mortgage bonds issued by the companies, constitute a direct first lien on substantially all of the companies' respective fixed property and franchises. Georgia Power expects to discharge its mortgage in early 2002 and that the lien will be removed. There are no agreements or other arrangements among the subsidiary companies under which the assets of one company have been pledged or otherwise made available to satisfy obligations of Southern Company or any of its other subsidiaries. Bank Credit Arrangements At the beginning of 2002, unused credit arrangements with banks totaled $5.1 billion, of which $3.7 billion expires during 2002, $500 million expires during 2003, and $900 million expires during 2004. The following table outlines the credit arrangements by company: Amount of Credit ---------------------------- Expires --------------- 2003 & Company Total Unused 2002 beyond - -------------------------------------------------------------- (in millions) Alabama Power $ 964 $ 964 $ 574 $ 390 Georgia Power 1,765 1,765 1,265 500 Gulf Power 103 103 103 - Mississippi Power 115 115 110 5 Savannah Electric 66 66 46 20 Southern Company 1,500 1,500 1,500 - Southern Power 850 557 - 557 Other 60 60 60 - - -------------------------------------------------------------- Total $5,423 $5,130 $3,658 $1,472 ============================================================== Approximately $2.9 billion of the credit facilities expiring in 2002 allows for term loans ranging from one to three years. Most of the agreements include stated borrowing rates but also allow for competitive bid loans. All of the credit arrangements require payment of commitment fees based on the unused portion of the commitments or the maintenance of compensating balances with the banks. These balances are not legally restricted from withdrawal. Included in the $5.1 billion of unused credit arrangements is $4.8 billion of syndicated credit arrangements that require the payment of agent fees. A portion of the $5.1 billion unused credit with banks is allocated to provide liquidity support to the companies' variable rate pollution control bonds. The amount of variable rate pollution control bonds requiring liquidity support as of December 31, 2001 was $1.6 billion. Southern Company and the operating companies borrow through commercial paper programs that have the liquidity support of committed bank credit arrangements. In addition, the companies from time to time borrow under uncommitted lines of credit with banks. The amount of commercial paper outstanding at December 31, 2001 was $1.8 billion. II-38 NOTES (continued) Southern Company and Subsidiary Companies 2001 Annual Report 9. COMMITMENTS Construction Program Southern Company is engaged in continuous construction programs, currently estimated to total $2.8 billion in 2002, $2.1 billion in 2003, and $2.3 billion in 2004. The construction programs are subject to periodic review and revision, and actual construction costs may vary from the above estimates because of numerous factors. These factors include: changes in business conditions; acquisition of additional generating assets; revised load growth estimates; changes in environmental regulations; changes in existing nuclear plants to meet new regulatory requirements; increasing costs of labor, equipment, and materials; and cost of capital. At December 31, 2001, significant purchase commitments were outstanding in connection with the construction program. Southern Company has approximately 4,500 megawatts of additional generating capacity scheduled to be placed in service by 2003, of which 3,900 megawatts will be competitive generation assets. See Management's Discussion and Analysis under "Environmental Matters" for information on the impact of the Clean Air Act Amendments of 1990 and other environmental matters. Fuel and Purchased Power Commitments To supply a portion of the fuel requirements of the generating plants, Southern Company has entered into various long-term commitments for the procurement of fossil and nuclear fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels, and other financial commitments. Natural gas purchases are based on various indices at the time of delivery; therefore, only the volume commitments are firm and disclosed in the following chart. Also, Southern Company has entered into various long-term commitments for the purchase of electricity. Total estimated minimum long-term obligations at December 31, 2001, were as follows: Natural Gas Purchased Year MMBtu Fuel Power - ---- ------------ --------------------- (in millions) (in millions) 2002 163,595 $ 2,399 $ 97 2003 188,245 2,185 100 2004 118,245 1,541 95 2005 66,390 1,218 95 2006 49,085 1,155 95 2007 and thereafter 18,120 3,627 879 - --------------------------------------------------------------- Total commitments 603,680 $12,125 $1,361 =============================================================== Operating Leases In May 2001, Mississippi Power began the initial 10-year term of a lease agreement signed in 1999 for a combined cycle generating facility built at Plant Daniel. The facility cost approximately $370 million. The lease provides for a residual value guarantee -- approximately 71 percent of the completion cost -- by Mississippi Power that is due upon termination of the lease in certain circumstances. The lease also includes purchase and renewal options. Upon termination of the lease, Mississippi Power may either exercise its purchase option of the facility or allow it to be sold to a third party. Mississippi Power expects the fair market value of the leased facility to substantially reduce or eliminate its payment under the residual value guarantee. The amount of future minimum operating lease payments exclusive of any payment related to this guarantee will be approximately $25 million annually during the initial term. Southern Company has other operating lease agreements with various terms and expiration dates. Total operating lease expenses were $64 million, $42 million, and $35 million for 2001, 2000, and 1999, respectively. At December 31, 2001, estimated minimum rental commitments for noncancelable operating leases were as follows: Year Amounts - ---- -------------- (in millions) 2002 $ 74 2003 71 2004 70 2005 66 2006 58 2007 and thereafter 317 - --------------------------------------------------------------- Total minimum payments $656 =============================================================== In addition to the above rental commitments, Alabama Power and Georgia Power have obligations upon expiration of certain rail car leases with respect to the residual value of the leased property. These leases expire in 2004, 2006, and 2010, and the maximum obligations are $39 million, $66 million, and $40 million, respectively. At the termination of the leases, the lessee may either exercise its purchase option or the property can be sold to a third party. Alabama Power and Georgia Power expect that the fair market value of the leased property would substantially reduce or eliminate the payments under the residual value obligations. II-39 NOTES (continued) Southern Company and Subsidiary Companies 2001 Annual Report Guarantees Southern Company has made separate guarantees to certain counterparties regarding performance of contractual commitments by Mirant's trading and marketing subsidiaries. At December 31, 2001, the total original notional amount of guarantees was $53 million, all of which will expire by 2007. Estimated fair value of these net contractual commitments outstanding was approximately $25 million. Under the terms of the separation agreement, Mirant may not enter into any new commitments under these guarantees after the spin off date. Based upon a statistical analysis of credit risk, Southern Company's potential exposure under these contractual commitments would not materially differ from the estimated fair value. Mirant will pay Southern Company a fee of 1 percent annually on the average aggregate maximum principal amount of all guarantees outstanding until they are replaced or expire. Mirant must use reasonable efforts to release Southern Company from all such support arrangements and will indemnify Southern Company for any obligations incurred. 10. NUCLEAR INSURANCE Under the Price-Anderson Amendments Act of 1988, Alabama Power and Georgia Power maintain agreements of indemnity with the NRC that, together with private insurance, cover third-party liability arising from any nuclear incident occurring at the companies' nuclear power plants. The act provides funds up to $9.5 billion for public liability claims that could arise from a single nuclear incident. Each nuclear plant is insured against this liability to a maximum of $200 million by American Nuclear Insurers (ANI), with the remaining coverage provided by a mandatory program of deferred premiums that could be assessed, after a nuclear incident, against all owners of nuclear reactors. A company could be assessed up to $88 million per incident for each licensed reactor it operates, but not more than an aggregate of $10 million per incident to be paid in a calendar year for each reactor. Such maximum assessment, excluding any applicable state premium taxes, for Alabama Power and Georgia Power -- based on its ownership and buyback interests -- is $176 million and $178 million, respectively, per incident, but not more than an aggregate of $20 million per company to be paid for each incident in any one year. Alabama Power and Georgia Power are members of Nuclear Electric Insurance Limited (NEIL), a mutual insurer established to provide property damage insurance in an amount up to $500 million for members' nuclear generating facilities. Additionally, both companies have policies that currently provide decontamination, excess property insurance, and premature decommissioning coverage up to $2.25 billion for losses in excess of the $500 million primary coverage. This excess insurance is also provided by NEIL. NEIL also covers the additional costs that would be incurred in obtaining replacement power during a prolonged accidental outage at a member's nuclear plant. Members can purchase this coverage, subject to a deductible waiting period of between 8 to 26 weeks, with a maximum per occurrence per unit limit of $490 million. After this deductible period, weekly indemnity payments would be received until either the unit is operational or until the limit is exhausted in approximately three years. Under each of the NEIL policies, members are subject to assessments if losses each year exceed the accumulated funds available to the insurer under that policy. The current maximum annual assessments for Alabama Power and Georgia Power under the three NEIL policies would be $35 million and $39 million, respectively. Following the terrorist attacks of September 2001, both ANI and NEIL confirmed that terrorist acts against commercial nuclear power plants would be covered under their insurance. However, both companies revised their policy terms on a prospective basis to include an industry aggregate for all terrorist acts. The NEIL aggregate, which applies to all claims stemming from terrorism within a 12-month duration, is $3.24 billion plus any amounts that would be available through reinsurance or indemnity from an outside source. The ANI cap is $200 million in a policy year. For all on-site property damage insurance policies for commercial nuclear power plants, the NRC requires that the proceeds of such policies shall be dedicated first for the sole purpose of placing the reactor in a safe and stable condition after an accident. Any remaining proceeds are to be applied next toward the costs of decontamination and debris removal operations ordered by the NRC, and any further remaining proceeds are to be paid either to the company or to its bond trustees as may be appropriate under the policies and applicable trust indentures. All retrospective assessments -- whether generated for liability, property, or replacement power -- may be subject to applicable state premium taxes. II-40 NOTES (continued) Southern Company and Subsidiary Companies 2001 Annual Report 11. DISCOUNTINUED OPERATIONS In April 2000, Southern Company announced an initial public offering of up to 19.9 percent of Mirant and its intentions to spin off the remaining ownership of Mirant to Southern Company stockholders within 12 months of the initial stock offering. On October 2, 2000, Mirant completed its initial public offering of 66.7 million shares of common stock priced at $22 per share. This represented 19.7 percent of the 338.7 million shares outstanding. As a result of the stock offering, Southern Company recorded a $560 million increase in paid-in capital with no gain or loss being recognized. On February 19, 2001, the Southern Company Board of Directors approved the spin off of its remaining ownership of 272 million Mirant shares. On April 2, 2001, the tax-free distribution of Mirant shares was completed at a ratio of approximately 0.4 for every share of Southern Company common stock held at record date. The distribution resulted in charges of approximately $3.2 billion and $0.4 billion to Southern Company's paid-in capital and retained earnings, respectively. The distribution was treated as a non-cash transaction for purposes of the statement of cash flows. As a result of the spin off, Southern Company's financial statements reflect Mirant's results of operations, balance sheets, and cash flows as discontinued operations. Certain amounts in the cash flows related to intercompany eliminations for 2000 and 1999 have been reclassified from cash provided from operating activities to cash used for discontinued operations. Summarized financial information for the discontinued operations is as follows at December 31: 2001 2000 1999 - ----------------------------------------------------------------- (in millions) Revenues $8,182 $13,315 $2,265 Income taxes 93 86 127 Net income 142 319 361 - ----------------------------------------------------------------- 2000 - ----------------------------------------------------------------- (in millions) Current assets $ 9,057 Total assets 22,377 Current liabilities 9,726 Total liabilities 17,585 Minority and other interests 1,472 Net assets of discontinued operations 3,320 - ----------------------------------------------------------------- 12. SEGMENT AND RELATED INFORMATION Southern Company's reportable business segment is the sale of electricity in the Southeast by the five operating companies and Southern Power. Net income and total assets for discontinued operations are included in the reconciling eliminations column. The all other category includes parent Southern Company, which does not allocate operating expenses to business segments. Also, this category includes segments below the quantitative threshold for separate disclosure. These segments include telecommunications, energy products and services, and leasing and financing services. Intersegment revenues are not material. Financial data for business segments and products and services are as follows: Business Segments
Electric All Reconciling Year Utilities Other Eliminations Consolidated - ---- ----------------------------------------------------------------------------------- (in millions) 2001 - ----- Operating revenues $ 9,906 $ 267 $ (18) $10,155 Depreciation and amortization 1,144 29 - 1,173 Interest income 21 8 (2) 27 Interest expense 591 137 (2) 726 Income taxes 702 (144) - 558 Segment net income (loss) 1,149 (30) 143 1,262 Total assets 29,389 2,420 (1,985) 29,824 Gross property additions 2,565 52 - 2,617 - ----------------------------------------------------------------------------------------------------------------------------
II-41 NOTES (continued) Southern Company and Subsidiary Companies 2001 Annual Report
Electric All Reconciling Year Utilities Other Eliminations Consolidated - ----- ------------------------------------------------------------------------------------ (in millions) 2000 - ---- Operating revenues $ 9,860 $ 246 $ (40) $10,066 Depreciation and amortization 1,135 36 - 1,171 Interest income 21 7 1 29 Interest expense 615 197 - 812 Income taxes 703 (115) - 588 Segment net income (loss) 1,109 (115) 319 1,313 Total assets 26,820 2,200 2,240 31,260 Gross property additions 2,199 26 - 2,225 - ---------------------------------------------------------------------------------------------------------------------------- Electric All Reconciling Year Utilities Other Eliminations Consolidated - ---- ------------------------------------------------------------------------------------ (in millions) 1999 - ---- Operating revenues $ 9,125 $ 221 $ (29) $ 9,317 Depreciation and amortization 1,046 93 - 1,139 Interest income 23 5 2 30 Interest expense 585 155 (38) 702 Income taxes 675 76 - 599 Segment net income (loss) 1,073 (158) 361 1,276 Total assets 25,336 2,127 1,828 29,291 Gross property additions 1,854 27 - 1,881 - ---------------------------------------------------------------------------------------------------------------------------- Products and Services Electric Utilities Revenues ------------------------------------------------------------------------------------ Year Retail Wholesale Other Total - ---- ------------------------------------------------------------------------------------ (in millions) 2001 $8,440 $1,174 $292 $9,906 2000 8,600 977 283 9,860 1999 8,090 823 212 9,125 - ------------------------------------------------------------------------------------------------------------------------
13. QUARTERLY FINANCIAL INFORMATION FOR CONTINUING OPERATIONS (UNAUDITED) Summarized quarterly financial data for 2001 and 2000 are as follows:
Per Common Share (Note) ----------------------------------------------------- Operating Operating Consolidated Basic Price Range Quarter Ended Revenues Income Net Income Earnings Dividends High Low - -------------- ------------------------------------ ----------------------------------------------------- (in millions) March 2001 $2,270 $475 $180 $0.26 $0.335 $21.650 $16.152 June 2001 2,561 585 270 0.40 0.335 23.880 20.890 September 2001 3,165 998 554 0.80 0.335 26.000 22.050 December 2001 2,159 333 116 0.16 0.335 25.980 22.300 March 2000 $2,052 $ 428 $151 $0.23 $0.335 $25.875 $20.375 June 2000 2,522 598 256 0.39 0.335 27.875 21.688 September 2000 3,198 1,039 523 0.81 0.335 35.000 23.406 December 2000 2,294 340 64 0.09 0.335 33.880 27.500 - ----------------------------------------------------------------------------------------------------------------------------- Southern Company's business is influenced by seasonal weather conditions. Note: Market price data in 2001 declined as a result of the Mirant spin off.
II-42
Selected Consolidated Financial and Operating Data 1997-2001 Southern Company and Subsidiary Companies 2001 Annual Report - ----------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in millions) $10,155 $10,066 $9,317 $9,499 $8,774 Total Assets (in millions) $29,824 $31,260 $29,291 $28,723 $27,898 Gross Property Additions (in millions) $2,617 $2,225 $1,881 $1,356 $1,138 Return on Average Common Equity (percent) 13.51 13.20 13.43 10.04 10.30 Cash Dividends Paid Per Share of Common Stock $1.34 $1.34 $1.34 $1.34 $1.30 - ----------------------------------------------------------------------------------------------------------------------------- Consolidated Net Income (in millions): Continuing operations $1,120 $ 994 $ 915 $986 $990 Discontinued operations 142 319 361 (9) (18) - ----------------------------------------------------------------------------------------------------------------------------- Total $1,262 $1,313 $1,276 $977 $972 ============================================================================================================================= Earnings Per Share From Continuing Operations -- Basic $1.62 $1.52 $1.33 $1.41 $1.45 Diluted 1.61 1.52 1.33 1.41 1.45 Earnings Per Share Including Discontinued Operations -- Basic $1.83 $2.01 $1.86 $1.40 $1.42 Diluted 1.82 2.01 1.86 1.40 1.42 - ----------------------------------------------------------------------------------------------------------------------------- Capitalization (in millions): Common stock equity $ 7,984 $10,690 $ 9,204 $ 9,797 $ 9,647 Preferred stock and securities 2,644 2,614 2,615 2,465 2,155 Long-term debt 8,297 7,843 7,251 6,505 6,347 - ----------------------------------------------------------------------------------------------------------------------------- Total excluding amounts due within one year $18,925 $21,147 $19,070 $18,767 $18,149 ============================================================================================================================= Capitalization Ratios (percent): Common stock equity 42.2 50.6 48.3 52.2 53.2 Preferred stock and securities 13.9 12.3 13.7 13.1 11.9 Long-term debt 43.9 37.1 38.0 34.7 34.9 - ----------------------------------------------------------------------------------------------------------------------------- Total excluding amounts due within one year 100.0 100.0 100.0 100.0 100.0 ============================================================================================================================= Other Common Stock Data (Note): Book value per share (year-end) $11.44 $15.69 $13.82 $14.04 $13.91 Market price per share: High $26.000 $35.000 $29.625 $31.563 $26.250 Low 16.152 20.375 22.063 23.938 19.875 Close 25.350 33.250 23.500 29.063 25.875 Market-to-book ratio (year-end) (percent) 221.6 211.9 170.0 207.0 186.0 Price-earnings ratio (year-end) (times) 15.6 16.5 12.6 20.8 18.2 Dividends paid (in millions) $922 $873 $921 $933 $889 Dividend yield (year-end) (percent) 5.3 4.0 5.7 4.6 5.0 Dividend payout ratio (percent) 82.4 66.5 72.2 95.6 91.5 Shares outstanding (in thousands): Average 689,352 653,087 685,163 696,944 685,033 Year-end 698,344 681,158 665,796 697,747 693,423 Stockholders of record (year-end) 150,242 160,116 174,179 187,053 200,508 - ----------------------------------------------------------------------------------------------------------------------------- Customers (year-end) (in thousands): Residential 3,441 3,398 3,339 3,277 3,220 Commercial 539 527 513 497 479 Industrial 14 14 15 15 16 Other 4 5 4 5 5 - ----------------------------------------------------------------------------------------------------------------------------- Total 3,998 3,944 3,871 3,794 3,720 ============================================================================================================================= Employees (year-end) 26,122 26,021 26,269 25,206 24,682 - ----------------------------------------------------------------------------------------------------------------------------- Note: Common stock data in 2001 declined as a result of the Mirant spin off.
II-43
Selected Consolidated Financial and Operating Data 1997-2001 (continued) Southern Company and Subsidiary Companies 2001 Annual Report - ------------------------------------------------------------------------------------------------------------------------------------ 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (in millions): Residential $ 3,247 $ 3,361 $3,107 $3,167 $2,836 Commercial 2,966 2,918 2,745 2,766 2,594 Industrial 2,144 2,289 2,238 2,268 2,138 Other 83 32 - 79 77 - ------------------------------------------------------------------------------------------------------------------------------------ Total retail 8,440 8,600 8,090 8,280 7,645 Sales for resale within service area 338 377 350 374 376 Sales for resale outside service area 836 600 473 522 510 - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues from sales of electricity 9,614 9,577 8,913 9,176 8,531 Other revenues 541 489 404 323 243 - ------------------------------------------------------------------------------------------------------------------------------------ Total $10,155 $10,066 $9,317 $9,499 $8,774 ==================================================================================================================================== Kilowatt-Hour Sales (in millions): Residential 44,538 46,213 43,402 43,503 39,217 Commercial 46,939 46,249 43,387 41,737 38,926 Industrial 52,891 56,746 56,210 55,331 54,196 Other 977 970 945 929 903 - ------------------------------------------------------------------------------------------------------------------------------------ Total retail 145,345 150,178 143,944 141,500 133,242 Sales for resale within service area 9,388 9,579 9,440 9,847 9,884 Sales for resale outside service area 21,380 17,190 12,929 12,988 13,761 - ------------------------------------------------------------------------------------------------------------------------------------ Total 176,113 176,947 166,313 164,335 156,887 ==================================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 7.29 7.27 7.16 7.28 7.23 Commercial 6.32 6.31 6.33 6.63 6.66 Industrial 4.05 4.03 3.98 4.10 3.95 Total retail 5.81 5.73 5.62 5.85 5.74 Sales for resale 3.82 3.65 3.68 3.92 3.75 Total sales 5.46 5.41 5.36 5.58 5.44 Average Annual Kilowatt-Hour Use Per Residential Customer 13,014 13,702 13,107 13,379 12,296 Average Annual Revenue Per Residential Customer $948.83 $996.44 $938.39 $973.94 $889.29 Plant Nameplate Capacity Owned (year-end) (megawatts) 34,579 32,807 31,425 31,161 31,146 Maximum Peak-Hour Demand (megawatts): Winter 26,272 26,370 25,203 21,108 22,969 Summer 29,700 31,359 30,578 28,934 27,334 System Reserve Margin (at peak) (percent) 19.3 8.1 8.5 12.8 15.0 Annual Load Factor (percent) 62.0 60.2 59.2 60.0 59.4 Plant Availability (percent): Fossil-steam 88.1 86.8 83.3 85.2 88.2 Nuclear 90.8 90.5 89.9 87.8 88.8 - ------------------------------------------------------------------------------------------------------------------------------------ Source of Energy Supply (percent): Coal 67.5 72.3 73.1 72.8 74.7 Nuclear 15.2 15.1 15.7 15.4 16.5 Hydro 2.6 1.5 2.3 3.9 4.3 Oil and gas 8.4 4.0 2.8 3.3 1.7 Purchased power 6.3 7.1 6.1 4.6 2.8 - ------------------------------------------------------------------------------------------------------------------------------------ Total 100.0 100.0 100.0 100.0 100.0 ====================================================================================================================================
II-44 ALABAMA POWER COMPANY FINANCIAL SECTION II-45 MANAGEMENT'S REPORT Alabama Power Company 2001 Annual Report The management of Alabama Power Company has prepared -- and is responsible for - -- the financial statements and related information included in this report. These statements were prepared in accordance with accounting principles generally accepted in the United States and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that the accounting records reflect only authorized transactions of the Company. Limitations exist in any system of internal controls, however, based on a recognition that the cost of the system should not exceed its benefits. The Company believes its system of internal accounting controls maintains an appropriate cost/benefit relationship. The Company's system of internal accounting controls is evaluated on an ongoing basis by the Company's internal audit staff. The Company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, composed of four independent directors, provides a broad overview of management's financial reporting and control functions. Periodically, this committee meets with management, the internal auditors and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal controls, and financial reporting matters. The internal auditors and independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the Company's operations are conducted according to a high standard of business ethics. In management's opinion, the financial statements present fairly, in all material respects, the financial position, results of operations and cash flows of Alabama Power Company in conformity with accounting principles generally accepted in the United States. /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 February 13, 2002 II-46 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Alabama Power Company: We have audited the accompanying balance sheets and statements of capitalization of Alabama Power Company (an Alabama corporation and a wholly owned subsidiary of Southern Company) as of December 31, 2001 and 2000, and the related statements of income, common stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements (pages II-58 through II-76) referred to above present fairly, in all material respects, the financial position of Alabama Power Company as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. As explained in Note 1 to the financial statements, effective January 1, 2001, Alabama Power Company changed its method of accounting for derivative instruments and hedging activities. /s/Arthur Andersen LLP Birmingham, Alabama February 13, 2002 II-47 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Alabama Power Company 2001 Annual Report RESULTS OF OPERATIONS Earnings Alabama Power Company's 2001 net income after dividends on preferred stock was $387 million, representing a $33 million (7.9 percent) decrease from the prior year. This decline is primarily attributable to a decrease in territorial energy sales as a result of an economic downturn and milder temperatures. In 2000 earnings were $420 million, representing a 5 percent increase from the prior year. This improvement was primarily attributable to an increase in territorial sales partially offset by increased non-fuel operating expenses. The return on average common equity for 2001 was 11.89 percent compared to 13.58 percent in 2000 and 13.85 percent in 1999. Revenues Operating revenues for 2001 were $3.6 billion, reflecting a decrease from 2000. The following table summarizes the principal factors that have affected operating revenues for the past two years: Increase (Decrease) Amount From Prior Year -------------------------------------- 2001 2001 2000 - ----------------------------------------------------------------- (in thousands) Retail -- Base revenues $2,033,814 $ (75,125) $ 80,264 Fuel cost recovery and other 713,859 (129,909) 61,326 - ----------------------------------------------------------------- Total retail 2,747,673 (205,034) 141,590 - ----------------------------------------------------------------- Sales for resale -- Non-affiliates 485,974 24,244 46,353 Affiliates 245,189 78,970 73,780 - ----------------------------------------------------------------- Total sales for resale 731,163 103,214 120,133 Other operating revenues 107,554 20,749 20,264 - ----------------------------------------------------------------- Total operating revenues $3,586,390 $ (81,071) $281,987 ================================================================= Percent change (2.21)% 8.33% - ----------------------------------------------------------------- Retail revenues of $2.7 billion in 2001 decreased $205 million (6.9 percent) from the prior year, compared with an increase of $142 million (5 percent) in 2000. The primary contributors to the decrease in revenues in 2001 were the negative impact of milder temperatures on energy sales, an economic downturn in the Company's service territory, and a decrease in fuel revenues. Fuel revenues have no effect on net income because they represent the recording of revenues to offset fuel expenses. Fuel rates billed to customers are designed to fully recover fluctuating fuel costs over a period of time. Lower natural gas prices, an increased fuel rate, and increased hydro production combined with decreased costs of purchased power have resulted in a $154 million (65 percent) reduction in under-recovered fuel costs at December 31, 2001 compared with the prior year. The Company expects to continue to reduce the balance of $83 million during 2002. II-48 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 2001 Annual Report Other operating revenues in 2001 increased $21 million (23.9 percent) over 2000. This increase is primarily attributed to increased steam sales in conjunction with the operation of the Company's co-generation facilities, fuel sales, and rent from electric property. Since co-generation steam revenues are generally offset by fuel expenses, these revenues did not have a significant impact on earnings. The $20 million (30.5 percent) increase in other operating revenues in 2000 as compared to 1999 was due primarily to an increase in steam sales in conjunction with the operation of the Company's co-generation facilities. Energy sales for resale outside the service area are predominantly unit power sales under long-term contracts to Florida utilities. Economy energy and energy sold under short-term contracts are also sold for resale outside the service area. Revenues from long-term power contracts have both a capacity and energy component. Capacity revenues reflect the recovery of fixed costs and a return on investment under the contracts. Energy is generally sold at variable cost. These capacity and energy components of the unit power contracts were as follows: 2001 2000 1999 ------------------------------------------- (in millions) Capacity $125 $127 $122 Energy 134 128 112 ------------------------------------------------------------ Total $259 $255 $234 ============================================================ Capacity revenues from non-affiliates were relatively unchanged in 2001 compared to the prior two years. There are no scheduled declines in capacity until the termination of the contracts in 2010. Revenues from sales to affiliated companies within the Southern electric system, as well as purchases of energy, will vary from year to year depending on demand and the availability and cost of generating resources at each company. These transactions did not have a significant impact on earnings. Kilowatt-hour (KWH) sales for 2001 and the percent change by year were as follows: KWH Percent Change ---------------------------------------- 2001 2001 2000 ---------------------------------------- (millions) Residential 15,881 (5.3)% 6.8% Commercial 12,799 (1.5) 5.5 Industrial 20,460 (7.4) 0.7 Other 198 (3.9) 2.3 ------------ Total retail 49,338 (5.2) 3.8 Sales for resale - Non-affiliates 15,278 2.9 19.4 Affiliates 8,843 64.7 6.7 ------------ Total 73,459 1.6 6.9 - ----------------------------------------------------------------- Retail energy sales in 2001 decreased by 5.2 percent due to milder temperatures and an economic downturn in the Company's service area. This was offset by an increase in sales for resale to affiliates. Increased operation of the Company's combined cycle facilities due to lower natural gas prices and an increase in the Company's combined cycle capacity contributed to the increase in sales for resale. The increase in 2000 retail energy sales was primarily due to the strength of business and economic conditions in the Company's service area. Residential energy sales experienced a 6.8 percent increase over the prior year primarily as a result of warmer summer temperatures and cold winter weather conditions compared to 1999. Expenses In 2001 total operating expenses of $2.7 billion were down $50 million or 1.8 percent compared with 2000. This decline is mainly due to an $18 million net decrease in fuel and purchased power costs and a $56 million decrease in non-production operation and maintenance expenses, offset by a $19 million increase in depreciation. Fuel expenses, including purchased power, are offset by fuel revenues and have no effect on net income. In 2000 total operating expenses of $2.7 billion were up $235 million or 9.4 percent compared with the prior year. This increase was mainly due to a $183 million increase in fuel and purchased power costs, accompanied by a $23 million increase in maintenance expenses. II-49 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 2001 Annual Report Fuel costs constitute the single largest expense for the Company. The mix of fuel sources for generation of electricity is determined primarily by system load, the unit cost of fuel consumed, and the availability of hydro and nuclear generating units. The amount and sources of generation and the average cost of fuel per net KWH generated were as follows: -------------------------- 2001 2000 1999 -------------------------- Total generation (billions of KWHs) 68 65 63 Sources of generation (percent) -- Coal 64 72 72 Nuclear 18 19 20 Hydro 6 3 5 Oil & Gas 12 6 3 Average cost of fuel per net KWH generated (cents) -- 1.56 1.54 1.44 ============================================================== In 2001, total fuel and purchased power costs of $1.3 billion decreased $18 million (1.4 percent), while total energy sales increased 1,174 million kilowatt hours (1.6 percent) compared with the amounts recorded in 2000. Fuel and purchased power costs in 2000 increased $183 million (16 percent) compared to 1999. Purchased power consists of purchases from affiliates in the Southern electric system and non-affiliated companies. Purchased power transactions among the Company and its affiliates will vary from period to period depending on demand, the availability, and the variable production cost of generating resources at each company. During 2001 purchased power transactions from non-affiliates decreased $20 million (12 percent) due to the addition in May 2001 of a combined cycle unit and an 82 percent increase in hydro generation compared to the previous year. The hydro generation increase occurred from greater stream flows in 2001 compared to the previous year. The 6 percent decrease in other operation expense in 2001 as compared to 2000 is primarily due to a decrease in administrative and general expenses, which can be mainly attributed to insurance refunds. The 8.5 percent decrease in maintenance expense in 2001 as compared to 2000 is primarily due to a decrease in power production expense as a result of timing of maintenance for steam power generation facilities. The 8.4 percent increase in maintenance expense in 2000 as compared to 1999 is primarily attributable to an increase in the maintenance of overhead distribution lines and additional accruals to partially replenish the natural disaster reserve. Depreciation and amortization expense increased 5.2 percent in 2001 and 4.9 percent in 2000. These increases reflect additions to property, plant, and equipment. Total net interest and other charges increased $10 million (4.0 percent) in 2001. The increase reflected a decrease in Allowance for Funds Used During Construction (AFUDC) resulting in a smaller credit to interest expense than was recorded in 2000. Total net interest and other charges increased $19 million (7.9 percent) in 2000 primarily from an increase in interest on long-term debt offset by an increase in AFUDC, which resulted in a larger credit to interest expense. Effects of Inflation The Company is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the Company is recovering its costs of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on the Company because of the large investment in utility plant with long economic lives. Conventional accounting for historical cost does not recognize this economic loss nor the partially offsetting gain that arises through financing facilities with fixed-money obligations, such as long-term debt and preferred securities. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. Future Earnings Potential General The results of continuing operations for the past three years are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors. The major factor is the ability of the Company to achieve energy sales growth while containing cost in a more competitive environment. Growth in energy sales is subject to a number of factors. These factors include weather, competition, new short- and long-term II-50 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 2001 Annual Report contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, and the rate of economic growth in the Company's service area. Assuming normal weather, sales to retail customers are projected to grow approximately 2.4 percent annually on average during 2002 through 2006. The Company currently operates as a vertically integrated utility providing electricity to customers within its traditional service area located in the state of Alabama. Prices for electricity provided by the Company to retail customers are set by the Alabama Public Service Commission (APSC) under cost-based regulatory principles. Rates to retail customers served by the Company are regulated by the APSC. Rates for the Company can be adjusted periodically within certain limitations based on earned retail rate of return compared with an allowed return. The rates also provide for adjustments to recognize the placing of new generating facilities into retail service under Rate CNP (Certificated New Plant). Effective July 2001, the Company's retail rates were adjusted by 0.6 percent under Rate CNP to recover costs for Plant Barry Unit 7, which was placed into commercial operation on May 1, 2001. Most recently, a 2 percent increase in retail rates was effective in October 2001, in accordance with the Rate Stabilization Equalization plan. See Note 3 to the financial statements under "Retail Rate Adjustment Procedures" for additional information. In December 1995, the APSC issued an order authorizing the Company to reduce balance sheet items-- such as plant and deferred charges -- at any time the Company's actual base rate revenues exceed the budgeted revenues. In April 2000, the APSC approved an amendment to the Company's existing rate structure to provide for the recovery of retail costs associated with certified purchased power agreements. In November 2000 the APSC certified a seven-year purchased power agreement pertaining to 615 megawatts of the wholesale generating facilities, which were sold to Southern Power in June 2001 and are under construction in Autaugaville, Alabama. All of the 615 megawatts will be delivered beginning in 2003. In addition the APSC certified a seven-year purchased power agreement with a third party for approximately 630 megawatts; one half of the power will be delivered beginning in 2003 while the remaining half is scheduled for delivery beginning in 2004. Rate CNP will adjust retail rates when the contracted capacity delivery begins. In accordance with Financial Accounting Standards Board (FASB) Statement No. 87, Employers' Accounting for Pensions, the Company recorded non-cash income of approximately $57 million in 2001. Future pension income is dependent on several factors including trust earnings and changes to the plan. For the Company, pension income is a component of the regulated rates and does not have a significant effect on net income. For more information see Note 2 to the financial statements. The Company is involved in various matters being litigated. See Note 3 to the financial statements for information regarding material issues that could possibly affect future earnings. Compliance costs related to current and future environmental laws, regulations, and litigation could affect earnings if such costs are not fully recovered. The Clean Air Act and other important environmental items are discussed later under "Environmental Matters." Industry Restructuring The electric utility industry in the United States is continuing to evolve as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). The Energy Act allows independent power producers (IPPs) to access a utility's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for a utility's large industrial and/or commercial customers and sell excess energy generation to other utilities. Also, electricity sales for resale rates are affected by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. Although the Energy Act does not permit retail customer access, it was a major catalyst for the recent restructuring and consolidation taking place within the utility industry. Numerous federal and state initiatives are in varying stages to promote wholesale and retail competition. Among other things these initiatives allow customers to choose their electricity provider. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While various restructuring and II-51 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 2001 Annual Report competition initiatives have been discussed in Alabama, none have been enacted. In October 2000 the APSC completed a two-year study of electric industry restructuring, concluding that (i) restructuring of the electric utility industry in Alabama was not in the public interest and (ii) the APSC itself would not mandate retail competition or electric industry restructuring without enabling state legislation. Electric utility restructuring would require numerous issues to be resolved, including significant ones relating to recovery of any stranded investments, full cost recovery of energy produced, and other issues related to the energy crisis that occurred in California. As a result of that crisis, many states have either discontinued or delayed implementation of initiatives involving retail deregulation. Continuing to be a low-cost producer could provide opportunities to increase market share and profitability in markets that evolve with changing regulation. Conversely, if the Company does not remain a low-cost producer and provide quality service, then energy sales growth could be limited, and this could significantly erode earnings. The Company had 1,230 megawatts of wholesale generating facilities under construction in 2001 at Autaugaville, Alabama. In June 2001 the Company sold this project to Southern Power Company, a new Southern Company subsidiary formed in 2001 to construct, own, and manage wholesale generating assets in the Southeast. The Company has entered into a purchased power agreement with Southern Power, through May 2010, for half of the capacity of these generating facilities. In December 1999, the Federal Energy Regulatory Commission (FERC) issued its final ruling on Regional Transmission Organizations (RTOs). The order encouraged utilities owning transmission systems to form RTOs on a voluntary basis. Southern Company and its operating companies, including the Company, have submitted a series of status reports informing the FERC of progress toward the development of a Southeastern RTO. In these status reports, Southern Company explained that it is developing a for-profit RTO known as SeTrans with a number of non-jurisdictional cooperative and public power entities. Recently, Entergy Corporation and Cleco Power joined the SeTrans development process. In January 2002 the sponsors of SeTrans held a public meeting to form a Stakeholder Advisory Committee, which will participate in the development of the RTO. Southern Company continues to work with the other sponsors to develop the SeTrans RTO. The creation of SeTrans is not expected to have a material impact on the Company's financial statements. The outcome of this matter cannot now be determined. Accounting Standards Critical Policy The Company's significant accounting policies are described in Note 1 to the financial statements. The Company's most critical accounting policy involves rate regulation. The Company is subject to the provisions of FASB Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of the Company's operation is no longer subject to these provisions, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable and determine if any other assets have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. New Accounting Standards Effective January 2001, the Company adopted FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Statement No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. This statement requires that certain derivative instruments be recorded in the balance sheet as either an asset or liability measured at fair value, and that changes in the fair value be recognized currently in earnings unless specific hedge accounting criteria are met. See Note 1 to the financial statements under "Financial Instruments" for additional information. The impact on net income in 2001 was not material. An additional interpretation of Statement No. 133 will result in a change - effective April 1, 2002 - in accounting for certain contracts related to fuel supplies that contain quantity options. These contracts will be accounted for as derivatives and marked to market. However, due to the existence of the Company's cost-based fuel recovery clause, this change is not expected to have a material impact on net income. In June 2001 the FASB issued Statement No. 142, Goodwill and Other Intangible Assets, which establishes new accounting and reporting standards for acquired goodwill and other intangible assets and supersedes Accounting Principles Board Opinion No. 17. Statement No. 142 addresses how intangible assets that are II-52 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 2001 Annual Report acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for upon acquisition and on an ongoing basis. Goodwill and intangible assets that have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. Intangible assets that have finite useful lives will continue to be amortized over their useful lives, which are no longer limited to 40 years. The Company adopted Statement No.142 in January 2002 with no material impact on the financial statements. Also in June 2001, the FASB issued Statement No. 143, Asset Retirement Obligations, which establishes new accounting and reporting standards for legal obligations associated with retiring assets, including decommissioning of nuclear plants. The liability 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. Changes in the liability resulting from the passage of time will be recognized as operating expenses. Statement No. 143 must be adopted by January 1, 2003. The Company has not yet quantified the impact of adopting Statement No. 143 on its financial statements. FINANCIAL CONDITION Overview In 2001, despite significant cost control measures, the Company's earnings were adversely impacted by an economic downturn and milder temperatures. However, over the last several years the Company's financial condition has remained stable as a result of growth in retail energy sales and cost control measures combined with significant lowering of the cost of capital, achieved through the refinancing and/or redemption of higher-cost long-term debt and preferred stock. The Company had gross property additions of $636 million in 2001. The majority of funds needed for gross property additions for the last several years have been provided from operating activities, principally from earnings and non-cash charges to income such as depreciation and deferred income taxes. The Statements of Cash Flows provide additional details. Credit Rating Risk The Company 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 Risk Due to cost-based rate regulation, the Company has limited exposure to market volatility in interest rates, commodity fuel prices, and prices of electricity. To mitigate residual risks relative to movements in electricity prices, the Company enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market. Realized gains and losses are recognized in the income statement as incurred. At December 31, 2001, exposure from these activities was not material to the Company's financial position, results of operations, or cash flows. Fair value of changes in energy trading contracts and year-end valuations are as follows: Changes During the Year ------------------ Fair Value - --------------------------------------------------------------- (in thousands) Contracts beginning of year $ 567 Contracts realized or settled (509) New contracts at inception - Changes in valuation techniques - Current period changes 156 - --------------------------------------------------------------- Contracts end of year $ 214 =============================================================== Source of Year-End Valuation Prices ------------------------------------ Maturity Total ---------------------- Fair Value Year 1 1-3 Years - ------------------------------------------------------------------ (in thousands) - ------------------------------------------------------------------ Actively quoted $(4,840) $(4,801) $(39) External sources 5,054 5,054 - Models and other methods - - - - ------------------------------------------------------------------ Contracts end of Year $ 214 $ 253 $(39) ================================================================== Also, based on the Company's overall variable rate long-term debt exposure at December 31, 2001, a near-term 100 basis point change in interest rates would not materially affect the financial statements. For additional information, see Note 1 to the financial statements under "Financial Instruments." In October 2001, the APSC approved a revision to the Company's Rate ECR (Energy Cost Recovery) allowing the recovery of specific costs associated with II-53 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 2001 Annual Report the sales of natural gas that become necessary due to operating considerations at its electric generating facilities. This revision also includes the cost of financial tools used for hedging market price risk up to 75 percent of the budgeted annual amount of natural gas purchases. The Company may not engage in natural gas hedging activities that extend beyond a rolling 42-month window. Capital Structure The Company's ratio of common equity to total capitalization -- including short-term debt -- was 42.8 percent in 2001, 42.2 percent in 2000, and 42.4 percent in 1999. In August 2001, the Company issued $442 million of senior notes, the proceeds of which were used to redeem the $131.5 million outstanding principal of its First Mortgage Bonds, 9% Series due December 1, 2004 and for other corporate purposes, including the repayment of a portion of its short-term indebtedness. Capital Requirements Capital expenditures are estimated to be $671 million for 2002, $592 million for 2003, and $673 million for 2004. See Note 4 to the financial statements for additional details. Actual construction costs may vary from estimates because of changes in such factors as: business conditions; environmental regulations; nuclear plant regulations; load projections; the cost and efficiency of construction labor, equipment, and materials; and the cost of capital. In addition there can be no assurance that costs related to capital expenditures will be fully recovered. Other Capital Requirements In addition to the funds required for the Company's construction program, approximately $1.1 billion will be required by the end of 2004 for present sinking fund requirements and maturities of long-term debt. The Company plans to continue, when economically feasible, to retire higher cost debt and preferred stock and replace these obligations with lower-cost capital if market conditions permit. These capital requirements, lease obligations, and purchase commitments - discussed in notes 4 and 8 to the financial statements - are as follows: 2002 2003 2004 - ----------------------------------------------------------------- (in millions) Bonds - First mortgage $ 4.5 $ - $ - Pollution control - - - Senior Notes - 573.2 525.0 Leases - Capital 0.9 0.9 1.0 Operating 27.9 26.5 25.5 Purchase commitments - Fuel 795.0 794.0 801.0 Purchased Power - 53.0 83.0 - ----------------------------------------------------------------- At the beginning of 2002, the Company had not used any of its available credit arrangements. Credit arrangements are as follows: Expires ---------------------------------- Total Unused 2002 2003 & Beyond - ----------------------------------------------------------------- (in millions) $964 $964 $574 $390 - ----------------------------------------------------------------- Environmental Matters In November 1990, the Clean Air Act Amendments of 1990 (Clean Air Act) were signed into law. Title IV of the Clean Air Act -- the acid rain compliance provision of the law -- significantly affected Southern Company. Reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants were required in two phases. Phase I compliance began in 1995. Southern Company achieved Phase I compliance at its affected plants by primarily switching to low-sulfur coal and with some equipment upgrades. Construction expenditures for Phase I nitrogen oxide and sulfur dioxide emissions compliance totaled approximately $25 million for the Company. Phase II sulfur dioxide compliance was required in 2000. The Company used emission allowances and fuel switching to comply with Phase II requirements. Also, equipment to control nitrogen oxide emissions was installed on additional system fossil-fired units as necessary to meet Phase II limits. Compliance with Phase II increased the Company's total construction expenditures through 2000 by $63 million. II-54 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 2001 Annual Report In December 2000, the Alabama Department of Environmental Management adopted revisions to the State Implementation Plan for meeting the one-hour ozone standard. New emission limits to comply with these requirements must be implemented in May 2003. Two generating plants will be affected in the Birmingham area. Capital expenditures for compliance with these new rules are currently estimated at approximately $240 million, of which $170 million remains to be spent. In July 1997, the Environmental Protection Agency (EPA) revised the national ambient air quality standards for ozone and particulate matter. This revision made the standards significantly more stringent. In the subsequent litigation of these standards, the U. S. Supreme Court found the EPA's implementation program for the new ozone standard unlawful and remanded it to the EPA. In addition, the Federal District of Columbia Circuit Court of Appeals is considering other legal challenges to these standards. A court decision is expected in the spring of 2002. If the standards are eventually upheld, implementation could be required by 2007 to 2010. In September 1998, the EPA issued nitrogen oxide reduction rules to the states for implementation. The final rule affects 21 states, including Alabama. Compliance is required by May 31, 2004 for most states including Alabama. Capital expenditures for compliance with these new rules are currently estimated at approximately $175 million. A significant portion of costs related to the acid rain and ozone non-attainment provisions of the Clean Air Act is expected to be recovered through existing ratemaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. On November 3, 1999, the EPA brought a civil action against the Company in the U.S. District Court in Atlanta, Georgia. The complaint alleges violations of the New Source Review provisions of the Clean Air Act with respect to coal-fired generating facilities at the Company's Plants Miller, Barry, and Gorgas. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The EPA concurrently issued to the Company a notice of violation relating to these specific facilities, as well as Plants Greene County and Gaston. In early 2000 the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. The complaint and notice of violation allege that the Company had failed to secure necessary permits or install additional pollution control equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. In August 2000, the U.S. District Court in Georgia granted the Company's motion to dismiss for lack of jurisdiction in Georgia. On January 12, 2001, the EPA re-filed its claims against the Company in federal district court in Birmingham, Alabama. The case has been stayed since the spring of 2001, pending a ruling by the U.S. Court of Appeals for the Eleventh Circuit in the appeal of a very similar New Source Review enforcement action against the Tennessee Valley Authority (TVA). The TVA case involves many of the same legal issues raised by the actions against the Company. Because the outcome of the TVA case could have a significant adverse impact on the Company, it is party to that case as well. The U.S. District Court in Alabama has indicated that it will revisit the issue of a continued stay in April 2002. The Company believes that it complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. However, an adverse outcome in this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. This could affect future results of operations, cash flows, and possibly financial condition unless such costs can be recovered through regulated rates. In December 2000, having completed its utility studies for mercury and other hazardous air pollutants (HAPS), the EPA issued a determination that an emission control program for mercury, and perhaps other HAPS is warranted. The program is being developed under the Maximum Achievable Control Technology provisions of the Clean Air Act, and the regulations are scheduled to be finalized by the end of 2004 with implementation to take place around 2007. In January 2001, the EPA proposed guidance for the determination of Best Available Retrofit Technology (BART) emission controls under the Regional Haze Regulations. Installation of BART controls is expected to take place around 2010. Litigation of the Regional II-55 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 2001 Annual Report Haze Regulations, including the BART provisions, is ongoing in the Federal District of Columbia Circuit Court of Appeals. A court decision is expected in mid-2002. Implementation of the final state rules for these initiatives could require substantial further reductions in nitrogen oxide and sulfur dioxide and reductions in mercury and other HAPS emissions from fossil-fired generating facilities and other industries in these states. Additional compliance costs and capital expenditures resulting from the implementation of these rules and standards cannot be determined until the results of legal challenges are known, and the states have adopted their final rules. In October 1997, the EPA issued regulations setting forth requirements for Compliance Assurance Monitoring (CAM) in its state and federal operating permit programs. These regulations were amended by the EPA in March 2001 in response to a court order resolving challenges to the rules brought by environmental groups and industry. Generally, this rule affects the operation and maintenance of electrostatic precipitators and could involve significant additional ongoing expense. The EPA and state environmental regulatory agencies are reviewing and evaluating various other matters including: control strategies to reduce regional haze; limits on pollutant discharges to impaired waters; cooling water intake restrictions; and hazardous waste disposal requirements. The impact of any new standards will depend on the development and implementation of applicable regulations. The Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the Company could incur substantial costs to clean up properties. The Company conducts studies to determine the extent of any required cleanup and will recognize in the financial statements costs to clean up known sites. The Company has not incurred any significant cleanup costs to date. Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of the Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, and other environmental and health concerns could significantly affect the Company. The impact of new legislation -- if any -- will depend on the subsequent development and implementation of applicable regulations. Sources of Capital The Company plans to obtain the funds required for construction and other purposes from sources similar to those used in the past, which were primarily from internal sources. However, the type and timing of any financings - if needed - will depend on market conditions and regulatory approval. In recent years financings primarily have utilized unsecured debt and trust preferred securities. The Company may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper at the request and for the benefit of the Company and the other Southern Company operating companies. At December 31, 2001, the Company had outstanding $10 million of commercial paper. As required by the Nuclear Regulatory Commission and as ordered by the APSC, the Company has established external trust funds for nuclear decommissioning costs. In 1994 the Company also established an external trust fund for postretirement benefits as ordered by the APSC. The cumulative effect of funding these items over a long period will diminish internally funded capital and may require capital from other sources. For additional information concerning nuclear decommissioning costs, see Note 1 to the financial statements under "Depreciation and Nuclear Decommissioning." Cautionary Statement Regarding Forward-Looking Information This Annual Report includes forward-looking statements in addition to historical information. Forward-looking information includes, among other things, statements concerning projected retail sales growth and scheduled completion of new generation. In some cases forward-looking statements can be identified by terminology such as "may," "will," "should," "could," "expects," "plans," II-56 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 2001 Annual Report "anticipates," "believes," "estimates," "predicts," "projects," "potential," "continue," or the negative of these terms or other comparable terminology. The Company cautions 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 the Company is subject, as well as changes in application of existing laws and regulations; current and future litigation, including the pending EPA civil action against the Company; 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; 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 the Company; the effects of and changes in economic conditions in the areas in which the Company operates; the direct or indirect effects on the 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 the Company's new product and service offerings; the ability of the Company to obtain additional generating capacity at competitive prices; weather and other natural phenomena; and other factors discussed elsewhere herein and in other reports (including Form 10-K) filed from time to time by the Company with the Securities and Exchange Commission. II-57
STATEMENTS OF INCOME For the Years Ended December 31, 2001, 2000, and 1999 Alabama Power Company 2001 Annual Report - --------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues: Retail sales $2,747,673 $2,952,707 $2,811,117 Sales for resale -- Non-affiliates 485,974 461,730 415,377 Affiliates 245,189 166,219 92,439 Other revenues 107,554 86,805 66,541 - --------------------------------------------------------------------------------------------------------------------- Total operating revenues 3,586,390 3,667,461 3,385,474 - --------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 1,000,828 963,275 855,632 Purchased power -- Non-affiliates 144,991 164,881 93,204 Affiliates 147,967 184,014 180,563 Other 508,264 538,529 531,696 Maintenance 275,510 301,046 277,724 Depreciation and amortization 383,473 364,618 347,574 Taxes other than income taxes 214,665 209,673 204,645 - --------------------------------------------------------------------------------------------------------------------- Total operating expenses 2,675,698 2,726,036 2,491,038 - --------------------------------------------------------------------------------------------------------------------- Operating Income 910,692 941,425 894,436 Other Income (Expense): Interest income, net 15,101 16,152 15,671 Equity in earnings of unconsolidated subsidiaries (Note 5) 4,494 3,156 2,650 Other, net (8,579) (2,226) (12,805) - --------------------------------------------------------------------------------------------------------------------- Earnings Before Interest and Income Taxes 921,708 958,507 899,952 - --------------------------------------------------------------------------------------------------------------------- Interest and Other: Interest expense, net 246,436 235,331 217,066 Distributions on preferred securities of subsidiary (Note 8) 24,775 25,549 24,662 - --------------------------------------------------------------------------------------------------------------------- Total interest and other, net 271,211 260,880 241,728 - --------------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes 650,497 697,627 658,224 Income taxes (Note 7) 248,597 261,555 241,880 - --------------------------------------------------------------------------------------------------------------------- Earnings Before Cumulative Effect of 401,900 436,072 416,344 Accounting Change Cumulative effect of accounting change less income taxes of $215 thousand 353 - - - --------------------------------------------------------------------------------------------------------------------- Net Income 402,253 436,072 416,344 Dividends on Preferred Stock 15,524 16,156 16,464 - --------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 386,729 $ 419,916 $ 399,880 ===================================================================================================================== The accompanying notes are an integral part of these statements.
II-58
STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2001, 2000, and 1999 Alabama Power Company 2001 Annual Report - ---------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $ 402,253 $ 436,072 $ 416,344 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 437,490 412,998 403,332 Deferred income taxes and investment tax credits, net (21,569) 66,166 29,039 Other, net (122,651) (37,703) (12,661) Changes in certain current assets and liabilities -- Receivables, net 88,325 (125,652) 33,509 Fossil fuel stock (38,663) 23,967 (1,344) Materials and supplies (13,025) (10,662) (17,968) Accounts payable (83,077) 107,702 (38,556) Energy cost recovery, retail 154,320 (69,190) (97,869) Other 34,503 23,336 5,930 - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 837,906 827,034 719,756 - ---------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (635,540) (870,581) (809,044) Sales of property 102,068 - - Other (34,771) (49,414) (72,218) - ---------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (568,243) (919,995) (881,262) - ---------------------------------------------------------------------------------------------------------------------------- Financing Activities: Increase (decrease) in notes payable, net (271,347) 184,519 96,824 Proceeds -- Common stock 15,642 - - Other long-term debt 477,000 250,000 751,650 Preferred securities - - 50,000 Capital contributions from parent company 107,313 204,371 204,347 Redemptions -- First mortgage bonds (138,991) (111,009) (470,000) Other long-term debt (19,021) (5,987) (104,836) Preferred stock - - (50,000) Payment of preferred stock dividends (14,942) (16,110) (15,788) Payment of common stock dividends (393,900) (417,100) (399,600) Other (9,908) (951) (15,864) - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (248,154) 87,733 46,733 - ---------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents 21,509 (5,228) (114,773) Cash and Cash Equivalents at Beginning of Period 14,247 19,475 134,248 - ---------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 35,756 $ 14,247 $ 19,475 ============================================================================================================================ Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of amount capitalized) $246,316 $237,066 $229,305 Income taxes (net of refunds) 223,961 175,303 170,121 - ------------------------------------------------------------------------------------------------------------------------------------ The accompanying notes are an integral part of these statements.
II-59
BALANCE SHEETS At December 31, 2001 and 2000 Alabama Power Company 2001 Annual Report - ------------------------------------------------------------------------------------------------------------------- Assets 2001 2000 - ------------------------------------------------------------------------------------------------------------------- (in thousands) Current Assets: Cash and cash equivalents $ 35,756 $ 14,247 Receivables -- Customer accounts receivable 281,985 337,870 Under-recovered retail fuel clause revenue 83,497 237,817 Other accounts and notes receivable 49,940 60,315 Affiliated companies 72,639 95,704 Accumulated provision for uncollectible accounts (5,237) (6,237) Refundable income taxes - - Fossil fuel stock, at average cost 99,278 60,615 Materials and supplies, at average cost 191,324 178,299 Other 74,640 52,624 - ------------------------------------------------------------------------------------------------------------------- Total current assets 883,822 1,031,254 - ------------------------------------------------------------------------------------------------------------------- Property, Plant, and Equipment: In service 13,159,560 12,431,575 Less accumulated provision for depreciation 5,309,557 5,107,822 - ------------------------------------------------------------------------------------------------------------------- 7,850,003 7,323,753 Nuclear fuel, at amortized cost 88,777 94,050 Construction work in progress 357,906 744,974 - ------------------------------------------------------------------------------------------------------------------- Total property, plant, and equipment 8,296,686 8,162,777 - ------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Equity investments in unconsolidated subsidiaries (Note 5) 44,742 38,623 Nuclear decommissioning trusts 317,508 313,895 Other 12,244 13,612 - ------------------------------------------------------------------------------------------------------------------- Total other property and investments 374,494 366,130 - ------------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes (Note 7) 334,830 345,550 Prepaid pension costs 314,100 255,256 Debt expense, being amortized 8,150 8,758 Premium on reacquired debt, being amortized 77,173 76,020 Department of Energy assessments 21,015 24,588 Other 108,031 95,772 - ------------------------------------------------------------------------------------------------------------------- Total deferred charges and other assets 863,299 805,944 - ------------------------------------------------------------------------------------------------------------------- Total Assets $10,418,301 $10,366,105 =================================================================================================================== The accompanying notes are an integral part of these balance sheets.
II-60
BALANCE SHEETS At December 31, 2001 and 2000 Alabama Power Company 2001 Annual Report - -------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholder's Equity 2001 2000 - -------------------------------------------------------------------------------------------------------------------------- (in thousands) Current Liabilities: Securities due within one year (Note 8) $ 5,382 $ 844 Notes payable 9,996 281,343 Accounts payable -- Affiliated 98,268 124,534 Other 151,705 209,205 Customer deposits 42,124 36,814 Taxes accrued -- Income taxes 113,003 65,505 Other 19,023 19,471 Interest accrued 35,522 33,186 Vacation pay accrued 32,324 31,711 Other 93,589 97,743 - -------------------------------------------------------------------------------------------------------------------------- Total current liabilities 600,936 900,356 - -------------------------------------------------------------------------------------------------------------------------- Long-term debt (See accompanying statements) 3,742,346 3,425,527 - -------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 7) 1,387,661 1,401,424 Deferred credits related to income taxes (Note 7) 202,881 222,485 Accumulated deferred investment tax credits 238,225 249,280 Employee benefits provisions 99,919 71,813 Prepaid capacity revenues (Note 6) 40,730 58,377 Other 130,214 176,559 - -------------------------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 2,099,630 2,179,938 - -------------------------------------------------------------------------------------------------------------------------- Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding company junior subordinated notes (See accompanying statements) (Note 8) 347,000 347,000 - -------------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock (See accompanying statements) 317,512 317,512 - -------------------------------------------------------------------------------------------------------------------------- Common stockholder's equity (See accompanying statements) 3,310,877 3,195,772 - -------------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholder's Equity $10,418,301 $10,366,105 ========================================================================================================================== The accompanying notes are an integral part of these balance sheets.
II-61
STATEMENTS OF CAPITALIZATION At December 31, 2001 and 2000 Alabama Power Company 2001 Annual Report - ---------------------------------------------------------------------------------------------------------------------------------- 2001 2000 2001 2000 - ---------------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Long-Term Debt: First mortgage bonds -- Maturity Interest Rates -------- -------------- 2023 through 2024 7.30% - 7.75% $350,000 $488,991 - ---------------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 350,000 488,991 - ---------------------------------------------------------------------------------------------------------------------------------- Senior notes -- Variable rate (2.28% at 1/1/02) due March 3, 2003 167,000 - 5.35% due November 15, 2003 156,200 156,200 7.850% due May 15, 2003 250,000 250,000 7.125% due August 15, 2004 250,000 250,000 4.875% due September 1, 2004 275,000 - 5.49% due November 1, 2005 225,000 225,000 7.125% due October 1, 2007 200,000 200,000 5.375% due October 1, 2008 160,000 160,000 6.25% to 7.125% due 2010-2048 1,199,402 1,202,581 - ---------------------------------------------------------------------------------------------------------------------------------- Total senior notes 2,882,602 2,443,781 - ---------------------------------------------------------------------------------------------------------------------------------- Other long-term debt -- Pollution control revenue bonds -- Collateralized: 5.50% due 2024 24,400 24,400 Variable rates (1.61% to 1.95% at 1/1/02) due 2015-2017 89,800 89,800 Non-collateralized: 6.69% due 2021 50,000 65,000 Variable rates (1.75% to 2.05% at 1/1/02) due 2021-2031 395,940 360,940 - ---------------------------------------------------------------------------------------------------------------------------------- Total other long-term debt (Note 8) 560,140 540,140 - ---------------------------------------------------------------------------------------------------------------------------------- Capitalized lease obligations 3,323 4,165 - ---------------------------------------------------------------------------------------------------------------------------------- Unamortized debt premium (discount), net (48,337) (50,706) - ---------------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $217.2 million) 3,747,728 3,426,371 Less amount due within one year 5,382 844 - ---------------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year $3,742,346 $3,425,527 48.5% 46.9% - ----------------------------------------------------------------------------------------------------------------------------------
II-62
STATEMENTS OF CAPITALIZATION (continued) At December 31, 2001 and 2000 Alabama Power Company 2001 Annual Report - -------------------------------------------------------------------------------------------------------------------------- 2001 2000 2001 2000 - -------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Company Obligated Mandatorily Redeemable Preferred Securities: (Note 8) $25 liquidation value -- 7.375% $ 97,000 $ 97,000 7.60% 200,000 200,000 Auction rate (3.60% at 1/1/02) 50,000 50,000 - -------------------------------------------------------------------------------------------------------------------------- Total (annual distribution requirement -- $24.2 million) 347,000 347,000 4.5 4.8 - -------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock: $100 par or stated value -- 4.20% to 4.92% 47,512 47,512 $25 par or stated value -- 5.20% to 5.83% 200,000 200,000 Auction rates -- at 1/1/02 3.10% to 3.557% 70,000 70,000 - -------------------------------------------------------------------------------------------------------------------------- Total (annual dividend requirement -- $15.2 million) 317,512 317,512 4.1 4.4 - -------------------------------------------------------------------------------------------------------------------------- Common Stockholder's Equity: Common stock, par value $40 per share -- Authorized - 6,000,000 shares Outstanding - 6,000,000 shares in 2001 and 5,608,955 shares in 2000 Par value 240,000 224,358 Paid-in capital 1,850,676 1,743,363 Premium on Preferred Stock 99 99 Retained earnings 1,220,102 1,227,952 - -------------------------------------------------------------------------------------------------------------------------- Total common stockholder's equity 3,310,877 3,195,772 42.9 43.9 - -------------------------------------------------------------------------------------------------------------------------- Total Capitalization $7,717,735 $7,285,811 100.0% 100.0% ========================================================================================================================== The accompanying notes are an integral part of these statements.
II-63
STATEMENTS OF COMMON STOCKHOLDER'S EQUITY For the Years Ended December 31, 2001, 2000, and 1999 Alabama Power Company 2001 Annual Report - ----------------------------------------------------------------------------------------------------------------------------- Premium on Common Paid-In Preferred Retained Stock Capital Stock Earnings Total - ----------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at January 1, 1999 $224,358 $1,334,645 $99 $1,224,965 $2,784,067 Net income after dividends on preferred stock - - - 399,880 399,880 Capital contributions from parent company - 204,347 - - 204,347 Cash dividends on common stock - - - (399,600) (399,600) Other - - - 169 169 - ----------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 224,358 1,538,992 99 1,225,414 2,988,863 Net income after dividends on preferred stock - - - 419,916 419,916 Capital contributions from parent company - 204,371 - - 204,371 Cash dividends on common stock - - - (417,100) (417,100) Other - - - (278) (278) - ----------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 224,358 1,743,363 99 1,227,952 3,195,772 Net income after dividends on preferred stock - - - 386,729 386,729 Capital contributions from parent company - 107,313 - - 107,313 Cash dividends on common stock - - - (393,900) (393,900) Issuance of common stock 15,642 - - - 15,642 Other - - - (679) (679) - ---------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2001 $240,000 $1,850,676 $99 $1,220,102 $3,310,877 ============================================================================================================================= The accompanying notes are an integral part of these statements.
II-64 NOTES TO FINANCIAL STATEMENTS Alabama Power Company 2001 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Alabama Power Company (the Company) is a wholly owned subsidiary of Southern Company, which is the parent company of five operating companies, a system service company, Southern Communications Services (Southern LINC), Southern Nuclear Operating Company (Southern Nuclear), Southern Power Company (Southern Power), and other direct and indirect subsidiaries. The operating companies -- Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Savannah Electric and Power Company -- provide electric service in four southeastern states. Contracts among the operating companies - related to jointly-owned generating facilities, interconnecting transmission lines, and the exchange of electric power -- are regulated by the Federal Energy Regulatory Commission (FERC) and/or the Securities and Exchange Commission (SEC). The system service company provides, at cost, specialized services to Southern Company and its subsidiary companies. Southern LINC provides digital wireless communications services to the operating companies and also markets these services to the public within the Southeast. Southern Nuclear provides services to Southern Company's nuclear power plants. Southern Power was established in 2001 to construct, own, and manage Southern Company's competitive generation assets and sell electricity at market-based rates in the wholesale market. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries are subject to the regulatory provisions of the PUHCA. The Company is also subject to regulation by the FERC and the Alabama Public Service Commission (APSC). The Company follows accounting principles generally accepted in the United States and complies with the accounting policies and practices prescribed by its respective regulatory commissions. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates, and the actual results may differ from those estimates. Certain prior years' data presented in the financial statements have been reclassified to conform with current year presentation. Affiliate Transactions The Company has an agreement with the system service company under which the following services are rendered to the Company at cost: general and design engineering, purchasing, accounting and statistical, finance and treasury, tax, information resources, marketing, auditing, insurance and pension administration, human resources, systems and procedures, and other services with respect to business and operations and power pool transactions. Costs for these services amounted to $183 million, $187 million, and $218 million during 2001, 2000, and 1999, respectively. The Company also has an agreement with Southern Nuclear to operate Plant Farley and provide the following nuclear-related services at cost: general executive and advisory services; general operations, management and technical services; administrative services including procurement, accounting, statistical, and employee relations; and other services with respect to business and operations. Costs for these services amounted to $160 million, $148 million, and $135 million during 2001, 2000, and 1999, respectively. In 2001, the Company had under construction a 1,230 megawatt combined cycle facility in Autaugaville, Alabama. In June 2001, the Company sold this project to Southern Power Company, a new Southern Company affiliate formed in 2001 to construct, own, and manage wholesale generating assets in the Southeast. Regulatory Assets and Liabilities The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are expected to be credited to customers through the ratemaking process. II-65 NOTES (continued) Alabama Power Company 2001 Annual Report Regulatory assets and (liabilities) reflected in the Balance Sheets at December 31 relate to the following: 2001 2000 ----------------------- (in millions) Deferred income tax charges $ 335 $ 346 Deferred income tax credits (203) (222) Premium on reacquired debt 77 76 Department of Energy assessments 21 25 Vacation pay 32 32 Natural disaster reserve (12) (18) Other, net 57 30 - ---------------------------------------------------------------- Total $ 307 $ 269 ================================================================ In the event that a portion of the Company's operations is no longer subject to the provisions of FASB Statement No. 71, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition the Company would be required to determine if any impairment to other assets exists, including plant, and write down the assets, if impaired, to their fair values. Revenues and Fuel Costs The Company currently operates as a vertically integrated utility providing electricity to retail customers within its traditional service area located within the state of Alabama and to wholesale customers in the southeast. Revenues are recognized as services are rendered. Unbilled revenues are accrued at the end of each fiscal period. Fuel revenues have no effect on net income because they represent the recording of revenues to offset fuel expenses, including the fuel component of purchased energy. Fuel rates billed to customers are designed to fully recover fluctuating fuel costs over a period of time. The Company has a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. For all periods presented, uncollectible accounts continue to average less than 1 percent of revenues. Fuel expense includes the amortization of the cost of nuclear fuel and a charge based on nuclear generation for the permanent disposal of spent nuclear fuel. Total charges for nuclear fuel included in fuel expense amounted to $58 million in 2001, $61 million in 2000, and $63 million in 1999. The Company has a contract with the U.S. Department of Energy (DOE) that provides for the permanent disposal of spent nuclear fuel. The DOE failed to begin disposing of spent fuel in January 1998 as required by the contract, and the Company is pursuing legal remedies against the government for breach of contract. Sufficient fuel storage capacity is available at Plant Farley to maintain full-core discharge capability until the refueling outage scheduled in 2006 for Farley Unit 1 and the refueling outage scheduled in 2008 for Farley Unit 2. Procurement of on-site dry spent fuel storage capacity at Plant Farley is in progress, with the intent to place the capacity in operation as early as 2005. Also, the Energy Policy Act of 1992 required the establishment of a Uranium Enrichment Decontamination and Decommissioning Fund, which is funded in part by a special assessment on utilities with nuclear plants. This assessment is being paid over a 15-year period, which began in 1993. This fund will be used by the DOE for the decontamination and decommissioning of its nuclear fuel enrichment facilities. The law provides that utilities will recover these payments in the same manner as any other fuel expense. The Company estimates its remaining liability under this law to be approximately $21 million at December 31, 2001. This obligation is recognized in the accompanying Balance Sheets. Depreciation and Nuclear Decommissioning Depreciation of the original cost of depreciable utility plant in service is provided primarily by using composite straight-line rates, which approximated 3.2 percent in 2001, 2000, and 1999. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its cost -- together with the cost of removal, less salvage -- is charged to accumulated provision for depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Depreciation expense includes an amount for the expected cost of decommissioning nuclear facilities and removal of other facilities. The Nuclear Regulatory Commission (NRC) requires all licensees operating commercial nuclear power reactors to establish a plan for providing with reasonable assurance funds for decommissioning. The Company has established external trust funds to comply with the NRC's regulations. Amounts previously recorded in internal reserves are being transferred into the external trust funds over periods approved by the APSC. The NRC's minimum external funding requirements are based on a generic estimate of the cost to decommission the radioactive portions of a nuclear unit based on the size and type of reactor. II-66 NOTES (continued) Alabama Power Company 2001 Annual Report The Company has filed plans with the NRC to ensure that -- over time -- the deposits and earnings of the external trust funds will provide the minimum funding amounts prescribed by the NRC. Site study cost is the estimate to decommission the facility as of the site study year, and ultimate cost is the estimate to decommission the facility as of retirement date. The estimated costs of decommissioning -- both site study costs and ultimate costs - based on the most current study for Plant Farley were as follows: Site study basis (year) 1998 Decommissioning periods: Beginning year 2017 Completion year 2031 ------------------------------------------------------------ (in millions) Site study costs: Radiated structures $629 Non-radiated structures 60 ------------------------------------------------------------ Total $689 ============================================================ (in millions) Ultimate costs: Radiated structures $1,868 Non-radiated structures 178 ------------------------------------------------------------ Total $2,046 ============================================================ The decommissioning cost estimates are based on prompt dismantlement and removal of the plant from service. The actual decommissioning costs may vary from the above estimates because of changes in the assumed date of decommissioning, changes in NRC requirements, or changes in the assumptions used in making estimates. Annual provisions for nuclear decommissioning are based on an annuity method as approved by the APSC. The amount expensed in 2001 and fund balances as of December 31, 2001 were: (in millions) Amount expensed in 2001 $ 18 ------------------------------------------------------------- Accumulated provisions: External trust funds, at fair value $318 Internal reserves 36 ------------------------------------------------------------- Total $354 ============================================================= All of the Company's decommissioning costs are approved for recovery by the APSC through the ratemaking process. Significant assumptions include an estimated inflation rate of 4.5 percent and an estimated trust earnings rate of 7.0 percent. The Company expects the APSC to periodically review and adjust, if necessary, the amounts collected in rates for the anticipated cost of decommissioning. Income Taxes The Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. Allowance For Funds Used During Construction (AFUDC) AFUDC represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new facilities. While cash is not realized currently from such allowance, it increases the revenue requirement over the service life of the plant through a higher rate base and higher depreciation expense. The amount of AFUDC capitalized was $19 million in 2001, $43 million in 2000, and $23 million in 1999. The composite rate used to determine the amount of allowance was 7.7 percent in 2001, 9.6 percent in 2000, and 8.8 percent in 1999. AFUDC, net of income tax, as a percent of net income after dividends on preferred stock was 3.3 percent in 2001, 8.4 percent in 2000, and 4.7 percent in 1999. Property, Plant, and Equipment Property, plant, and equipment is stated at original cost. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and the estimated cost of funds used during construction. The cost of maintenance, repairs and replacement of minor items of property is charged to maintenance expense. The cost of replacements of property--exclusive of minor items of property--is capitalized. Financial Instruments Effective January 2001, the Company adopted FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. The impact on net income was immaterial. The Company uses derivative financial instruments to hedge exposures to fluctuations in foreign currency exchange rates and certain commodity prices. II-67 NOTES (continued) Alabama Power Company 2001 Annual Report Gains and losses on qualifying hedges are deferred and recognized either in income or as an adjustment to the carrying amount of the hedged item when the transaction occurs. The Company and its affiliates, through the system service company acting as their agent, enters into commodity related forward and option contracts to limit exposure to changing prices on certain fuel purchases and electricity purchases and sales. Substantially all of the Company's bulk energy purchases and sales contracts meet the definition of a derivative under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. In many cases these fuel and electricity contracts qualify for normal purchase and sale exceptions under Statement No. 133 and are accounted for under the accrual method. Other contracts qualify as cash flow hedges of anticipated transactions, resulting in the deferral of related gains and losses and are recorded in other comprehensive income until the hedged transactions occur. Any ineffectiveness is recognized currently in net income. Contracts that do not qualify for the normal purchase and sale exception and that do not meet the hedge requirements are marked to market through current period income. In October 2001, the APSC approved a revision to the Company's Rate ECR (Energy Cost Recovery) allowing the recovery of specific costs associated with the sales of natural gas that become necessary due to operating considerations at its electric generating facilities. This revision also includes the cost of financial tools used for hedging market price risk up to 75 percent of the budgeted annual amount of natural gas purchases. The Company may not engage in natural gas hedging activities that extend beyond a rolling 42-month window. The Company is exposed to losses related to financial instruments in the event of counterparties' nonperformance. The Company has established controls to determine and monitor the creditworthiness of counterparties in order to mitigate the Company's exposure to counterparty credit risk. Other Company financial instruments for which the carrying amount did not equal fair value at December 31 are as follows: Carrying Fair Amount Value ------------------------- (in millions) Long-term debt: At December 31, 2001 $3,744 $3,800 At December 31, 2000 3,422 3,375 Preferred Securities: At December 31, 2001 347 346 At December 31, 2000 347 344 -------------------------------------------------------------- The fair value for long-term debt and preferred securities was based on either closing market prices or closing prices of comparable instruments. Cash and Cash Equivalents For purposes of the financial statements, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. Materials and Supplies Generally, materials and supplies include the cost of transmission, distribution, and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when installed. Natural Disaster Reserve In accordance with an APSC order, the Company has established a Natural Disaster Reserve. The Company is allowed to accrue $250 thousand per month until the maximum accumulated provision of $32 million is attained. Higher accruals to restore the reserve to its authorized level are allowed whenever the balance in the reserve declines below $22.4 million. At December 31, 2001, the reserve balance was $12 million. 2. RETIREMENT BENEFITS The Company has a defined benefit, trusteed, pension plan that covers substantially all employees. The Company provides certain medical care and life insurance benefits for retired employees. Substantially all employees may become eligible for such benefits when they retire. The Company funds trusts to the extent deductible under federal income tax regulations or to the extent required by the APSC and the FERC. In late 2000 the Company adopted several pension and postretirement benefit plan changes that had the effect of increasing benefits to both current and future retirees. II-68 NOTES (continued) Alabama Power Company 2001 Annual Report The measurement date for plan assets and obligations is September 30 of each year. The weighted average rates assumed in the actuarial calculations for both the pension and postretirement benefit plans were: 2001 2000 - ------------------------------------------------------------- Discount 7.50% 7.50% Annual salary increase 5.00 5.00 Long-term return on plan assets 8.50 8.50 - ------------------------------------------------------------- Pension Plan Changes during the year in the projected benefit obligations and in the fair value of plan assets were as follows: Projected Benefit Obligations ------------------------ 2001 2000 - ------------------------------------------------------------ (in millions) Balance at beginning of year $925 $896 Service cost 25 23 Interest cost 70 65 Benefits paid (56) (51) Actuarial gain and employee transfers (1) (8) Amendments 48 - - ------------------------------------------------------------ Balance at end of year $1,011 $925 ============================================================ Plan Assets ------------------------ 2001 2000 - ------------------------------------------------------------ (in millions) Balance at beginning of year $1,921 $1,647 Actual return on plan assets (277) 302 Benefits paid (56) (51) Employee transfers (4) 23 - ------------------------------------------------------------ Balance at end of year $1,584 $1,921 ============================================================ The accrued pension costs recognized in the Balance Sheets were as follows: 2001 2000 - --------------------------------------------------------------- (in millions) Funded status $ 573 $ 996 Unrecognized transition obligation (15) (20) Unrecognized prior service cost 78 36 Unrecognized net actuarial gain (322) (757) - --------------------------------------------------------------- Prepaid asset recognized in the Balance Sheets $ 314 $ 255 =============================================================== Components of the pension plan's net periodic cost were as follows: 2001 2000 1999 - --------------------------------------------------------------- (in millions) Service cost $ 25 $ 23 $ 23 Interest cost 70 65 58 Expected return on plan assets (131) (119) (109) Recognized net actuarial gain (22) (19) (13) Net amortization 1 (1) (1) - --------------------------------------------------------------- Net pension income $ (57) $ (51) $ (42) =============================================================== Postretirement Benefits Changes during the year in the accumulated benefit obligations and in the fair value of plan assets were as follows: Accumulated Benefit Obligations ------------------------- 2001 2000 - ------------------------------------------------------------- (in millions) Balance at beginning of year $264 $264 Service cost 5 4 Interest cost 24 19 Benefits paid (18) (12) Actuarial gain and employee transfers (13) (11) Amendments 86 - - ------------------------------------------------------------- Balance at end of year $348 $264 ============================================================= Plan Assets ------------------------- 2001 2000 - ------------------------------------------------------------- (in millions) Balance at beginning of year $192 $161 Actual return on plan assets (24) 25 Employer contributions 19 18 Benefits paid (18) (12) - ------------------------------------------------------------- Balance at end of year $169 $192 ============================================================= The accrued postretirement costs recognized in the Balance Sheets were as follows: 2001 2000 - --------------------------------------------------------------- (in millions) Funded status $ (179) $ (72) Unrecognized transition obligation 45 49 Prior service cost 82 - Unrecognized net actuarial gain (9) (35) Fourth quarter contributions 8 4 - --------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $ (53) $ (54) =============================================================== II-69 NOTES (continued) Alabama Power Company 2001 Annual Report Components of the plans' net periodic cost were as follows: 2001 2000 1999 - --------------------------------------------------------------- (in millions) Service cost $ 5 $ 4 $ 5 Interest cost 24 19 18 Expected return on plan assets (15) (13) (11) Net amortization 7 4 4 - --------------------------------------------------------------- Net postretirement cost $ 21 $ 14 $ 16 =============================================================== An additional assumption used in measuring the accumulated postretirement benefit obligations was a weighted average medical care cost trend rate of 9.25 percent for 2001, decreasing gradually to 5.25 percent through the year 2010, and remaining at that level thereafter. An annual increase or decrease in the assumed medical care cost trend rate of 1 percent would affect the accumulated benefit obligation and the service and interest cost components at December 31, 2001 as follows: 1 Percent 1 Percent Increase Decrease - --------------------------------------------------------------- (in millions) Benefit obligation $30 $26 Service and interest costs 3 2 =============================================================== Employee Savings Plan The Company also sponsors a 401(k) defined contribution plan covering substantially all employees. The Company provides a 75 percent matching contribution up to 6 percent of an employee's base salary. Total matching contributions made to the plan for the years 2001, 2000, and 1999 were $12 million, $11 million, and $10 million, respectively. Work Force Reduction Programs The Company has incurred costs for work force reduction programs totaling $13.0 million, $2.6 million and $5.6 million for the years 2001, 2000 and 1999, respectively. These costs were deferred and are being amortized in accordance with regulatory treatment. The unamortized balance of these costs was $11.9 million at December 31, 2001. 3. CONTINGENCIES AND REGULATORY MATTERS General The Company is subject to certain claims and legal actions arising in the ordinary course of business. In the opinion of management after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the Company's financial condition. Environmental Litigation On November 3, 1999, the Environmental Protection Agency (EPA) brought a civil action in U.S. District Court in Georgia against the Company. The complaint alleges violations of the New Source Review provisions of the Clean Air Act with respect to coal-fired generating facilities at the Company's Plants Miller, Barry, and Gorgas. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The Clean Air Act authorizes civil penalties of up to $27,500 per day, per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. The EPA concurrently issued to the Company a notice of violation relating to these specific facilities, as well as Plants Greene County and Gaston. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation. The complaint and the notice of violation are similar to those brought against and issued to several other electric utilities. The complaint and the notice of violation allege that the Company failed to secure necessary permits or install additional pollution control equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. On August 1, 2000, the U.S. District Court granted the Company's motion to dismiss for lack of jurisdiction in Georgia. On January 12, 2001, the EPA re-filed its claims against the Company in federal district court in Birmingham, Alabama. The Company's case has been stayed since the spring of 2001, pending a ruling by the U.S. Court of Appeals for the Eleventh Circuit in the appeal of a very similar New Source Review enforcement action against the Tennessee Valley Authority (TVA). The TVA case involves many of the same legal issues raised by the actions against the Company. Because the outcome of the TVA case could have II-70 NOTES (continued) Alabama Power Company 2001 Annual Report a significant adverse impact on the Company, it is a party to that case as well. The U.S. District Court in Alabama has indicated that it will revisit the issue of a continued stay in April 2002. The Company believes that it complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. Retail Rate Adjustment Procedures The APSC has adopted rates that provide for periodic adjustments based upon the Company's earned return on end-of-period retail common equity. The rates also provide for adjustments to recognize the placing of new generating facilities into retail service under Rate CNP (Certificated New Plant). Both increases and decreases have been placed into effect since the adoption of these rates. Effective July 2001, the Company's retail rates were adjusted by 0.6 percent under Rate CNP to recover costs for Plant Barry Unit 7, which was placed into commercial operation on May 1, 2001. Most recently, a 2 percent increase in retail rates was effective in October 2001 in accordance with the Rate Stabilization Equalization plan. The rate adjustment procedures allow a return on common equity range of 13.0 percent to 14.5 percent and limit increases or decreases in rates to 4 percent in any calendar year. In December 1995, the APSC issued an order authorizing the Company to reduce balance sheet items -- such as plant and deferred charges -- at any time the Company's actual base rate revenues exceed the budgeted revenues. During the years 2001, 2000, and 1999, the Company did not record any such reductions. In April 2000, the APSC approved an amendment to the Company's existing rate structure to provide for the recovery of retail costs associated with certified purchased power agreements. In November 2000, the APSC certified a seven-year purchased power agreement pertaining to 615 megawatts of the wholesale generating facilities which were sold to Southern Power in June 2001 and are under construction in Autaugaville, Alabama. All of the 615 megawatts will be delivered beginning in 2003. In addition the APSC certified a seven-year purchased power agreement with a third party for approximately 630 megawatts; one half of the power will be delivered beginning in 2003 while the remaining half is scheduled for delivery beginning in 2004. Rate CNP will adjust retail rates when the contracted capacity delivery begins. In October 2001, the APSC approved a revision to the Company's Rate ECR (Energy Cost Recovery) allowing the recovery of specific costs associated with the sales of natural gas that become necessary due to operating considerations at its electric generating facilities. This revision also includes the cost of financial tools used for hedging market price risk up to 75 percent of the budgeted annual amount of natural gas purchases. The Company may not engage in natural gas hedging activities that extend beyond a rolling 42-month window. The Company's ratemaking procedures will remain in effect until the APSC votes to modify or discontinue them. 4. COMMITMENTS Construction Program During 2001, the Company completed the replacement of the steam generators at Plant Farley, as well as the construction of new generating capacity at Plant Barry. Significant construction will continue related to transmission and distribution facilities and the upgrading of generating plants, including the expenditures necessary to comply with environmental regulation. The Company currently estimates property additions to be $671 million in 2002, $592 million in 2003, and $673 million in 2004. In connection with the transfer of the Autaugaville construction project, the Company has assigned $71 million in vendor equipment contracts to Southern Power. While the Company could be obligated to assume responsibility for these contracts if Southern Power fails to meet these commitments, Southern Company has entered into limited keep-well arrangements whereby Southern Company would contribute funds to Southern Power either through loans or capital contributions in order to fund performance by Southern Power as equipment purchaser under certain contingencies. Southern Company has also guaranteed Southern Power obligations totaling $6.6 million for the Company's construction of transmission interconnection facilities to the plant. The capital budget is subject to periodic review and revision, and actual capital costs incurred may vary from estimates because of changes in such II-71 NOTES (continued) Alabama Power Company 2001 Annual Report factors as: business conditions; environmental regulations; nuclear plant regulations; load projections; the cost and efficiency of construction labor, equipment, and materials; and the cost of capital. In addition there can be no assurance that costs related to capital expenditures will be fully recovered. Purchased Power Commitments The Company has entered into various long-term commitments for the purchase of electricity. Estimated total long-term obligations at December 31, 2001 were as follows: Commitments ----------------------------------- Non- Year Affiliated Affiliated Total - ---- ---------------------------------- (in millions) 2002 $ - $ - $ - 2003 37 16 53 2004 49 34 83 2005 49 37 86 2006 49 38 87 2007 and thereafter 160 142 302 - -------------------------------------------------------------- Total commitments $344 $267 $611 ============================================================== Fuel Commitments To supply a portion of the fuel requirements of its generating plants, the Company has entered into various long-term commitments for the procurement of fossil and nuclear fuel. In most cases these contracts contain provisions for price escalations, minimum purchase levels, and other financial commitments. Total estimated long-term obligations at December 31, 2001, were as follows: Year Commitments - ---- --------------- (in millions) 2002 $ 795 2003 794 2004 801 2005 571 2006 512 2007 and thereafter 1,020 - --------------------------------------------------------------- Total commitments $4,493 =============================================================== In addition, the system service company acts as agent for the five operating companies and Southern Power with regard to natural gas purchases. Natural gas purchases (in dollars) are based on various indices at the actual time of delivery; therefore, only the volume commitments are firm. The Company's committed volumes allocated based on usage projections, as of December 31, 2001, are as follows: Year Natural Gas - ---- ----------- (MMBtu) 2002 77,365,361 2003 72,139,927 2004 45,600,417 2005 22,849,132 2006 14,808,334 2007 and thereafter 5,609,190 - ------------------------------------------------------------ Total commitments 238,372,361 ============================================================ Additional commitments for fuel will be required in the future to supply the Company's fuel needs. Operating Leases The Company has entered into rental agreements for coal rail cars, vehicles, and other equipment with various terms and expiration dates. These expenses totaled $27.9 million in 2001, $20.9 million in 2000, and $17.8 million in 1999. At December 31, 2001, estimated minimum rental commitments for noncancellable operating leases were as follows: Year Commitments - ---- ---------------- (in millions) 2002 $ 27.9 2003 26.5 2004 25.5 2005 21.6 2006 14.4 2007 and thereafter 38.1 - -------------------------------------------------------------- Total minimum payments $ 154.0 ============================================================== In addition to the rental commitments above, the Company has potential obligations upon expiration of certain leases with respect to the residual value of the leased property. These leases expire in 2004 and 2006, and the Company's maximum obligations are $25.7 million and $66.0 million, respectively. At the termination of the leases, at the Company's option, the Company may negotiate an extension, exercise its purchase option, or the property can be sold to a third party. The Company expects that the fair market value of the leased property would substantially reduce or eliminate the Company's payments under the residual value obligation. 5. JOINT OWNERSHIP AGREEMENTS The Company and Georgia Power own equally all of the outstanding capital stock of Southern Electric Generating Company (SEGCO), which owns electric generating units with a total rated capacity of 1,020 megawatts, together with associated II-72 NOTES (continued) Alabama Power Company 2001 Annual Report transmission facilities. The capacity of these units is sold equally to the Company and Georgia Power under a contract which, in substance, requires payments sufficient to provide for the operating expenses, taxes, interest expense and a return on equity, whether or not SEGCO has any capacity and energy available. The term of the contract extends automatically for two-year periods, subject to either party's right to cancel upon two year's notice. The Company's share of expenses totaled $80 million in 2001, $85 million in 2000, and $92 million in 1999 and is included in "Purchased power from affiliates" in the Statements of Income. In addition the Company has guaranteed unconditionally the obligation of SEGCO under an installment sale agreement for the purchase of certain pollution control facilities at SEGCO's generating units, pursuant to which $24.5 million principal amount of pollution control revenue bonds are outstanding. Georgia Power has agreed to reimburse the Company for the pro rata portion of such obligation corresponding to its then proportionate ownership of stock of SEGCO if the Company is called upon to make such payment under its guaranty. At December 31, 2001, the capitalization of SEGCO consisted of $58 million of equity and $86 million of long-term debt on which the annual interest requirement is $2.2 million. SEGCO paid dividends totaling $0.7 million in 2001, $5.1 million in 2000, and $4.3 million in 1999 of which one-half of each was paid to the Company. SEGCO's net income was $7.5 million, $5.9 million, and $5.4 million for 2001, 2000, and 1999, respectively. The Company's percentage ownership and investment in jointly-owned generating plants at December 31, 2001, is as follows: Total Megawatt Company Facility (Type) Capacity Ownership --------------------- ------------ ------------- Greene County 500 60.00% (1) (coal) Plant Miller Units 1 and 2 1,320 91.84% (2) (coal) ----------------------------------------------------------- (1) Jointly owned with an affiliate, Mississippi Power Company. (2) Jointly owned with Alabama Electric Cooperative, Inc. Company Accumulated Facility Investment Depreciation --------------------- -------------- --------------- (in millions) Greene County $101 $ 49 Plant Miller Units 1 and 2 747 326 ---------------------------------------------------------- 6. LONG-TERM POWER SALES AGREEMENTS General The Company and the other operating companies of Southern Company have entered into long-term contractual agreements for the sale and lease of capacity and energy to certain non-affiliated utilities located outside the system's service area. These agreements -- expiring at various dates discussed below -- are firm and related to specific generating units. Because the energy is generally provided at cost under these agreements, profitability is primarily affected by capacity revenues. Unit power from Plant Miller is being sold to Florida Power Corporation (FPC), Florida Power & Light Company (FP&L), and Jacksonville Electric Authority (JEA). Under these agreements approximately 1,237 megawatts of capacity are scheduled to be sold through 2010. The Company's capacity revenues amounted to $125 million in 2001, $127 million in 2000, and $122 million in 1999. Alabama Municipal Electric Authority (AMEA) Capacity Contracts In 1986 the Company entered into a firm power sales contract with AMEA entitling AMEA to scheduled amounts of capacity (to a maximum 100 megawatts) for a period of 15 years (1986 Contract). In October 1991 the Company entered into a second firm power sales contract with AMEA entitling AMEA to scheduled amounts of additional capacity (to a maximum 80 megawatts) for a period of 15 years (1991 Contract). Under the terms of the contracts, the Company received payments from AMEA representing the net present value of the revenues associated with the respective capacity entitlements, discounted at effective annual rates of 9.96 percent and 11.19 percent for the 1986 and 1991 contracts, respectively. The 1986 contract expired in July 2001, however, the payments for the 1991 contract will continue to be recognized as operating revenues and the discounts will be amortized to other interest expense as scheduled capacity is made available over the terms of the contract. To secure AMEA's advance payments and the Company's performance obligation under the contracts, the Company issued and delivered to an escrow agent first mortgage bonds representing the maximum amount of liquidated damages payable by the Company in the event of a default under the contracts. No principal or interest is payable on such bonds unless and until a default by the Company II-73 NOTES (continued) Alabama Power Company 2001 Annual Report occurs. As the liquidated damages decline, a portion of the bond equal to the decrease is returned to the Company. At December 31, 2001, $38.1 million of the 1991 bond was held by the escrow agent under the contract. 7. INCOME TAXES At December 31, 2001, the tax-related regulatory assets and liabilities were $335 million and $203 million, respectively. These assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized interest. These liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. Details of the income tax provisions are as follows: 2001 2000 1999 -------------------------------- (in millions) Total provision for income taxes: Federal -- Current $234 $168 $194 Deferred (20) 60 24 - ----------------------------------------------------------------- 214 228 218 - ----------------------------------------------------------------- State -- Current 37 27 19 Deferred (2) 7 5 - ----------------------------------------------------------------- 35 34 24 - ----------------------------------------------------------------- Total $249 $262 $242 ================================================================= The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows: 2001 2000 ------------------ (in millions) Deferred tax liabilities: Accelerated depreciation $ 1,034 $ 992 Property basis differences 390 405 Fuel cost adjustment 28 93 Premium on reacquired debt 29 30 Pensions 89 75 Other 23 12 - ----------------------------------------------------------------- Total 1,593 1,607 - ----------------------------------------------------------------- Deferred tax assets: Capacity prepayments 13 18 Other deferred costs 14 14 Postretirement benefits 21 24 Unbilled revenue 18 23 Other 93 81 - ----------------------------------------------------------------- Total 159 160 - ----------------------------------------------------------------- Total deferred tax liabilities, net 1,434 1,447 Portion included in current liabilities, net (47) (46) - ----------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $1,387 $1,401 ================================================================= Deferred investment tax credits are amortized over the lives of the related property with such amortization normally applied as a credit to reduce depreciation in the Statements of Income. Credits amortized in this manner amounted to $11 million in 2001, 2000, and 1999. At December 31, 2001, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: 2001 2000 1999 -------------------------- Federal statutory rate 35.0% 35.0% 35.0% State income tax, net of federal deduction 3.5 3.1 2.4 Non-deductible book depreciation 1.5 1.4 1.6 Differences in prior years' deferred and current tax rates (1.3) (1.3) (1.3) Other (0.5) (0.7) (0.9) - --------------------------------------------------------------- Effective income tax rate 38.2% 37.5% 36.8% =============================================================== Southern Company files a consolidated federal and certain state income tax returns. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. In accordance with Internal Revenue Service regulations, each company is jointly and severally liable for the tax liability. II-74 NOTES (continued) Alabama Power Company 2001 Annual Report 8. CAPITALIZATION Mandatorily Redeemable Preferred Securities Statutory business trusts formed by the Company, of which the Company owns all the common securities, have issued mandatorily redeemable preferred securities as follows: Date of Maturity Issue Amount Rate Notes Date --------------------------------------------------- (millions) (millions) Trust I 1/1996 $ 97 7.375% $100 3/2026 Trust II 1/1997 200 7.60 206 12/2036 Trust III 2/1999 50 Auction 52 2/2029 Substantially all of the assets of each trust are junior subordinated notes issued by the Company in the respective approximate principal amounts set forth above. The distribution rate of Trust III's auction rate securities was 3.60% at January 1, 2002. The Company considers that the mechanisms and obligations relating to the preferred securities, taken together, constitute a full and unconditional guarantee by the Company of the Trusts' payment obligations with respect to the preferred securities. The Trusts are subsidiaries of the Company and accordingly are consolidated in the Company's financial statements. Pollution Control Bonds Pollution control obligations represent installment purchases of pollution control facilities financed by funds derived from sales by public authorities of revenue bonds. The Company is required to make payments sufficient for the authorities to meet principal and interest requirements of such bonds. With respect to $114.2 million of such pollution control obligations, the Company has authenticated and delivered to the trustees a like principal amount of first mortgage bonds as security for its obligations under the installment purchase agreements. No principal or interest on these first mortgage bonds is payable unless and until a default occurs on the installment purchase agreements. In 2001, the Company sold, through a public authority, $20 million of pollution control bonds, the proceeds of which were used to pay certain costs incurred in connection with the acquisition, construction, installation, and equipping of certain local district heating facilities and sewage and solid waste facilities at two of the Company's generation facilities. Senior Notes In August 2001 the Company issued $442 million of unsecured senior notes, the proceeds of which were used to redeem the $131.5 million outstanding principal of its First Mortgage Bonds, 9% Series due December 1, 2004 and for other corporate purposes including the repayment of a portion of its short-term indebtedness. All of the Company's senior notes are, in effect, subordinate to all secured debt of the Company, including its first mortgage bonds. Capitalized Leases The estimated aggregate annual maturities of capitalized lease obligations through 2006 are as follows: $0.9 million in 2002, $0.9 million in 2003, $1.0 million in 2004, $0.4 million in 2005, and $0.1 million in 2006. Securities Due Within One Year A summary of the improvement fund requirements and scheduled maturities and redemptions of long-term debt due within one year at December 31 is as follows: 2001 2000 ---------------------- (in thousands) First mortgage bond maturities and redemptions $4,498 $ - Other long-term debt maturities 884 844 ------------------------------------------------------------ Total long-term debt due within one year $5,382 $844 ============================================================ The annual first mortgage bond improvement fund requirement is 1 percent of the aggregate principal amount of bonds of each series authenticated, so long as a portion of that series is outstanding, and may be satisfied by the deposit of cash and/or reacquired bonds, the certification of unfunded property additions, or a combination thereof. Bank Credit Arrangements The Company maintains committed lines of credit in the amount of $964 million (including $454 million of such lines which are dedicated to funding purchase obligations relating to variable rate pollution control bonds). Of these lines, $574 million expire at various times during 2002 and $390 million expire in II-75 NOTES (continued) Alabama Power Company 2001 Annual Report 2004. In certain cases, such lines require payment of a commitment fee based on the unused portion of the commitment or the maintenance of compensating balances with the banks. Because the arrangements are based on an average balance, the Company does not consider any of its cash balances to be restricted as of any specific date. Moreover, the Company borrows from time to time pursuant to arrangements with banks for uncommitted lines of credit. The amount of commercial paper outstanding at December 31, 2001 was $10 million. At December 31, 2001, the Company had regulatory approval to have outstanding up to $1 billion of short-term borrowings. Assets Subject to Lien The Company's mortgage, as amended and supplemented, securing the first mortgage bonds issued by the Company, constitutes a direct lien on substantially all of the Company's fixed property and franchises. Dividend Restrictions The Company's first mortgage bond indenture contains various common stock dividend restrictions that remain in effect as long as the bonds are outstanding. At December 31, 2001, retained earnings of $796 million were restricted against the payment of cash dividends on common stock under terms of the mortgage indenture. 9. NUCLEAR INSURANCE Under the Price-Anderson Amendments Act of 1988 (the Act), the Company maintains agreements of indemnity with the NRC that, together with private insurance, cover third-party liability arising from any nuclear incident occurring at Plant Farley. The Act provides funds up to $9.5 billion for public liability claims that could arise from a single nuclear incident. Plant Farley is insured against this liability to a maximum of $200 million by American Nuclear Insurers (ANI), with the remaining coverage provided by a mandatory program of deferred premiums which could be assessed, after a nuclear incident, against all owners of nuclear reactors. The Company could be assessed up to $88 million per incident for each licensed reactor it operates but not more than an aggregate of $10 million per incident to be paid in a calendar year for each reactor. Such maximum assessment, excluding any applicable state premium taxes, for the Company is $176 million per incident but not more than an aggregate of $20 million to be paid for each incident in any one year. The Company is a member of Nuclear Electric Insurance Limited (NEIL), a mutual insurer established to provide property damage insurance in an amount up to $500 million for members' nuclear generating facilities. Additionally, the Company has policies that currently provide decontamination, excess property insurance, and premature decommissioning coverage up to $2.25 billion for losses in excess of the $500 million primary coverage. This excess insurance is also provided by NEIL. NEIL also covers the additional cost that would be incurred in obtaining replacement power during a prolonged accidental outage at a member's nuclear plant. Members can purchase this coverage, subject to a deductible waiting period of between 8 to 26 weeks, with a maximum per occurrence per unit limit of $490 million. After this deductible period, weekly indemnity payments would be received until either the unit is operational or until the limit is exhausted in approximately three years. Under each of the NEIL policies, members are subject to assessments if losses each year exceed the accumulated funds available to the insurer under that policy. The current maximum annual assessments for the Company under the three NEIL policies would be $35 million. Following the terrorist attacks of September 2001, both ANI and NEIL confirmed that terrorist acts against commercial nuclear power stations would be covered under their insurance. However, both companies revised their policy terms on a prospective basis to include an industry aggregate for all terrorist acts. The NEIL aggregate, which applies to all claims stemming from terrorism within a 12 month duration, is $3.24 billion plus any amounts that would be available through reinsurance or indemnity from an outside source. The ANI cap is $200 million in a policy year. For all on-site property damage insurance policies for commercial nuclear power plants, the NRC requires that the proceeds of such policies shall be dedicated first for the sole purpose of placing the reactor in a safe and stable condition after an accident. Any remaining proceeds are to be applied next toward the costs of decontamination and debris removal operations ordered by the NRC, and any further remaining proceeds are to be paid either to the Company or to its bond trustees as may be appropriate under the policies and applicable trust indentures. All retrospective assessments, whether generated for liability, property or replacement power may be subject to applicable state premium taxes. II-76 NOTES (continued) Alabama Power Company 2001 Annual Report 10. QUARTERLY FINANCIAL INFORMATION (Unaudited) Summarized quarterly financial data for 2001 and 2000 are as follows: Net Income After Dividends Quarter Operating Operating on Preferred Ended Revenues Income Stock - -------------------- ----------------------------------------- (in millions) March 2001 $ 850 $180 $ 70 June 2001 904 194 75 September 2001 1,061 362 180 December 2001 772 175 62 March 2000 $ 746 $172 $ 68 June 2000 900 229 103 September 2000 1,137 390 209 December 2000 884 151 40 - ----------------------------------------------------------------- The Company's business is influenced by seasonal weather conditions. II-77
SELECTED FINANCIAL AND OPERATING DATA 1997-2001 Alabama Power Company 2001 Annual Report - ---------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $3,586,390 $3,667,461 $3,385,474 $3,386,373 $3,149,111 Net Income after Dividends on Preferred Stock (in thousands) $386,729 $419,916 $399,880 $377,223 $375,939 Cash Dividends on Common Stock (in thousands) $393,900 $417,100 $399,600 $367,100 $339,600 Return on Average Common Equity (percent) 11.89 13.58 13.85 13.63 13.76 Total Assets (in thousands) $10,418,301 $10,366,105 $9,648,704 $9,225,698 $8,812,867 Gross Property Additions (in thousands) $635,540 $870,581 $809,044 $610,132 $451,167 - ---------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $3,310,877 $3,195,772 $2,988,863 $2,784,067 $2,750,569 Preferred stock 317,512 317,512 317,512 317,512 255,512 Company obligated mandatorily redeemable preferred securities 347,000 347,000 347,000 297,000 297,000 Long-term debt 3,742,346 3,425,527 3,190,378 2,646,566 2,473,202 - ---------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $7,717,735 $7,285,811 $6,843,753 $6,045,145 $5,776,283 ============================================================================================================================ Capitalization Ratios (percent): Common stock equity 42.9 43.9 43.7 46.1 47.6 Preferred stock 4.1 4.4 4.6 5.3 4.4 Company obligated mandatorily redeemable preferred securities 4.5 4.8 5.1 4.9 5.2 Long-term debt 48.5 46.9 46.6 43.7 42.8 - ---------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 100.0 ============================================================================================================================ Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 A1 A1 Standard and Poor's A A A+ A+ A+ Fitch A+ AA- AA- AA- AA- Preferred Stock - Moody's Baa1 a2 a2 a2 a2 Standard and Poor's BBB+ BBB+ A- A A Fitch A- A A A A+ Unsecured Long-Term Debt - Moody's A2 A2 A2 A2 A2 Standard and Poor's A A A A A Fitch A A+ A+ A+ A+ ============================================================================================================================ Customers (year-end): Residential 1,139,542 1,132,410 1,120,574 1,106,217 1,092,161 Commercial 196,617 193,106 188,368 182,738 177,362 Industrial 4,728 4,819 4,897 5,020 5,076 Other 751 745 735 733 728 - ---------------------------------------------------------------------------------------------------------------------------- Total 1,341,638 1,331,080 1,314,574 1,294,708 1,275,327 ============================================================================================================================ Employees (year-end): 6,706 6,871 6,792 6,631 6,531 - ----------------------------------------------------------------------------------------------------------------------------
II-78
SELECTED FINANCIAL AND OPERATING DATA 1997-2001 (continued) Alabama Power Company 2001 Annual Report - ------------------------------------------------------------------------------------------------------------------------------ 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (in thousands): Residential $ 1,138,499 $1,222,509 $ 1,145,646 $ 1,133,435 $ 997,507 Commercial 829,760 854,695 807,098 779,169 724,148 Industrial 763,934 859,668 843,090 853,550 775,591 Other 15,480 15,835 15,283 14,523 13,563 - ------------------------------------------------------------------------------------------------------------------------------ Total retail 2,747,673 2,952,707 2,811,117 2,780,677 2,510,809 Sales for resale - non-affiliates 485,974 461,730 415,377 448,973 431,023 Sales for resale - affiliates 245,189 166,219 92,439 103,562 161,795 - ------------------------------------------------------------------------------------------------------------------------------ Total revenues from sales of electricity 3,478,836 3,580,656 3,318,933 3,333,212 3,103,627 Other revenues 107,554 86,805 66,541 53,161 45,484 - ------------------------------------------------------------------------------------------------------------------------------ Total $3,586,390 $3,667,461 $3,385,474 $3,386,373 $3,149,111 ============================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 15,880,971 16,771,821 15,699,081 15,794,543 14,336,408 Commercial 12,798,711 12,988,728 12,314,085 11,904,509 11,330,312 Industrial 20,460,022 22,101,407 21,942,889 21,585,117 20,727,912 Other 198,102 205,827 201,149 196,647 180,389 - ------------------------------------------------------------------------------------------------------------------------------ Total retail 49,337,806 52,067,783 50,157,204 49,480,816 46,575,021 Sales for resale - non-affiliates 15,277,839 14,847,533 12,437,599 11,840,910 12,329,480 Sales for resale - affiliates 8,843,094 5,369,474 5,031,781 5,976,099 8,993,326 - ------------------------------------------------------------------------------------------------------------------------------ Total 73,458,739 72,284,790 67,626,584 67,297,825 67,897,827 ============================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 7.17 7.29 7.30 7.18 6.96 Commercial 6.48 6.58 6.55 6.55 6.39 Industrial 3.73 3.89 3.84 3.95 3.74 Total retail 5.57 5.67 5.60 5.62 5.39 Sales for resale 3.03 3.11 2.91 3.10 2.78 Total sales 4.74 4.95 4.91 4.95 4.57 Residential Average Annual Kilowatt-Hour Use Per Customer 13,981 14,875 14,097 14,370 13,254 Residential Average Annual Revenue Per Customer $1,002.30 $1,084.26 $1,028.76 $1,031.21 $922.21 Plant Nameplate Capacity Ratings (year-end) (megawatts) 12,153 12,122 11,379 11,151 11,151 Maximum Peak-Hour Demand (megawatts): Winter 9,300 9,478 8,863 7,757 8,478 Summer 10,241 11,019 10,739 10,329 9,778 Annual Load Factor (percent) 62.5 59.3 59.7 62.9 62.7 Plant Availability (percent): Fossil-steam 87.1 89.4 80.4 85.6 86.3 Nuclear 83.7 88.3 91.0 80.2 88.8 - ------------------------------------------------------------------------------------------------------------------------------ Source of Energy Supply (percent): Coal 56.8 63.0 64.1 65.3 65.7 Nuclear 15.8 16.9 17.8 16.3 17.9 Hydro 5.1 2.9 4.7 6.9 7.5 Oil and gas 10.7 4.9 1.1 1.5 0.7 Purchased power - From non-affiliates 4.4 4.6 4.5 3.3 2.4 From affiliates 7.2 7.7 7.8 6.7 5.8 - ------------------------------------------------------------------------------------------------------------------------------ Total 100.0 100.0 100.0 100.0 100.0 ==============================================================================================================================
II-79 GEORGIA POWER COMPANY FINANCIAL SECTION II-80 MANAGEMENT'S REPORT Georgia Power Company 2001 Annual Report The management of Georgia Power Company has prepared this annual report and is responsible for the financial statements and related information. These statements were prepared in accordance with accounting principles generally accepted in the United States and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that the accounting records reflect only authorized transactions of the Company. Limitations exist in any system of internal controls based upon the recognition that the cost of the system should not exceed its benefits. The Company believes that its system of internal accounting controls maintains an appropriate cost/benefit relationship. The Company's system of internal accounting controls is evaluated on an ongoing basis by the Company's internal audit staff. The Company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, which is composed of three independent directors, provides a broad overview of management's financial reporting and control functions. At least three times a year this committee meets with management, the internal auditors, and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal control and financial reporting matters. The internal auditors and the independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the Company's operations are conducted with a high standard of business ethics. In management's opinion, the financial statements present fairly, in all material respects, the financial position, results of operations and cash flows of Georgia Power Company in conformity with accounting principles generally accepted in the United States. /s/David M. Ratcliffe David M. Ratcliffe President and Chief Executive Officer /s/Thomas A. Fanning Executive Vice President, Treasurer and Chief Financial Officer February 13, 2002 II-81 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Georgia Power Company: We have audited the accompanying balance sheets and statements of capitalization of Georgia Power Company (a Georgia corporation and a wholly owned subsidiary of Southern Company) as of December 31, 2001 and 2000, and the related statements of income, comprehensive income, common stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements (pages II-93 through II-113) referred to above present fairly, in all material respects, the financial position of Georgia Power Company as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. As explained in Note 1 to the financial statements, effective January 1, 2001, Georgia Power Company changed its method of accounting for derivative instruments and hedging activities. /s/Arthur Andersen LLP Atlanta, Georgia February 13, 2002 II-82 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Georgia Power Company 2001 Annual Report RESULTS OF OPERATIONS Earnings Georgia Power Company's 2001 earnings totaled $610 million, representing a $51 million (9.1 percent) increase over 2000. Although operating income is lower due to the impact of mild weather on retail revenues, overall net income improved due to lower financing costs and non-operating expenses and a lower effective tax rate resulting from various factors including property donations and positive resolution of outstanding tax issues. The Company's 2000 earnings totaled $559 million, representing an $18 million (3.3 percent) increase over 1999. This earnings increase was primarily due to higher retail and wholesale sales and continued control of operating expenses, partially offset by additional accelerated amortization of regulatory assets allowed under the second year of a Georgia Public Service Commission (GPSC) three-year retail rate order. Revenues Operating revenues in 2001 and the amount of change from the prior year are as follows: Increase (Decrease) From Prior Year Amount ------------------- 2001 2001 2000 ---- ------------------- Retail - (in millions) Base revenues $3,102 $(17) $ 84 Fuel cost recovery 1,247 49 183 - ------------------------------------------------------------------- Total retail 4,349 32 267 - ------------------------------------------------------------------- Sales for resale - Non-affiliates 366 68 88 Affiliates 100 4 20 - ------------------------------------------------------------------- Total sales for resale 466 72 108 - ------------------------------------------------------------------- Other operating revenues 151 (9) 39 - ------------------------------------------------------------------- Total operating revenues $4,966 $95 $414 =================================================================== Percent change 2.0% 9.3% - ------------------------------------------------------------------- Retail base revenues of $3.1 billion in 2001 decreased $17 million (0.5 percent) from 2000 primarily due to a 2.5 percent decrease in retail sales from the prior year. Milder-than-normal weather and a slowdown in the economy contributed to the decline in such sales. Retail base revenues of $3.1 billion in 2000 increased $84 million (2.8 percent) from 1999 primarily due to a 4.9 percent increase in sales. Under the prior GPSC retail rate order, the Company recorded $44 million of revenue subject to refund for estimated earnings above 12.5 percent retail return on common equity in 2000. These refunds were made to customers in 2001. See Note 3 to the financial statements under "Retail Rate Orders" for additional information. Electric rates include provisions to adjust billings for fluctuations in fuel costs, the energy component of purchased power costs, and certain other costs. Under these fuel cost recovery provisions, fuel revenues generally equal fuel expenses -- including the fuel component of purchased energy -- and do not affect net income. However, cash flow is affected by the untimely recovery of these receivables. As of December 31, 2001, the Company had $162 million in underrecovered fuel costs. The Company is currently collecting these underrecovered fuel costs under a GPSC rate order issued on May 24, 2001. The fuel cost recovery rate was increased effective June 2001 to allow for a 24-month recovery of the deferred underrecovered fuel costs. Wholesale revenues from sales to non-affiliated utilities increased in 2001 and 2000 as follows: 2001 2000 1999 ----------------------------- (in millions) Long-term contracts $ 61 $ 55 $ 55 Other sales 305 243 155 - ------------------------------------------------------------- Total $366 $298 $210 ============================================================= Revenues from long-term contracts increased slightly in 2001 due to increased energy sales while remaining constant in 2000. See Note 7 to the financial statements for further information regarding these sales. Revenues from other non-affiliated sales increased $62 million (25.5 percent) primarily due to increases in off-system sale transactions that were generally offset by corresponding purchase transactions. These transactions had no significant effect on income. Revenues from sales to affiliated companies within the Southern electric system, as well as purchases of energy, will vary from year to year depending on demand and the availability and cost of generating resources at each company. These transactions do not have a significant impact on earnings. Other operating revenues in 2001 decreased $9 million (5.3 percent) primarily due to lower gains on the sale of generating plant emission allowances, partially offset by increased revenues from the transmission of electricity and from the rental of electric equipment and property. Other II-83 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 2001 Annual Report operating revenues in 2000 increased $39 million (33 percent) primarily due to increased revenues from the transmission of electricity and gains on the sale of generating plant emission allowances. Under a GPSC order, $28 million of the gains on emission allowance sales in 2000 were used to reduce recoverable fuel costs and, as such, did not affect earnings. Kilowatt-hour (KWH) sales for 2001 and the percent change by year were as follows: Percent Change ---------------------- 2001 KWH 2001 2000 --------- ------------------------ (in billions) Residential 20.1 (2.8)% 6.6% Commercial 26.5 3.4 8.1 Industrial 25.4 (8.0) 0.9 Other 0.6 2.5 3.2 ------ Total retail 72.6 (2.5) 4.9 ------ Sales for resale - Non-affiliates 8.1 25.5 27.7 Affiliates 3.1 28.7 35.6 ------ Total sales for resale 11.2 26.3 29.8 ------ Total sales 83.8 0.5 7.1 ====== - ------------------------------------------------------------ Residential sales decreased 2.8 percent due to milder-than-normal weather. Commercial sales increased 3.4 percent due to a 2.8 percent increase in customers, while industrial sales decreased 8.0 percent due to an economic slowdown. Residential and commercial sales increased 6.6 percent and 8.1 percent, respectively, in 2000 due to warmer summer temperatures and colder winter weather. Strong regional economic growth was also a factor in the increase in commercial sales. Industrial sales remained fairly constant. Expenses Fuel costs constitute the single largest expense for the Company. The mix of fuel sources for generation of electricity is determined primarily by system load, the unit cost of fuel consumed, and the availability of hydro and nuclear generating units. The amount and sources of generation and the average cost of fuel per net KWH generated were as follows: 2001 2000 1999 -------------------------- Total generation (billions of KWH) 68.9 73.6 69.3 Sources of generation (percent) -- Coal 74.9 75.8 75.5 Nuclear 23.2 21.2 21.6 Hydro 1.4 0.8 1.0 Oil and gas 0.5 2.2 1.9 Average cost of fuel per net KWH generated (cents) -- 1.38 1.39 1.34 - -------------------------------------------------------------- Fuel expense decreased 7.7 percent due to a decrease in generation because of lower energy demands and a slightly lower average cost of fuel. Fuel expense increased 10.7 percent in 2000 due to an increase in generation to meet higher energy demands, a decrease in generation from hydro plants, and a higher average cost of fuel. Purchased power expense increased $175 million (29.4 percent) in 2001 primarily due to an increase in off-system purchases used to meet off-system sales commitments. These transactions had no significant effect on earnings. Purchased power expense in 2000 increased $206 million (53 percent) over the prior year due to higher retail energy demands and off-system purchase transactions used to meet off-system sales transactions. In 2001, other operation and maintenance expenses increased $41 million (3.4%) due to additional severance costs, increased scheduled generating plant maintenance, and higher uncollectible account expense. Other operation and maintenance expenses in 2000 increased slightly over those in 1999. Increased line maintenance, customer assistance and sales expense, and severance costs were partially offset by decreased generating plant maintenance and decreased employee benefit provisions. Depreciation and amortization decreased $19 million in 2001 primarily due to lower accelerated amortization under the third year of a GPSC retail rate order. Depreciation and amortization increased $66 million in 2000 primarily due to $50 million of additional accelerated amortization of regulatory assets required under the second year of the GPSC retail rate order and increased plant in service. II-84 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 2001 Annual Report Other, net increased in 2001 due to gains realized on sales of assets and a decrease in charitable contributions. Other, net decreased in 2000 due to an increase in charitable contributions. Interest expense, net decreased in 2001 primarily due to lower interest rates that offset new financing costs. Interest expense, net increased in 2000 due to the issuance of additional senior notes during 2000. The Company refinanced or retired $775 million and $179 million of securities in 2001 and 2000, respectively. Distributions on preferred securities of subsidiary companies remained unchanged in 2001 and decreased $7 million in 2000 due to the redemption of $100 million of preferred securities in December 1999. Effects of Inflation The Company is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the Company is recovering its costs of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on the Company because of the large investment in utility plants with long economic lives. Conventional accounting for historical cost does not recognize this economic loss nor the partially offsetting gain that arises through financing facilities with fixed-money obligations such as long-term debt and preferred securities. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. FUTURE EARNINGS POTENTIAL General The results of operations for the past three years are not necessarily indicative of future earnings. The level of future earnings depends on numerous factors including regulatory matters and energy sales. Growth in energy sales is subject to a number of factors which traditionally have included changes in contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, weather, competition, initiatives to increase sales to existing customers, and the rate of economic growth in the Company's service area. In accordance with Financial Accounting Standards Board (FASB) Statement No. 87, Employers' Accounting for Pensions, the Company recorded non-cash income of approximately $60 million in 2001. Future pension income is dependent on several factors including trust earnings and changes to the plan. For the Company, pension income is a component of the regulated rates and does not have a significant effect on net income. For additional information, see Note 2 to the financial statements. The Company currently operates as a vertically integrated utility providing electricity to customers within its traditional service area located in the State of Georgia. Prices for electricity provided by the Company to retail customers are set by the GPSC under cost-based regulatory principles. On December 20, 2001, the GPSC approved a new three-year retail rate order for the Company ending December 31, 2004. 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 the Company. Retail rates were decreased by $118 million effective January 1, 2002. Pursuant to a previous three-year accounting order, the Company recorded $336 million of accelerated cost amortization and interest thereon which has been credited to a regulatory liability account as mandated by the GPSC. Under the new rate order, the accelerated amortization and the interest will be amortized equally over three years as a credit to expense beginning in 2002. The Company will not file for a general base rate increase unless its projected retail return on common equity falls below 10 percent. Georgia Power is required to file a general rate case on July 1, 2004, in response to which the GPSC would be expected to determine whether the rate order should be continued, modified, or discontinued. See Note 3 to the financial statements under "Retail Rate Orders" for additional information. The Company has entered into power purchase agreements which will result in higher capacity and operating and maintenance payments in future years. Under the new retail rate order, these costs will be reflected in rates evenly over the next three years. See Note 4 to the financial statements under "Purchased Power Commitments" for additional information. II-85 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 2001 Annual Report Georgia Power had three new generation projects under construction during 2001. They included two units at Plant Dahlberg, a ten-unit, 800 megawatt combustion turbine facility; two combined cycle units totaling 1,132 megawatts at Plant Wansley; and Plant Goat Rock, a two-unit, 1,181 megawatt combined cycle facility. All three of these projects have been transferred to Southern Power Company, a new Southern Company subsidiary formed in 2001 to construct, own, and manage wholesale generating assets in the Southeast. The ten Dahlberg units and two Goat Rock units were transferred in 2001 and the transfer of the two Wansley units was completed in January 2002. The Company is involved in various matters being litigated. See Note 3 to the financial statements for information regarding material issues that could possibly affect future earnings. Compliance costs related to current and future environmental laws, regulations, and litigation could affect earnings if such costs are not fully recovered. See "Environmental Issues" for further discussion of these matters. Industry Restructuring The electric utility industry in the United States is continuing to evolve as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). The Energy Act allows independent power producers (IPPs) to access a utility's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for a utility's large industrial and commercial customers and sell energy generation to other utilities. Also, electricity sales for resale rates are affected by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. Although the Energy Act does not permit retail customer access, it has been a major catalyst for recent restructuring and consolidations taking place within the utility industry. Numerous federal and state initiatives are in varying stages that promote wholesale and retail competition. Among other things, these initiatives allow customers to choose their electricity provider. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While restructuring and competition initiatives have been discussed in Georgia, none have been enacted. Enactment would require numerous issues to be resolved, including significant ones relating to recovery of any stranded investments, full cost recovery of energy produced, and other issues related to the energy crisis that occurred in California. As a result of that crisis, many states have either discontinued or delayed implementation of initiatives involving retail deregulation. The Company does compete with other electric suppliers within the state. In Georgia, most new retail customers with at least 900 kilowatts of connected load may choose their electricity supplier. In December 1999, the Federal Energy Regulatory Commission (FERC) issued its final rule on Regional Transmission Organizations (RTOs). The order encouraged utilities owning transmission systems to form RTOs on a voluntary basis. Southern Company has submitted a series of status reports informing the FERC of progress toward the development of a Southeastern RTO. In these status reports, Southern Company explained that it is developing an RTO known as SeTrans with a number of non-jurisdictional cooperative and public power entities. Recently, Entergy Corporation and Cleco Power joined the SeTrans development process. In January 2002, the sponsors of SeTrans held a public meeting to form a Stakeholder Advisory Committee, which will participate in the development of the RTO. Southern Company continues to work with the other sponsors to develop the SeTrans RTO. The creation of SeTrans is not expected to have a material impact on Georgia Power's financial statements. The outcome of this matter cannot now be determined. Accounting Policies Critical Policy Georgia Power's significant accounting policies are described in Note 1 to the financial statements. The Company's most critical accounting policy involves rate regulation. The Company is subject to the provisions of FASB Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of the Company's operations is no longer subject to these provisions, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable, and determine if any other assets, including plant, have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. II-86 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 2001 Annual Report New Accounting Standards Effective January 2001, Georgia Power adopted FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Statement No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. This statement requires that certain derivative instruments be recorded in the balance sheet as either an asset or liability measured at fair value, and that changes in the fair value be recognized currently in earnings unless specific hedge accounting criteria are met. See Note 1 to the financial statements under "Financial Instruments" for additional information. The impact on net income in 2001 was not material. An additional interpretation of Statement No. 133 will result in a change -- effective April 1, 2002 -- in accounting for certain contracts related to fuel supplies that contain quantity options. These contracts will be accounted for as derivatives and marked to market. However, due to the existence of specific cost-based fuel recovery clauses for the Company, this change is not expected to have a material impact on net income. In June 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible Assets, which establishes new accounting and reporting standards for acquired goodwill and other intangible assets and supersedes Accounting Principles Board Opinion No. 17. Statement No. 142 addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for upon acquisition and on an ongoing basis. Goodwill and intangible assets that have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. Intangible assets that have finite useful lives will continue to be amortized over their useful lives, which are no longer limited to 40 years. The Company adopted Statement No. 142 effective January 1, 2002 with no material impact on the Company's financial statements. Also, in June 2001, the FASB issued Statement No. 143, Asset Retirement Obligations, which establishes new accounting and reporting standards for legal obligations associated with retiring assets, including decommissioning nuclear plants. The liability 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. Changes in the liability resulting from the passage of time will be recognized as operating expenses. Statement No. 143 must be adopted by January 1, 2003. The Company has not yet quantified the impact of adopting Statement No. 143 on its financial statements. FINANCIAL CONDITION Plant Additions In 2001, gross utility plant additions were $1.4 billion. These additions were primarily related to transmission and distribution facilities, the purchase of nuclear fuel, and the construction of additional combustion turbine and combined cycle units. The funds needed for gross property additions are currently provided from operations, short-term and long-term debt, and capital contributions from Southern Company. The Statements of Cash Flows provide additional details. Credit Rating Risk The Company 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 that could require collateral -- but not termination -- in the event of a credit rating change to below investment grade. At December 31, 2001, the maximum potential collateral requirements were approximately $112 million. Exposure to Market Risks The Company is exposed to market risks, including changes in interest rates, currency exchange rates, and certain commodity prices. To manage the volatility attributable to these exposures, the Company nets the exposures to take advantage of natural offsets and enters into various derivative transactions for the remaining exposures pursuant to the Company's policies in areas such as counterparty exposure and hedging practices. Company 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. The Company's market risk exposures relative to interest rate changes have not changed materially compared to the previous reporting period. In addition, the Company is not aware of any facts or circumstances that would significantly affect such exposures in the near term. II-87 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 2001 Annual Report If the Company sustained a 100 basis point change in interest rates for all variable rate long-term debt, the change would affect annualized interest expense by approximately $13 million at December 31, 2001. Based on the Company's overall interest rate exposure at December 31, 2001, including derivative and other interest rate sensitive instruments, a near-term 100 basis point change in interest rates would not materially affect the Company's financial statements. Due to cost-based rate regulations, the Company has limited exposure to market volatility in interest rates, commodity fuel prices, and prices of electricity. To mitigate residual risks relative to movements in electricity prices, the Company entered 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. Realized gains and losses are recognized in the Statements of Income as incurred. At December 31, 2001, exposure from these activities was not material to the Company's financial statements. Fair value of changes in energy trading contracts and year-end valuations are as follows: Changes During the Year - ---------------------------------------------------- Fair Value - ---------------------------------------------------- (in millions) Contracts beginning of year $0.9 Contracts realized or settled (0.6) New contracts at inception - Changes in valuation techniques - Current period changes 0.1 - ---------------------------------------------------- Contracts end of year $0.4 =================================================== All of these contracts are actively quoted and mature within one year. For additional information, see Note 1 to the financial statements under "Financial Instruments." Financing Activities In 2001, the Company's financing costs decreased due to lower interest rates despite the issuance of new debt during the year. New issues during 1999 through 2001 totaled $1.9 billion and retirement or repayment of higher-cost securities totaled $1.7 billion. The proceeds from assets transferred to Southern Power were used to reduce short-term debt and return capital to the Southern Company that was used during the construction of these projects. Composite financing rates for long-term debt, preferred stock, and preferred securities for the years 1999 through 2001, as of year-end, were as follows: 2001 2000 1999 -------------------------------- Composite interest rate on long-term debt 4.26% 5.90% 5.48% Composite preferred stock dividend rate 4.60 4.60 4.60 Composite preferred securities dividend rate 7.49 7.49 7.49 - ---------------------------------------------------------------- Liquidity and Capital Requirements Cash provided from operations remained constant in 2001. The Company estimates that construction expenditures for the years 2002 through 2004 will total $1.0 billion, $0.8 billion, and $0.8 billion, respectively. Investments primarily in additional transmission and distribution facilities and equipment to comply with environmental requirements are planned. Cash requirements for redemptions announced and maturities of long-term debt are expected to total $666 million during 2002 through 2004. As a result of requirements by the Nuclear Regulatory Commission, the Company has established external trust funds for the purpose of funding nuclear decommissioning costs. The amount to be funded under the new GPSC rate order is $8.7 million each year in 2002, 2003, and 2004. For additional information concerning nuclear decommissioning costs, see Note 1 to the financial statements under "Depreciation and Nuclear Decommissioning." Sources of Capital The Company expects to meet future capital requirements primarily using funds generated from operations and equity funds from Southern Company and by the issuance of new debt and equity securities, term loans, and short-term borrowings. The Company plans to request new financing authority from the GPSC in early 2002 to allow for the issuance of new long-term securities. To meet short-term cash needs and contingencies, the Company had approximately $1.8 billion of unused credit arrangements with banks at the beginning of 2002. See Note 9 to the financial statements under "Bank Credit Arrangements" for additional information. II-88 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 2001 Annual Report The Company may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper at the request and for the benefit of the Company and the other Southern Company operating companies. At December 31, 2001, the Company had outstanding $707.6 million of commercial paper. Recently, the Company has relied on the issuance of unsecured debt and trust preferred securities, in addition to unsecured pollution control bonds issued for its benefit by public authorities, to meet its long-term external financing requirements. In years past, the Company issued first mortgage bonds, mortgage backed pollution control bonds and preferred stock to fund its external requirements. The amount outstanding of these securities has been steadily declining during the last four years. Other Capital Requirements In addition to the funds needed for the construction program, approximately $666 million will be required by the end of 2004 for maturities of long-term debt. Also, the Company will continue to retire higher-cost debt and preferred securities and replace these obligations with lower-cost capital if market conditions permit. These capital requirements, lease obligations, and purchase commitments -- discussed in Notes 4 and 9 to the financial statements -- are as follows: 2002 2003 2004 - --------------------------------------------------------------- (in millions) Bonds - First mortgage $ 2 $ - $ - Pollution control 8 - - Notes 300 350 - Leases - Capital 2 2 2 Operating 15 15 15 Purchase commitments Fuel 1,234 1,115 617 Purchased power 163 223 278 - --------------------------------------------------------------- At the beginning of 2002, Georgia Power had not used any of its available credit arrangements. Credit arrangements are as follows: Expires ---------------------------- Total Unused 2002 2003 & beyond ------------------------------------------------------ (in millions) $1,765 $1,765 $1,265 $500 ------------------------------------------------------ ENVIRONMENTAL ISSUES Clean Air Legislation In November 1990, the Clean Air Act Amendments of 1990 (Clean Air Act) were signed into law. Title IV of the Clean Air Act -- the acid rain compliance provision of the law -- significantly affected Southern Company's subsidiaries, including the Company. Reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants were required in two phases. Phase I compliance began in 1995. Southern Company's subsidiaries, including the Company, achieved Phase I compliance at the affected units by primarily switching to low-sulfur coal and with some equipment upgrades. Construction expenditures for the Company's Phase I compliance totaled approximately $167 million. Phase II sulfur dioxide compliance was required in 2000. Southern Company's subsidiaries, including the Company, used emission allowances and fuel switching to comply with Phase II requirements. Also, equipment to control nitrogen oxide emissions was installed on additional system fossil-fired units as necessary to meet Phase II limits and ozone non-attainment requirements for metropolitan Atlanta through 2000. Compliance for Phase II and initial ozone non-attainment requirements increased total construction expenditures for the Company through 2000 by approximately $39 million. In 2000, the State of Georgia established new emission limits designed to help bring the Atlanta area into compliance with the national one-hour standard for ground-level ozone. The limits include new emission standards for seven of the Company's generating stations and will go into effect in May 2003. Construction expenditures for the Company's compliance with these new rules are currently estimated at approximately $699 million with a total of $345 million remaining to be spent. II-89 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 2001 Annual Report A significant portion of costs related to the acid rain and ozone non-attainment provisions of the Clean Air Act is expected to be recovered through existing ratemaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. In July 1997, the Environmental Protection Agency (EPA) revised the national ambient air quality standards for ozone and particulate matter. This revision made the standards significantly more stringent. In the subsequent litigation of these standards, the U.S. Supreme Court found the EPA's implementation program for the new ozone standard unlawful and remanded it to the EPA. In addition, the Federal District of Columbia Circuit Court of Appeals is considering other legal challenges to these standards. If the standards are eventually upheld, implementation could be required by 2007 to 2010. In September 1998, the EPA issued regional nitrogen oxide reduction rules to the states for implementation. The final rule affects 21 states including Georgia. Compliance is required by May 31, 2004. The EPA proposed rules for Georgia on February 13, 2002. The EPA's proposal includes a May 1, 2005 implementation date for Georgia. The Company plans to demonstrate compliance based largely on NOx controls already installed to meet the Atlanta non-attainment requirements, coupled with the purchase of NOx credits within a NOx trading market. In December 2000, having completed its utility study for mercury and other hazardous air pollutants (HAPS), the EPA issued a determination that an emission control program for mercury and, perhaps, other HAPS is warranted. The program is to be developed under the Maximum Achievable Control Technology provisions of the Clean Air Act, and regulations are scheduled to be finalized by the end of 2004 with implementation to take place around 2007. In January 2001, the EPA proposed guidance for the determination of Best Available Retrofit Technology (BART) emission controls under the Regional Haze Regulations. Installation of BART controls is expected to take place around 2010. Litigation of the Regional Haze Regulations, including the BART provisions, is ongoing in the Federal District of Columbia Circuit Court of Appeals. A court decision is expected in mid-2002. Implementation of the final state rules for these initiatives could require substantial further reductions in nitrogen oxide and sulfur dioxide and reductions in mercury and other HAPS emissions from fossil-fired generating facilities and other industries in these states. Additional compliance costs and capital expenditures resulting from the implementation of these rules and standards cannot be determined until the results of legal challenges are known, and the states have adopted their final rules. In October 1997, the EPA issued regulations setting forth requirements for Compliance Assurance Monitoring (CAM) in state and federal operating permit programs. These regulations were amended by the EPA in March 2001 in response to a court order resolving challenges to the rules brought by environmental groups and industry. Generally, this rule affects the operation and maintenance of electrostatic precipitators and could involve significant additional ongoing expense. The EPA and state environmental regulatory agencies are reviewing and evaluating various matters including: control strategies to reduce regional haze; limits on pollutant discharges to impaired waters; cooling water intake restrictions; and hazardous waste disposal requirements. The impact of any new standards will depend on the development and implementation of applicable regulations. Environmental Protection Agency Litigation On November 3, 1999, the EPA brought a civil action in the U.S. District Court for the Northern District of Georgia. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to coal-fired generating facilities at the Company's Bowen and Scherer plants. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The EPA concurrently issued a notice of violation to the Company relating to these two plants. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation. The complaint and the notice of violation are similar to those brought against and issued to several other electric utilities. The complaint and the notice of violation allege that the Company failed to secure necessary permits or install additional pollution control equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. The Company believes that it complied with applicable laws and the EPA's regulations and interpretations in effect at the II-90 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 2001 Annual Report time the work in question took place. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. The case against the Company has been stayed since the spring of 2001 pending a ruling by the federal Court of Appeals for the Eleventh Circuit in the appeal of a very similar Clean Air Act / New Source Review enforcement action brought by EPA against the Tennessee Valley Authority (TVA). The TVA case involves many of the same legal issues raised by the actions against the Company. Because the outcome of the TVA case could have a significant adverse impact on Georgia Power, the Company is a party to that case as well. The federal court in Georgia is currently considering a motion by the EPA to reopen the case. The Company has opposed that motion. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and could possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. Other Environmental Issues The Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the Company could incur costs to clean up properties currently or previously owned. The Company conducts studies to determine the extent of any required clean-up and has recognized in the financial statements costs to clean up known sites. These costs for the Company amounted to $0.6 million in 2001 and $4 million in both 2000 and 1999. Additional sites may require environmental remediation for which the Company may be liable for all or a portion of required clean-up costs. See Note 3 to the financial statements under "Other Environmental Contingencies" for information regarding the Company's potentially responsible party status at sites in Georgia. Several major pieces of environmental legislation are periodically considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of the Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electromagnetic fields, and other environmental and health concerns could significantly affect the Company. The impact of new legislation -- if any - -- will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electromagnetic fields. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION The Company's 2001 Annual Report includes forward-looking statements in addition to historical information. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "could," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "projects," "potential" or "continue" or the negative of these terms or other comparable terminology. The Company cautions 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 the Company is subject, as well as changes in application of existing laws and regulations; current and future litigation, including the pending EPA civil action and the race discrimination litigation against the Company; the effect, extent, and timing of the entry of additional competition in the markets in which the Company operates; 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 effects of, and changes in economic conditions in the areas in which the Company operates; internal restructuring or other restructuring options that may be pursued by the Company; potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot be assured to be completed or II-91 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 2001 Annual Report beneficial; the direct or indirect effects on the 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 ability of the Company to obtain additional generating capacity at competitive prices; weather and other natural phenomena; and other factors discussed elsewhere herein and in other reports (including Form 10-K) filed from time to time by the Company with the Securities and Exchange Commission. II-92
STATEMENTS OF INCOME For the Years Ended December 31, 2001, 2000, and 1999 Georgia Power Company 2001 Annual Report - ------------------------------------------------------------------------------------------------------------- 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues: Retail sales $4,349,312 $4,317,338 $4,050,088 Sales for resale -- Non-affiliates 366,085 297,643 210,104 Affiliates 99,411 96,150 76,426 Other revenues 150,986 159,487 120,057 - ------------------------------------------------------------------------------------------------------------- Total operating revenues 4,965,794 4,870,618 4,456,675 - ------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 939,092 1,017,878 919,876 Purchased power -- Non-affiliates 442,196 356,189 214,573 Affiliates 329,232 239,815 174,989 Other 810,043 795,458 784,359 Maintenance 430,413 404,189 411,983 Depreciation and amortization 600,631 619,094 552,966 Taxes other than income taxes 202,483 204,527 202,853 - ------------------------------------------------------------------------------------------------------------- Total operating expenses 3,754,090 3,637,150 3,261,599 - ------------------------------------------------------------------------------------------------------------- Operating Income 1,211,704 1,233,468 1,195,076 Other Income (Expense): Interest income 4,264 2,629 5,583 Equity in earnings of unconsolidated subsidiaries 4,178 3,051 2,721 Other, net (2,816) (50,495) (47,986) - ------------------------------------------------------------------------------------------------------------- Earnings Before Interest and Income Taxes 1,217,330 1,188,653 1,155,394 - ------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest expense, net 183,879 208,868 194,869 Distributions on preferred securities of subsidiaries 59,104 59,104 65,774 - ------------------------------------------------------------------------------------------------------------- Total interest charges and other, net 242,983 267,972 260,643 - ------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes 974,347 920,681 894,751 Income taxes 363,599 360,587 351,639 - ------------------------------------------------------------------------------------------------------------- Net Income Before Cumulative Effect of Accounting Change 610,748 560,094 543,112 Cumulative effect of accounting change -- less income taxes of $162 thousand 257 - - - ------------------------------------------------------------------------------------------------------------- Net Income 611,005 560,094 543,112 Dividends on Preferred Stock 670 674 1,729 - ------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 610,335 $ 559,420 $ 541,383 ============================================================================================================= The accompanying notes are an integral part of these statements.
II-93
STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2001, 2000, and 1999 Georgia Power Company 2001 Annual Report - ------------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $ 611,005 $ 560,094 $ 543,112 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 697,143 712,960 663,878 Deferred income taxes and investment tax credits, net (48,329) (28,961) (34,930) Other, net (92,403) (51,501) (42,179) Changes in certain current assets and liabilities -- Receivables, net 60,914 (108,621) 21,665 Fossil fuel stock (103,296) 26,835 (22,165) Materials and supplies (15,628) (9,715) (10,417) Accounts payables (15,406) 64,412 13,095 Energy cost recovery, retail (29,839) (95,235) (26,862) Other (2,999) (9,092) 90,788 - ------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 1,061,162 1,061,176 1,195,985 - ------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (1,389,751) (1,078,163) (790,464) Sales of property 534,760 - - Other (4,774) (5,450) (27,454) - ------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (859,765) (1,083,613) (817,918) - ------------------------------------------------------------------------------------------------------------------------------- Financing Activities: Increase in notes payable, net 43,698 67,598 295,389 Proceeds -- Senior notes 600,000 300,000 100,000 Pollution control bonds 404,535 78,725 238,000 Preferred securities - - 200,000 Capital contributions from parent company 225,060 301,514 155,777 Retirements -- First mortgage bonds (390,140) (100,000) (404,000) Pollution control bonds (385,035) (78,725) (235,000) Preferred securities - - (100,000) Preferred stock - (383) (36,231) Capital distributions to parent company (160,000) - - Payment of preferred stock dividends (578) (751) (984) Payment of common stock dividends (527,300) (549,600) (543,000) Other (17,747) (1,231) (29,630) - ----------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (207,507) 17,147 (359,679) - ----------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents (6,110) (5,290) 18,388 Cash and Cash Equivalents at Beginning of Year 29,370 34,660 16,272 - ----------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $23,260 $29,370 $34,660 - ----------------------------------------------------------------------------------------------------------------------------- Supplemental Cash Flow Information: Cash paid during the year for -- Interest (net of amount capitalized) $ 234,456 $ 265,373 $ 247,050 Income taxes (net of refunds) 381,995 392,310 394,457 - ----------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
II-94
BALANCE SHEETS At December 31, 2001 and 2000 Georgia Power Company 2001 Annual Report - ------------------------------------------------------------------------------------------------------------------ Assets 2001 2000 - ------------------------------------------------------------------------------------------------------------------ (in thousands) Current Assets: Cash and cash equivalents $ 23,260 $ 29,370 Receivables -- Customer accounts receivable 376,322 465,249 Underrecovered retail fuel clause revenue 161,462 131,623 Other accounts and notes receivable 129,073 156,143 Affiliated companies 87,786 13,312 Accumulated provision for uncollectible accounts (8,895) (5,100) Fossil fuel stock, at average cost 202,759 99,463 Materials and supplies, at average cost 279,237 263,609 Other 125,246 97,515 - ------------------------------------------------------------------------------------------------------------------ Total current assets 1,376,250 1,251,184 - ------------------------------------------------------------------------------------------------------------------ Property, Plant, and Equipment: In service 16,886,399 16,469,706 Less accumulated provision for depreciation 7,243,209 6,914,512 - ------------------------------------------------------------------------------------------------------------------ 9,643,190 9,555,194 Nuclear fuel, at amortized cost 112,771 120,570 Construction work in progress (Note 4) 883,285 652,264 - ------------------------------------------------------------------------------------------------------------------ Total property, plant, and equipment 10,639,246 10,328,028 - ------------------------------------------------------------------------------------------------------------------ Other Property and Investments: Equity investments in unconsolidated subsidiaries (Note 4) 35,209 29,569 Nuclear decommissioning trusts 364,180 375,666 Other 29,618 29,745 - ------------------------------------------------------------------------------------------------------------------ Total other property and investments 429,007 434,980 - ------------------------------------------------------------------------------------------------------------------ Deferred Charges and Other Assets: Deferred charges related to income taxes (Note 8) 543,584 565,982 Prepaid pension costs 228,259 147,271 Debt expense, being amortized 58,165 53,748 Premium on reacquired debt, being amortized 173,724 173,610 Other 117,706 120,964 - ------------------------------------------------------------------------------------------------------------------ Total deferred charges and other assets 1,121,438 1,061,575 - ------------------------------------------------------------------------------------------------------------------ Total Assets $13,565,941 $13,075,767 ================================================================================================================== The accompanying notes are an integral part of these balance sheets.
II-95
BALANCE SHEETS At December 31, 2001 and 2000 Georgia Power Company 2001 Annual Report - -------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholder's Equity 2001 2000 - -------------------------------------------------------------------------------------------------------------------- (in thousands) Current Liabilities: Securities due within one year (Note 9) $ 311,620 $ 1,808 Notes payable 747,537 703,839 Accounts payable -- Affiliated 109,591 117,168 Other 409,253 397,550 Customer deposits 83,172 78,540 Taxes accrued -- Income taxes 35,247 5,151 Other 125,807 137,511 Interest accrued 46,942 47,244 Vacation pay accrued 41,830 38,865 Other 112,686 137,565 - -------------------------------------------------------------------------------------------------------------------- Total current liabilities 2,023,685 1,665,241 - -------------------------------------------------------------------------------------------------------------------- Long-term debt (See accompanying statements) 2,961,726 3,041,939 - -------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 8) 2,163,959 2,182,783 Deferred credits related to income taxes (Note 8) 229,216 247,067 Accumulated deferred investment tax credits (Note 8) 337,482 352,282 Employee benefits provisions 207,795 191,587 Other 440,774 341,505 - -------------------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 3,379,226 3,315,224 - -------------------------------------------------------------------------------------------------------------------- Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding company junior subordinated notes (See accompanying statements) 789,250 789,250 - -------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock (See accompanying statements) 14,569 14,569 - -------------------------------------------------------------------------------------------------------------------- Common stockholder's equity (See accompanying statements) 4,397,485 4,249,544 - -------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholder's Equity $13,565,941 $13,075,767 ==================================================================================================================== The accompanying notes are an integral part of these balance sheets.
II-96
STATEMENTS OF CAPITALIZATION At December 31, 2001 and 2000 Georgia Power Company 2001 Annual Report - ----------------------------------------------------------------------------------------------------------------------------------- 2001 2000 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Long-Term Debt: First mortgage bonds Maturity Interest Rates - -------- ------------- April 1, 2003 6.625% $ - $ 200,000 August 1, 2003 6.35% - 75,000 2005 6.07% 1,860 10,000 2008 6.875% - 50,000 2025 7.70% - 57,000 - -------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 1,860 392,000 - -------------------------------------------------------------------------------------------------------------- Senior notes -- (Note 9) Variable rate (1.98125% at 1/1/02) due February 22, 2002 300,000 300,000 5.75% due January 31, 2003 200,000 - 5.25% due May 8, 2003 150,000 - 5.50% due December 1, 2005 150,000 150,000 6.20% due February 1, 2006 150,000 - 6.70% due March 1, 2011 100,000 - 6.60% due December 31, 2038 200,000 200,000 6.625% due March 31, 2039 100,000 100,000 6.875% due December 31, 2047 145,000 145,000 - -------------------------------------------------------------------------------------------------------------- Total senior notes payable 1,495,000 895,000 - -------------------------------------------------------------------------------------------------------------- Other long-term debt -- (Note 9) Pollution control revenue bonds -- Maturity Interest Rates ------- ------------- 2005 5.00% - 57,000 2011 Variable (1.90% to 1.95% at 1/1/02) 10,450 10,450 2012-2016 4.20% to 5.00% 164,590 - 2018-2021 6.00% to 6.25% 7,800 23,225 2018 Variable (2.00% at 1/1/02) 19,500 - 2023-2025 4.90% to 6.75% 28,065 298,535 2022-2026 Variable (1.75% to 1.95% at 1/1/02) 669,480 683,555 2029 Variable (1.90% to 1.95% at 1/1/02) 144,700 144,700 2030-2031 4.53% to 5.25% 137,570 78,725 2032-2034 Variable (1.75% to 1.95% at 1/1/02) 140,000 140,000 2032-2034 4.45% to 5.45% 371,535 238,000 - -------------------------------------------------------------------------------------------------------------- Total other long-term debt 1,693,690 1,674,190 - -------------------------------------------------------------------------------------------------------------- Capital lease obligations (Note 9) 83,371 85,179 - -------------------------------------------------------------------------------------------------------------- Unamortized debt discount, net (575) (2,622) - -------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest) requirement -- $139.5 million) 3,273,346 3,043,747 Less amount due within one year (Note () 311,620 1,808 - ----------------------------------------------------------------------------------------------------------------------------------- Total long-term debt excluding amount due within one year $ 2,961,726 $ 3,041,939 36.3 % 37.6 % - -----------------------------------------------------------------------------------------------------------------------------------
II-97
STATEMENTS OF CAPITALIZATION (continued) At December 31, 2001 and 2000 Georgia Power Company 2001 Annual Report - ----------------------------------------------------------------------------------------------------------------------------------- 2001 2000 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Company Obligated Mandatorily Redeemable Preferred Securities (Note 9): $25 liquidation value -- 6.85% $ 200,000 $ 200,000 $25 liquidation value -- 7.60% 175,000 175,000 $25 liquidation value -- 7.75% 189,250 189,250 $25 liquidation value -- 7.75% 225,000 225,000 - ----------------------------------------------------------------------------------------------------------------------------------- Total (annual distribution requirement -- $59.1 million) 789,250 789,250 9.6 9.7 - ----------------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock, without par value: Authorized -- 55,000,000 shares Outstanding -- 145,689 shares at December 31, 2001 Outstanding -- 145,689 shares at December 31, 2000 $100 stated value -- 4.60% 14,569 14,569 - ----------------------------------------------------------------------------------------------------------------------------------- Total cumulative preferred stock (annual dividend requirement -- $0.7 million) 14,569 14,569 0.2 0.2 - ----------------------------------------------------------------------------------------------------------------------------------- Common Stockholder's Equity: Common stock, without par value -- Authorized -- 15,000,000 shares Outstanding -- 7,761,500 shares 344,250 344,250 Paid-in capital 2,182,557 2,117,497 Premium on preferred stock 40 40 Other comprehensive income (153) - Retained earnings (Note 9) 1,870,791 1,787,757 - ----------------------------------------------------------------------------------------------------------------------------------- Total common stockholder's equity (See accompanying statements) 4,397,485 4,249,544 53.9 52.5 - ----------------------------------------------------------------------------------------------------------------------------------- Total Capitalization $ 8,163,030 $ 8,095,302 100.0 % 100.0 % - ----------------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
II-98
STATEMENTS OF COMMON STOCKHOLDER'S EQUITY For the Years Ended December 31, 2001, 2000, and 1999 Georgia Power Company 2001 Annual Report - ------------------------------------------------------------------------------------------------------------------------- Premium on Other Common Paid-In Preferred Retained Comprehensive Stock Capital Stock Earnings Income (Loss) Total - ------------------------------------------------------------------------------------------------------------------------------ Balance at January 1, 1999 $344,250 $1,660,206 $158 $1,779,558 $ - $3,784,172 Net income after dividends on preferred stock - - - 541,383 - 541,383 Capital contributions from parent company - 155,777 - - - 155,777 Cash dividends on common stock - - - (543,000) - (543,000) Preferred stock transactions, net - - (118) (4) - (122) - ------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 344,250 1,815,983 40 1,777,937 - 3,938,210 Net income after dividends on preferred stock - - - 559,420 - 559,420 Capital contributions from parent company - 301,514 - - - 301,514 Cash dividends on common stock - - - (549,600) - (549,600) - ------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 344,250 2,117,497 40 1,787,757 - 4,249,544 Net income after dividends on preferred stock - - - 610,335 - 610,335 Capital contributions from parent company - 225,060 - - - 225,060 Capital distributions to parent company (160,000) (160,000) Other comprehensive income - - - - (153) (153) Cash dividends on common stock - - - (527,300) - (527,300) Preferred stock transactions, net - - - (1) - (1) - ------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2001 $344,250 $2,182,557 $40 $1,870,791 ($153) $4,397,485 ===============================================================================================================================
STATEMENTS OF COMPREHENSIVE INCOME For the Years Ended December 31, 2001, 2000, and 1999 Georgia Power Company 2001 Annual Report - --------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------------------- (in thousands) Net income after dividends on preferred stock $ 610,335 $ 559,420 $ 541,383 Other comprehensive income: Cumulative effect of accounting change, net of tax 286 - - Current period changes in fair value, net of tax (439) - - - --------------------------------------------------------------------------------------------------------------------------- Comprehensive Income $ 610,182 $ 559,420 $ 541,383 =========================================================================================================================== The accompanying notes are an integral part of these statements.
II-99 NOTES TO FINANCIAL STATEMENTS Georgia Power Company 2001 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General The Company is a wholly owned subsidiary of Southern Company, which is the parent company of five operating companies, a system service company (SCS), Southern Communications Services (Southern LINC), Southern Nuclear Operating Company (Southern Nuclear), Southern Power Company (Southern Power), and other direct and indirect subsidiaries. The operating companies --Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Savannah Electric and Power Company-- provide electric service in four southeastern states. Contracts among the operating companies -- related to jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power -- are regulated by the Federal Energy Regulatory Commission (FERC) and/or the Securities and Exchange Commission. SCS provides, at cost, specialized services to Southern Company and subsidiary companies. Southern LINC provides digital wireless communications services to the operating companies and also markets these services to the public within the Southeast. Southern Nuclear provides services to Southern Company's nuclear power plants. Southern Power was established in 2001 to construct, own, and manage Southern Company's competitive generation assets and sell electricity at market-based rates in the wholesale market. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries are subject to the regulatory provisions of the PUHCA. The Company is also subject to regulation by the FERC and the Georgia Public Service Commission (GPSC). The Company follows accounting principles generally accepted in the United States and complies with the accounting policies and practices prescribed by the respective regulatory commissions. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates, and the actual results may differ from these estimates. Certain prior years' data presented in the financial statements have been reclassified to conform with current year presentation. Affiliate Transactions The Company has an agreement with SCS under which the following services are rendered to the Company at cost: general and design engineering, purchasing, accounting and statistical, finance and treasury, tax, information resources, marketing, auditing, insurance and pension, human resources, systems and procedures, and other services with respect to business and operations and power pool operations. Costs for these services amounted to $285 million, $269 million, and $253 million during 2001, 2000, and 1999, respectively. The Company has an agreement with Southern Nuclear under which the following nuclear-related services are rendered to the Company at cost: general executive and advisory services; general operations, management and technical services; administrative services including procurement, accounting and statistical, employee relations, and systems and procedures services; strategic planning and budgeting services; and other services with respect to business and operations. Costs for these services amounted to $281 million in both 2001 and 2000 and $270 million in 1999. Regulatory Assets and Liabilities The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are expected to be credited to customers through the ratemaking process. See Note 3 under "Retail Rate Orders" for additional information regarding the disposition of the regulatory liability for the accelerated cost recovery recorded under the retail rate order that ended December 31, 2001. Regulatory assets and (liabilities) reflected in the Company's Balance Sheets at December 31 relate to the following: II-100 NOTES (continued) Georgia Power Company 2001 Annual Report 2001 2000 ---------------------- (in millions) Deferred income taxes $ 544 $ 566 Deferred income tax credits (229) (247) Premium on reacquired debt 174 174 Corporate building lease 54 55 Vacation pay 52 49 Postretirement benefits 28 30 Department of Energy assessments 18 21 Deferred nuclear outage costs 24 28 Accelerated cost recovery and interest (336) (230) Other, net 16 23 -------------------------------------------------------------- Total $ 345 $ 469 =============================================================== In the event that a portion of the Company's operations is no longer subject to the provisions of Statement No. 71, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the Company would be required to determine if any impairment to other assets exists, including plant, and write down the assets, if impaired, to their fair value. Revenues and Fuel Costs The Company currently operates as a vertically integrated utility providing electricity to retail customers within its traditional service area located within the state of Georgia, and to wholesale customers in the Southeast. The Company has a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. For all periods presented, uncollectible accounts averaged less than 1 percent of revenues. Revenues are recognized as services are rendered. Unbilled revenues are accrued at the end of each fiscal period. Fuel costs are expensed as the fuel is used. The Company's fuel cost recovery mechanism includes provisions to adjust billings for fluctuations in fuel costs, the energy component of purchased power costs, and certain other costs. Revenues are adjusted for differences between recoverable fuel costs and amounts actually recovered in current rates. Fuel expense includes the amortization of the cost of nuclear fuel and a charge, based on nuclear generation, for the permanent disposal of spent nuclear fuel. Total charges for nuclear fuel included in fuel expense amounted to $75 million in each of 2001 and 2000 and $74 million in 1999. The Company has contracts with the U.S. Department of Energy (DOE) that provide for the permanent disposal of used nuclear fuel. The DOE failed to begin disposing of used nuclear fuel in January 1998 as required by the contracts, and the Company is pursuing legal remedies against the government for breach of contract. Sufficient pool storage capacity is available at Plant Vogtle to maintain full-core discharge capability for both units until the year 2014. To maintain pool discharge capability at Plant Hatch, effective June 2000, an on-site dry storage facility for Plant Hatch became operational. Sufficient dry storage capacity is believed to be available to continue dry storage operations at Plant Hatch through the life of the plant. Procurement of on-site dry storage capacity at Plant Vogtle will commence in sufficient time to maintain pool full-core discharge capability. Also, the Energy Policy Act of 1992 required the establishment of a Uranium Enrichment Decontamination and Decommissioning Fund, which is to be funded in part by a special assessment on utilities with nuclear plants. The assessment will be paid over a 15-year period, which began in 1993. This fund will be used by the DOE for the decontamination and decommissioning of its nuclear fuel enrichment facilities. The law provides that utilities will recover these payments in the same manner as any other fuel expense. The Company -- based on its ownership interests -- estimates its remaining liability under this law at December 31, 2001 to be approximately $16 million. This obligation is recorded in the accompanying Balance Sheets. Depreciation and Nuclear Decommissioning Depreciation of the original cost of depreciable utility plant in service is provided primarily by using composite straight-line rates, which approximated 3.3 percent in 2001, 2000, and 1999. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its original cost -- together with the cost of removal, less salvage -- is charged to accumulated depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Depreciation expense includes an amount for the expected costs of decommissioning nuclear facilities and removal of other facilities. Nuclear Regulatory Commission (NRC) regulations require all licensees operating commercial power reactors to establish a plan for providing, with II-101 NOTES (continued) Georgia Power Company 2001 Annual Report reasonable assurance, funds for decommissioning. The Company has established external trust funds to comply with the NRC's regulations. Earnings on the trust funds are considered in determining decommissioning expense. The NRC's minimum external funding requirements are based on a generic estimate of the cost to decommission the radioactive portions of a nuclear unit based on the size and type of reactor. The Company has filed plans with the NRC to ensure that -- over time -- the deposits and earnings of the external trust funds will provide the minimum funding amounts prescribed by the NRC. The Company periodically conducts site-specific studies to estimate the actual cost of decommissioning its nuclear generating facilities. Site study cost is the estimate to decommission the facility as of the site study year, and ultimate cost is the estimate to decommission the facility as of its retirement date. The estimated site study costs based on the most current study and ultimate costs assuming an inflation rate of 4.7 percent for the Company's ownership interests are as follows: Plant Plant Hatch Vogtle -------------------- Site study basis (year) 2000 2000 Decommissioning periods: Beginning year 2014 2027 Completion year 2042 2045 - ------------------------------------------------------------- (in millions) Site study costs: Radiated structures $486 $420 Non-radiated structures 37 48 - ------------------------------------------------------------- Total $523 $468 ============================================================= (in millions) Ultimate costs: Radiated structures $1,004 $1,468 Non-radiated structures 79 166 - ------------------------------------------------------------- Total $1,083 $1,634 ============================================================= The decommissioning cost estimates are based on prompt dismantlement and removal of the plant from service. The actual decommissioning costs may vary from the above estimates because of changes in the assumed date of decommissioning, changes in the NRC requirements, changes in the assumptions used in making the estimates, changes in regulatory requirements, changes in technology, and changes in costs of labor, materials, and equipment. Annual provisions for nuclear decommissioning expense are based on an annuity method as approved by the GPSC. The amounts expensed in 2001 and fund balances as of December 31, 2001 were: Plant Plant Hatch Vogtle - ---------------------------------------------------------------- (in millions) Amount expensed in 2001 $20 $9 ================================================================ (in millions) Accumulated provisions: External trust funds, at fair value $229 $135 Internal reserves 20 12 - ---------------------------------------------------------------- Total $249 $147 ================================================================ Effective January 1, 2002, the GPSC decreased the annual provision for decommissioning expenses to $8 million. This amount is based on the NRC generic estimate to decommission the radioactive portion of the facilities as of 2000 of $383 million and $282 million for Plants Hatch and Vogtle, respectively. The ultimate costs associated with the 2000 NRC minimum funding requirements are $823 million and $1.03 billion for Plants Hatch and Vogtle, respectively. Significant assumptions include an estimated inflation rate of 4.7 percent and an estimated trust earnings rate of 6.5 percent. The Company expects the GPSC to periodically review and adjust, if necessary, the amounts collected in rates for the anticipated cost of decommissioning. In January 2002, the NRC granted the Company a 20-year extension of the licenses for both units at Plant Hatch which permits the operation of units 1 and 2 until 2034 and 2038, respectively. The decommissioning costs disclosed above do not reflect this extension. Income Taxes The Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. Allowance for Funds Used During Construction (AFUDC) AFUDC represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new regulated facilities. While cash is II-102 NOTES (continued) Georgia Power Company 2001 Annual Report not realized currently from such allowance, it increases the revenue requirement over the service life of the plant through a higher rate base and higher depreciation expense. For the years 2001, 2000, and 1999, the average AFUDC rates were 6.33 percent, 6.74 percent, and 5.61 percent, respectively. AFUDC, net of taxes, as a percentage of net income after dividends on preferred stock, was less than 3.0 percent for 2001, 2000, and 1999. Property, Plant, and Equipment Property, plant, and equipment is stated at original cost, less regulatory disallowances and impairments. Original cost includes: materials; labor; payroll-related costs such as taxes, pensions, and other benefits; and the cost of funds used during construction. The cost of maintenance, repairs, and replacement of minor items of property is charged to maintenance expense. The cost of replacements of property (exclusive of minor items of property) is capitalized. Cash and Cash Equivalents For purposes of the financial statements, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. Comprehensive Income Comprehensive income -- consisting of net income and changes in the fair value of qualifying cash flow hedges, net of income taxes -- is presented in the financial statements. The objective of comprehensive income is to report a measure of all changes in common stock equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners. Financial Instruments Effective January 2001, the Company adopted FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. The impact on net income was immaterial. The Company uses derivative financial instruments to hedge exposures to fluctuations in interest rates, foreign currency exchange rates, and certain commodity prices. Gains and losses on qualifying hedges are deferred and recognized either in income or as an adjustment to the carrying amount of the hedged item when the transaction occurs. The Company is exposed to losses related to financial instruments in the event of counterparties' nonperformance. The Company has established controls to determine and monitor the creditworthiness of counterparties in order to mitigate the Company's exposure to counterparty credit risk. The Company and its affiliates, through SCS acting as their agent, enter into commodity related forward and option contracts to limit exposure to changing prices on certain fuel purchases and electricity purchases and sales. Substantially all of the Company's bulk energy purchases and sales contracts meet the definition of a derivative under Statement No. 133. In many cases, these fuel and electricity contracts qualify for normal purchase and sale exceptions under Statement No. 133 and are accounted for under the accrual method. Other contracts qualify as cash flow hedges of anticipated transactions, resulting in the deferral of related gains and losses, and are recorded in other comprehensive income until the hedged transactions occur. Any ineffectiveness is recognized currently in net income. Contracts that do not qualify for the normal purchase and sale exception and that do not meet the hedge requirements are marked to market through current period income. The Company's financial instruments for which the carrying amounts did not approximate fair value at December 31 were as follows: Carrying Fair Amount Value ------------------------ Long-term debt: (in millions) At December 31, 2001 $3,190 $3,190 At December 31, 2000 $2,959 $2,912 Preferred securities: At December 31, 2001 $789 $782 At December 31, 2000 $789 $761 - --------------------------------------------------- ---------- The fair values for securities were based on either closing market prices or closing prices of comparable instruments. Materials and Supplies Generally, materials and supplies include the cost of transmission, distribution, and generating plant materials. Materials are charged to inventory II-103 NOTES (continued) Georgia Power Company 2001 Annual Report when purchased and then expensed or capitalized to plant, as appropriate, when installed. 2. RETIREMENT BENEFITS The Company has defined benefit, trusteed pension plans that cover substantially all employees. The Company provides certain medical care and life insurance benefits for retired employees. Substantially all these employees may become eligible for such benefits when they retire. The Company funds postretirement trusts to the extent required by the GPSC and the FERC. In late 2000, the Company adopted several pension and postretirement benefits plan changes that had the effect of increasing benefits to both current and future retirees. The measurement date for plan assets and obligations is September 30 of each year. The weighted average rates assumed in the actuarial calculations for both the pension and postretirement benefit plans were: 2001 2000 - ----------------------------------------------------------------- Discount 7.50% 7.50% Annual salary increase 5.00 5.00 Expected long-term return on plan assets 8.50 8.50 - ----------------------------------------------------------------- Pension Plan Changes during the year in the projected benefit obligations and in the fair value of plan assets were as follows: Projected Benefit Obligations -------------------------- 2001 2000 - --------------------------------------------------------------- (in millions) Balance at beginning of year $1,322 $1,275 Service cost 35 32 Interest cost 101 94 Benefits paid (74) (67) Actuarial gain and employee transfers 64 (12) - --------------------------------------------------------------- Balance at end of year $1,448 $1,322 =============================================================== Plan Assets --------------------------- 2001 2000 - ---------------------------------------------------------------- (in millions) Balance at beginning of year $2,464 $2,107 Actual return on plan assets (356) 385 Benefits paid (62) (58) Employee transfers (2) 30 - ---------------------------------------------------------------- Balance at end of year $2,044 $2,464 ================================================================ The accrued pension costs recognized in the Balance Sheets were as follows: 2001 2000 - --------------------------------------------------------------- (in millions) Funded status $ 596 $ 1,142 Unrecognized transition obligation (22) (26) Unrecognized prior service cost 98 44 Unrecognized net actuarial gain (444) (1,013) - --------------------------------------------------------------- Prepaid asset recognized in the Balance Sheets $ 228 $ 147 =============================================================== Components of the plan's net periodic cost were as follows: 2001 2000 1999 - --------------------------------------------------------------- (in millions) Service cost $ 35 $ 33 $ 33 Interest cost 101 94 86 Expected return on plan assets (168) (152) (137) Recognized net actuarial gain (31) (26) (17) Net amortization 3 (1) - - --------------------------------------------------------------- Net pension income $ (60) $ (52) $ (35) =============================================================== Postretirement Benefits Changes during the year in the accumulated benefit obligations and in the fair value of plan assets were as follows: Accumulated Benefit Obligations ------------------------- 2001 2000 - -------------------------------------------------------------- (in millions) Balance at beginning of year $495 $438 Service cost 9 7 Interest cost 39 36 Benefits paid (24) (21) Actuarial gain and employee transfers 23 35 - -------------------------------------------------------------- Balance at end of year $542 $495 ============================================================== II-104 NOTES (continued) Georgia Power Company 2001 Annual Report Plan Assets --------------------------- 2001 2000 - ---------------------------------------------------------------- (in millions) Balance at beginning of year $198 $177 Actual return on plan assets (26) 12 Employer contributions 47 30 Benefits paid (24) (21) - ---------------------------------------------------------------- Balance at end of year $195 $198 ================================================================ The accrued postretirement costs recognized in the Balance Sheets were as follows: 2001 2000 - --------------------------------------------------------------- (in millions) Funded status $(347) $(297) Unrecognized transition obligation 105 113 Unrecognized prior service cost 104 60 Unrecognized (gain)/loss 5 (13) Fourth quarter contributions 27 27 - --------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $(106) $(110) =============================================================== Components of the plans' net periodic cost were as follows: 2001 2000 1999 - --------------------------------------------------------------- (in millions) Service cost $ 9 $ 7 $ 8 Interest cost 39 36 30 Expected return on plan assets (19) (16) (10) Recognized net actuarial loss - - 1 Net amortization 14 12 9 - --------------------------------------------------------------- Net postretirement cost $ 43 $ 39 $38 =============================================================== An additional assumption used in measuring the accumulated postretirement benefit obligations was a weighted average medical care cost trend rate of 9.25 percent for 2001, decreasing gradually to 5.25 percent through the year 2010, and remaining at that level thereafter. An annual increase or decrease in the assumed medical care cost trend rate of 1 percent would affect the accumulated benefit obligation and the service and interest cost components at December 31, 2001 as follows: 1 Percent 1 Percent Increase Decrease - --------------------------------------------------------------- (in millions) Benefit obligation $54 $46 Service and interest costs 5 4 =============================================================== Employee Savings Plan The Company sponsors a 401(k) defined contribution plan covering substantially all employees. The Company provides a 75 percent matching contribution up to 6 percent of an employee's base salary. Total matching contributions made to the plan for the years 2001, 2000, and 1999 were $16 million, $15 million, and $15 million, respectively. 3. CONTINGENCIES AND REGULATORY MATTERS General The Company is subject to certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the Company's financial condition. Retail Rate Orders On December 20, 2001, the GPSC approved a new three-year retail rate order for the Company ending December 31, 2004. Under the terms of the order, earnings will be evaluated 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 the Company. Retail rates were decreased by $118 million effective January 1, 2002. Under a previous three-year order ending December 2001, the Company's earnings were evaluated against a retail return on common equity range of 10 percent to 12.5 percent. The order further provided for $85 million in each year, plus up to $50 million of any earnings above the 12.5 percent return during the second and third years, to be applied to accelerated amortization or depreciation of assets. Two-thirds of any additional earnings above the 12.5 percent return were applied to rate refunds, with the remaining one-third retained by the Company. Pursuant to the order, the Company recorded $336 million of accelerated amortization and interest thereon which has been credited to a regulatory liability account as mandated by the GPSC. Under the new rate order, the accelerated amortization and the interest will be amortized equally over three years as a credit to expense beginning in 2002. Effective January 1, 2002, the Company discontinued recording accelerated II-105 NOTES (continued) Georgia Power Company 2001 Annual Report depreciation and amortization. The Company will not file for a general base rate increase unless its projected retail return on common equity falls below 10 percent. Georgia Power is required to file a general rate case on July 1, 2004, in response to which the GPSC would be expected to determine whether the rate order should be continued, modified, or discontinued. In 2000 and 1999, the Company recorded $44 million and $79 million, respectively, of revenue subject to refund for estimated earnings above 12.5 percent retail return on common equity. Refunds applicable to 2000 and 1999 were made to customers in 2001 and 2000, respectively. Environmental Protection Agency (EPA) Litigation On November 3, 1999, the EPA brought a civil action in the U.S. District Court for the Northern District of Georgia. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to coal-fired generating facilities at the Company's Bowen and Scherer plants. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units beginning at the point of the alleged violations. The Clean Air Act authorizes civil penalties of up to $27,500 per day, per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. The EPA concurrently issued a notice of violation to the Company relating to these two plants. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation. The complaint and the notice of violation are similar to those brought against and issued to several other electric utilities. The complaint and the notice of violation allege that the Company failed to secure necessary permits or install additional pollution control equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. The Company believes that it complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. The case against the Company has been stayed since the spring of 2001 pending a ruling by the U.S. Court of Appeals for the Eleventh Circuit in the appeal of a very similar Clean Air Act / New Source Review enforcement action brought by EPA against the Tennessee Valley Authority (TVA). The TVA case involves many of the same legal issues raised by the actions against the Company. Because the outcome of the TVA case could have a significant adverse impact on Georgia Power, the Company is a party to that case as well. The federal court in Georgia is currently considering a motion by the EPA to reopen the Georgia case. The Company has opposed that motion. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. Other Environmental Contingencies The Company has been designated as a potentially responsible party at sites governed by the Georgia Hazardous Site Response Act and/or by the federal Comprehensive Environmental Response, Compensation and Liability Act. Georgia Power has recognized $33 million in cumulative expenses through December 31, 2001 for the assessment and anticipated cleanup of sites on the Georgia Hazardous Sites Inventory. In addition, in 1995 the EPA designated Georgia Power and four other unrelated entities as potentially responsible parties at a site in Brunswick, Georgia that is listed on the federal National Priorities List. Georgia Power has contributed to the removal and remedial investigation and feasibility study costs for the site. Additional claims for recovery of natural resource damages at the site are anticipated. As of December 31, 2001, Georgia Power had recorded approximately $6 million in cumulative expenses associated with Georgia Power's agreed-upon share of the removal and remedial investigation and feasibility study costs for the Brunswick site. The final outcome of these matters cannot now be determined. However, based on the currently known conditions at these sites and the nature and extent of Georgia Power's activities relating to these sites, management does not believe that the Company's cumulative liability at these sites would be material to the financial statements. II-106 NOTES (continued) Georgia Power Company 2001 Annual Report Nuclear Performance Standards The GPSC has adopted a nuclear performance standard for the Company's nuclear generating units under which the performance of Plants Hatch and Vogtle is evaluated every three years. The performance standard is based on each unit's capacity factor as compared to the average of all comparable U.S. nuclear units operating at a capacity factor of 50 percent or higher during the three-year period of evaluation. Depending on the performance of the units, the Company could receive a monetary award or penalty under the performance standards criteria. The GPSC has approved performance awards of approximately $11.7 million and $7.8 million for performance during the 1993-1995 period and the 1996-1998 period, respectively. These awards are collected through the retail fuel cost recovery provision and recognized in income over 36-month periods that began in January 1997 and 2000, respectively, as mandated by the GPSC. Race Discrimination Litigation On July 28, 2000, a lawsuit alleging race discrimination was filed by three Georgia Power employees against the Company, Southern Company, and SCS in the United States District Court for the Northern District of Georgia. The lawsuit also raised claims on behalf of a purported class. The plaintiffs seek compensatory and punitive damages in an unspecified amount, as well as injunctive relief. On August 14, 2000, the lawsuit was amended to add four more plaintiffs. Also, an additional subsidiary of Southern Company, Southern Company Energy Solutions, Inc., was named a defendant. On October 11, 2001, the district court denied plaintiffs' motion for class certification. The plaintiffs filed a motion to reconsider the order denying class certification, and the court denied the plaintiffs' motion to reconsider. On December 28, 2001, the plaintiffs filed a petition in the United States Court of Appeals for the Eleventh Circuit seeking permission to file an appeal of the October 11 decision. The defendants filed a brief in opposition of the petition on January 18, 2002. Discovery of the seven named plaintiffs' individual claims that remain in the case is ongoing. The final outcome of the case cannot be determined. 4. COMMITMENTS Construction Program Georgia Power had three new generation projects under construction during 2001. They included two units at Plant Dahlberg, a ten-unit, 800 megawatt combustion turbine facility; two combined cycle units totaling 1,132 megawatts at Plant Wansley; and Plant Goat Rock, a two-unit, 1,181 megawatt combined cycle facility. All three of these projects have been transferred to Southern Power Company, a new Southern Company affiliate formed in 2001 to construct, own, and manage wholesale generating assets in the Southeast. The ten Dahlberg units and two Goat Rock units were transferred in 2001 and the transfer of the two Wansley units was completed in January 2002. Significant construction of transmission and distribution facilities and projects to remain in compliance with environmental requirements will continue. The Company currently estimates property additions to be approximately $1.0 billion in 2002, $0.8 billion in 2003, and $0.8 billion in 2004. In connection with the transfer of Plants Dahlberg, Goat Rock, and Wansley, the Company has assigned $61 million in vendor equipment contracts to Southern Power. While the Company could be obligated to assume responsibility for these contracts if Southern Power fails to meet these commitments, Southern Company has entered into limited keep-well arrangements whereby Southern Company would contribute funds to Southern Power either through loans or capital contributions in order to fund performance by Southern Power as equipment purchaser under certain contingencies. Southern Company has also guaranteed Southern Power obligations totaling $6.6 milion for the Company's construction of transmission interconnection facilities to these plants. The construction program is subject to periodic review and revision, and actual construction costs may vary from estimates because of numerous factors, including, but not limited to, changes in business conditions, load growth estimates, environmental regulations, and regulatory requirements. Fuel Commitments To supply a portion of the fuel requirements of its generating plants, the Company has entered into various long-term commitments for the procurement of fossil and nuclear fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels, and other financial commitments. II-107 NOTES (continued) Georgia Power Company 2001 Annual Report Total estimated long-term fossil and nuclear fuel commitments at December 31, 2001 were as follows: Minimum Year Obligations - ---- ------------------- (in millions) 2002 $1,234 2003 1,115 2004 617 2005 527 2006 521 2007 and beyond 1,857 - ------------------------------------------------------------- Total $5,871 ============================================================= Additional commitments for coal and for nuclear fuel will be required in the future to supply the Company's fuel needs. In addition, SCS acts as agent for the five operating companies and Southern Power with regard to natural gas purchases. Natural gas purchases (in dollars) are based on various indices at the actual time of delivery; therefore, only the volume commitments are firm and disclosed in the following chart. The committed volumes, as of December 31, 2001 are as follows: Year Natural Gas - ---- ------------------ (MMBtu) 2002 18,927,055 2003 30,434,645 2004 30,352,580 2005 23,050,128 2006 20,038,214 2007 and beyond 7,153,129 - --------------------------------------------------------------- Total 129,955,751 =============================================================== Purchased Power Commitments The Company and an affiliate, Alabama Power, own equally all of the outstanding capital stock of Southern Electric Generating Company (SEGCO), which owns electric generating units with a total rated capacity of 1,020 megawatts, as well as associated transmission facilities. The capacity of the units has been sold equally to the Company and Alabama Power under a contract which, in substance, requires payments sufficient to provide for the operating expenses, taxes, debt service, and return on investment, whether or not SEGCO has any capacity and energy available. The term of the contract extends automatically for two-year periods, subject to either party's right to cancel upon two year's notice. The Company's share of expenses included in purchased power from affiliates in the Statements of Income is as follows: 2001 2000 1999 --------------------------------- (in millions) Energy $52 $57 $51 Capacity 30 30 29 - -------------------------------------------------------------- Total $82 $87 $80 ============================================================== The Company has commitments regarding a portion of a 5 percent interest in Plant Vogtle owned by Municipal Electric Authority of Georgia (MEAG) that are in effect until the latter of the retirement of the plant or the latest stated maturity date of MEAG's bonds issued to finance such ownership interest. The payments for capacity are required whether or not any capacity is available. The energy cost is a function of each unit's variable operating costs. Except as noted below, the cost of such capacity and energy is included in purchased power from non-affiliates in the Company's Statements of Income. Capacity payments totaled $59 million, $58 million, and $57 million in 2001, 2000, and 1999, respectively. The current projected Plant Vogtle capacity payments are: Year Capacity Payments ---------------------- (in millions) 2002 $ 58 2003 59 2004 55 2005 55 2006 55 2007 and beyond 483 - ---------------------------------------------------------------- Total $765 ================================================================ Portions of the payments noted above relate to costs in excess of Plant Vogtle's allowed investment for ratemaking purposes. The present value of these portions was written off in 1987 and 1990. II-108 NOTES (continued) Georgia Power Company 2001 Annual Report The Company has entered into other various long-term commitments for the purchase of electricity. Estimated total long-term obligations at December 31, 2001 were as follows: Year Non- Affiliated Affiliated - ---- -------------------------------- (in millions) 2002 $ 66 $ 39 2003 123 41 2004 183 40 2005 198 40 2006 197 40 2007 and beyond 1,138 396 - ------------------------------------------------------------ Total $1,905 $596 ============================================================ Operating Leases The Company has entered into coal rail car rental agreements with various terms and expiration dates. These expenses totaled $14 million for 2001, $16 million for 2000, and $11 million for 1999. At December 31, 2001, estimated minimum rental commitments for these noncancelable operating leases were as follows: Year Minimum Obligations ----------------------- (in millions) 2002 $ 15 2003 15 2004 15 2005 15 2006 15 2007 and beyond 91 - -------------------------------------------------------------- Total $166 ============================================================== In addition to the rental commitments above, the Company has obligations upon expiration of certain of the rail car leases with respect to the residual value of the leased property. These leases expire in 2004 and 2010, and the Company's maximum obligations are $13 million and $40 million, respectively. At the termination of the leases, at the Company's option, the Company may either exercise its purchase option or the property can be sold to a third party. The Company expects that the fair market value of the leased property would substantially reduce or eliminate the Company's payments under the residual value obligation. 5. NUCLEAR INSURANCE Under the Price-Anderson Amendments Act of 1988, the Company maintains agreements of indemnity with the NRC that, together with private insurance, cover third-party liability arising from any nuclear incident occurring at the Company's nuclear power plants. The Act provides funds up to $9.5 billion for public liability claims that could arise from a single nuclear incident. Each nuclear plant is insured against this liability to a maximum of $200 million by American Nuclear Insurers (ANI), with the remaining coverage provided by a mandatory program of deferred premiums that could be assessed, after a nuclear incident, against all owners of nuclear reactors. The Company could be assessed up to $88 million per incident for each licensed reactor it operates but not more than an aggregate of $10 million per incident to be paid in a calendar year for each reactor. Such maximum assessment for the Company, excluding any applicable state premium taxes -- based on its ownership and buyback interests - -- is $178 million per incident but not more than an aggregate of $20 million to be paid for each incident in any one year. The Company is a member of Nuclear Electric Insurance Limited (NEIL), a mutual insurer established to provide property damage insurance in an amount up to $500 million for members' nuclear generating facilities. Additionally, the Company has policies that currently provide decontamination, excess property insurance, and premature decommissioning coverage up to $2.25 billion for losses in excess of the $500 million primary coverage. This excess insurance is also provided by NEIL. NEIL also covers the additional costs that would be incurred in obtaining replacement power during a prolonged accidental outage at a member's nuclear plant. Members can purchase this coverage, subject to a deductible waiting period of between 8 to 26 weeks, with a maximum per occurrence per unit limit of $490 million. After this deductible period, weekly indemnity payments would be received until either the unit is operational or until the limit is exhausted in approximately three years. Under each of the NEIL policies, members are subject to assessments if losses each year exceed the accumulated funds available to the insurer under that policy. The current maximum annual assessments for the Company under the three NEIL policies would be $39 million. II-109 NOTES (continued) Georgia Power Company 2001 Annual Report Following the terrorist attacks of September 2001, both ANI and NEIL confirmed that terrorist acts against commercial nuclear power stations would be covered under their insurance. Both companies, however, revised their policy terms on a prospective basis to include an industry aggregate for all terrorist acts. The NEIL aggregate, which applies to all claims stemming from terrorism within a 12 month duration, is $3.24 billion plus any amounts that would be available through reinsurance or indemnity from an outside source. The ANI cap is $200 million in a policy year. For all on-site property damage insurance policies for commercial nuclear power plants, the NRC requires that the proceeds of such policies should be dedicated first for the sole purpose of placing the reactor in a safe and stable condition after an accident. Any remaining proceeds are to be applied next toward the costs of decontamination and debris removal operations ordered by the NRC, and any further remaining proceeds are to be paid either to the Company or to its bond trustees as may be appropriate under the policies and applicable trust indentures. All retrospective assessments, whether generated for liability, property, or replacement power, may be subject to applicable state premium taxes. 6. JOINT OWNERSHIP AGREEMENTS Except as otherwise noted, the Company has contracted to operate and maintain all jointly owned generating facilities. The Company jointly owns the Rocky Mountain pumped storage hydroelectric plant with Oglethorpe Power Company who is the operator of the plant. The Company also jointly owns Plant McIntosh with Savannah Electric and Power Company who operates the plant. The Company and Florida Power Corporation (FPC) jointly own a combustion turbine unit (Intercession City) operated by FPC. The Company includes its proportionate share of plant operating expenses in the corresponding operating expenses in the Statements of Income. At December 31, 2001, the Company's percentage ownership and investment (exclusive of nuclear fuel) in jointly owned facilities in commercial operation were as follows: Company Accumulated Facility (Type) Ownership Investment Depreciation - -------------------------------------------------------------------- (in millions) Plant Vogtle (nuclear) 45.7% $3,304 $1,793 Plant Hatch (nuclear) 50.1 881 668 Plant Wansley (coal) 53.5 309 152 Plant Scherer (coal) Units 1 and 2 8.4 112 56 Unit 3 75.0 545 221 Plant McIntosh Common Facilities 75.0 24 2 (combustion-turbine) Rocky Mountain 25.4 169 78 (pumped storage) Intercession City 33.3 12 1 (combustion-turbine) - -------------------------------------------------------------------- 7. LONG-TERM POWER SALES AGREEMENTS The Company and the other operating companies of Southern Company have long-term contractual agreements for the sale of capacity and energy to certain non-affiliated utilities located outside the system's service area. These agreements consist of firm unit power sales pertaining to capacity from specific generating units. Because energy is generally sold at cost under these agreements, it is primarily the capacity revenues that affect the Company's profitability. The Company's capacity revenues were as follows: Year Revenues Capacity ---------------------------------- (in millions) (megawatts) 2001 $ 26 102 2000 30 124 1999 32 162 ---------------------------------- Unit power from specific generating plants is being sold to Florida Power & Light Company, FPC, and Jacksonville Electric Authority. Under these agreements, approximately 102 megawatts of capacity is scheduled to be sold annually for periods after 2001 with a minimum of three years notice until the expiration of the contracts in 2010. 8. INCOME TAXES At December 31, 2001, tax-related regulatory assets were $544 million and tax-related regulatory liabilities were $229 million. The assets are II-110 NOTES (continued) Georgia Power Company 2001 Annual Report attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized interest. The liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. Details of the federal and state income tax provisions are as follows: 2001 2000 1999 ---------------------------- Total provision for income taxes: (in millions) Federal: Current $352 $342 $333 Deferred (46) (34) (34) - -------------------------------------------------------------- 306 308 299 - -------------------------------------------------------------- State: Current 61 48 54 Deferred (8) (5) (6) Deferred investment tax credits 5 10 5 - -------------------------------------------------------------- Total $364 $361 $352 ============================================================== The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows: 2001 2000 ------------------- (in millions) Deferred tax liabilities: Accelerated depreciation $1,722 $1,755 Property basis differences 660 683 Other 295 243 - ----------------------------------------------------------------- Total 2,677 2,681 - ----------------------------------------------------------------- Deferred tax assets: Other property basis differences 178 189 Federal effect of state deferred taxes 88 91 Other deferred costs 257 208 Other 40 37 - ----------------------------------------------------------------- Total 563 525 - ----------------------------------------------------------------- Net deferred tax liabilities 2,114 2,156 Portion included in current assets 50 27 - ----------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $2,164 $2,183 ================================================================= Deferred investment tax credits are amortized over the life of the related property with such amortization normally applied as a credit to reduce depreciation in the Statements of Income. Credits amortized in this manner amounted to $15 million in 2001, 2000, and 1999. At December 31, 2001, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory tax rate to the effective income tax rate is as follows: 2001 2000 1999 ------------------------- Federal statutory rate 35% 35% 35% State income tax, net of federal deduction 4 4 4 Non-deductible book depreciation 2 2 2 Other (4) (2) (2) - -------------------------------------------------------------- Effective income tax rate 37% 39% 39% ============================================================== Southern Company and its subsidiaries file a consolidated federal income tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. In accordance with Internal Revenue Service regulations, each company is jointly and severally liable for the tax liability. 9. CAPITALIZATION First Mortgage Bond Indenture Restrictions The Company's first mortgage bond indenture contains various restrictions that remain in effect as long as the bonds are outstanding. However, the Company expects to discharge its first mortgage bond indenture by spring 2002 and to be released from all indenture requirements. At December 31, 2001, $1.037 billion of retained earnings and paid-in capital was unrestricted for the payment of cash dividends or any other distributions under terms of the mortgage indenture. The Company has no restrictions on the amount of indebtedness it may incur. Preferred Securities Statutory business trusts formed by the Company, of which the Company owns all the common securities, have issued mandatorily redeemable preferred securities as follows: Date of Maturity Issue Amount Rate Notes Date --------------------------------------------------- (millions) (millions) Trust I 8/1996 $225.00 7.75% $232 6/2036 Trust II 1/1997 175.00 7.60 180 12/2036 Trust III 6/1997 189.25 7.75 195 3/2037 Trust IV 2/1999 200.00 6.85 206 3/2029 II-111 NOTES (continued) Georgia Power Company 2001 Annual Report Substantially all of the assets of each trust are junior subordinated notes issued by the Company in the respective approximate principal amounts set forth above. The Company considers that the mechanisms and obligations relating to the preferred securities, taken together, constitute a full and unconditional guarantee by the Company of the Trusts' payment obligations with respect to the preferred securities. The Trusts are subsidiaries of the Company, and accordingly are consolidated in the Company's financial statements. Pollution Control Bonds The Company has incurred obligations in connection with the sale by public authorities of tax-exempt pollution control revenue bonds. The Company has authenticated and delivered to trustees an aggregate of $7.8 million of its first mortgage bonds outstanding at December 31, 2001, which are pledged as security for its obligations under pollution control revenue contracts. The redemption of these securities will occur in March 2002. Senior Notes In February 2000, February 2001, and May 2001, the Company issued unsecured senior notes. The proceeds of these issues were used to redeem higher cost long-term debt and to reduce short-term borrowing. The senior notes are, in effect, subordinated to all secured debt of the Company. Bank Credit Arrangements At the beginning of 2002, the Company had unused credit arrangements with banks totaling $1.8 billion, of which $1.3 billion expires at various times during 2002 and $500 million expires at April 24, 2003. Of the total $1.8 billion in unused credit, $1.65 billion is a syndicated credit arrangement with $1.15 billion expiring April 19, 2002 and $500 million expiring April 24, 2003. Upon expiration, the $1.15 billion agreement provides the option of converting borrowings into two-year term loans. Both agreements contain stated borrowing rates but also allow for competitive bid loans. In addition, the agreements require payment of commitment fees based on the unused portions of the commitments. Annual fees are also paid to the agent bank. Approximately $115 million of the $1.3 billion arrangements expiring during 2002 allow for two-year term loans executable upon the expiration date of the facilities. All of the arrangements include stated borrowing rates but also allow for negotiated rates. These agreements also require payment of commitment fees based on the unused portion of the commitments or the maintenance of compensating balances with the banks. These balances are not legally restricted from withdrawal. This $1.8 billion in unused credit arrangements provides liquidity support to the Company's variable rate pollution control bonds. The amount of variable rate pollution control bonds outstanding requiring that liquidity support as of December 31, 2001 was $984 million. In addition, the Company borrows under uncommitted lines of credit with banks and through commercial paper programs that has the liquidity support of committed bank credit arrangements. Average compensating balances held under these committed facilities were not material in 2001. The amount of commercial paper outstanding at December 31, 2001 was $707.6 million Other Long-Term Debt Assets acquired under capital leases are recorded in the Balance Sheets as utility plant in service, and the related obligations are classified as long-term debt. At December 31, 2001 and 2000, the Company had a capitalized lease obligation for its corporate headquarters building of $83 million with an interest rate of 8.1 percent. For ratemaking purposes, the GPSC has treated the lease as an operating lease and has allowed only the lease payments in cost of service. The difference between the accrued expense and the lease payments allowed for ratemaking purposes has been deferred and is being amortized to expense as ordered by the GPSC. At December 31, 2001 and 2000, the interest and lease amortization deferred on the Balance Sheets are $54 million and $55 million, respectively. Assets Subject to Lien The Company's mortgage dated as of March 1, 1941, as amended and supplemented, securing the first mortgage bonds issued by the Company, constitutes a direct lien on substantially all of the Company's fixed property and franchises. II-112 NOTES (continued) Georgia Power Company 2001 Annual Report Georgia Power expects to discharge its first mortgage bond indenture by spring 2002 and that the lien will be removed. Securities Due Within One Year A summary of the improvement fund requirements and scheduled maturities and redemptions of securities due within one year at December 31 is as follows: 2001 2000 ------------------ (in millions) Capital lease $ 2 $2 First mortgage bonds 2 - Pollution control bonds 8 - Senior notes 300 - - --------------------------------------------------------------- Total $312 $2 =============================================================== The Company's first mortgage bond indenture includes an improvement fund requirement that amounts to 1 percent of each outstanding series of bonds authenticated under the indenture prior to January 1 of each year, other than those issued to collateralize pollution control obligations. The requirement may be satisfied by June 1 of each year by depositing cash, reacquiring bonds, or by pledging additional property equal to 1 2/3 times the requirement. However, the Company expects to discharge its first mortgage bond indenture by spring 2002 and to be released from all indenture requirements. Serial maturities through 2006 applicable to total long-term debt are as follows: $312 million in 2002; $352 million in 2003; $2 million in 2004; $154 million in 2005; and $153 million in 2006. 10. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial information for 2001 and 2000 is as follows: Net Income After Operating Operating Dividends on Quarter Ended Revenues Income Preferred Stock - --------------------------------------------------------------------- (in millions) -------------------------------------------- March 2001 $1,108 $249 $108 June 2001 1,259 322 163 September 2001 1,579 515 298 December 2001 1,020 126 41 March 2000 $ 992 $223 $ 94 June 2000 1,221 311 148 September 2000 1,545 537 283 December 2000 1,113 162 34 - --------------------------------------------------------------------- The Company's business is influenced by seasonal weather conditions. II-113
SELECTED FINANCIAL AND OPERATING DATA 1997-2001 Georgia Power Company 2001 Annual Report - -------------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $4,965,794 $4,870,618 $4,456,675 $4,738,253 $4,385,717 Net Income after Dividends on Preferred Stock (in thousands) $610,335 $559,420 $541,383 $570,228 $593,996 Cash Dividends on Common Stock (in thousands) $527,300 $549,600 $543,000 $536,600 $520,000 Return on Average Common Equity (percent) 14.12 13.66 14.02 14.61 14.53 Total Assets (in thousands) $13,565,941 $13,075,767 $12,361,860 $12,033,618 $12,573,728 Gross Property Additions (in thousands) $1,389,751 $1,078,163 $790,464 $499,053 $475,921 - -------------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $4,397,485 $4,249,544 $3,938,210 $3,784,172 $4,019,728 Preferred stock 14,569 14,569 14,952 15,527 157,247 Company obligated mandatorily redeemable preferred securities 789,250 789,250 789,250 689,250 689,250 Long-term debt 2,961,726 3,041,939 2,688,358 2,744,362 2,982,835 - -------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $8,163,030 $8,095,302 $7,430,770 $7,233,311 $7,849,060 ================================================================================================================================ Capitalization Ratios (percent): Common stock equity 53.9 52.5 53.0 52.3 51.2 Preferred stock 0.2 0.2 0.2 0.2 2.0 Company obligated mandatorily redeemable preferred securities 9.6 9.7 10.6 9.5 8.8 Long-term debt 36.3 37.6 36.2 38.0 38.0 - -------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 100.0 ================================================================================================================================ Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 A1 A1 Standard and Poor's A A A+ A+ A+ Fitch AA- AA- AA- AA- AA- Preferred Stock - Moody's Baa1 a2 a2 a2 a2 Standard and Poor's BBB+ BBB+ A- A A Fitch A A A+ A+ A+ Unsecured Long-Term Debt - Moody's A2 A2 A2 A2 A2 Standard and Poor's A A A A A Fitch A+ A+ A+ A+ A+ ================================================================================================================================ Customers (year-end): Residential 1,698,407 1,669,566 1,632,450 1,596,488 1,561,675 Commercial 244,674 237,977 229,524 221,180 211,672 Industrial 8,046 8,533 8,958 9,485 9,988 Other 3,239 3,159 3,060 3,034 2,748 - -------------------------------------------------------------------------------------------------------------------------------- Total 1,954,366 1,919,235 1,873,992 1,830,187 1,786,083 ================================================================================================================================ Employees (year-end): 9,048 8,860 8,961 8,371 8,354 - --------------------------------------------------------------------------------------------------------------------------------
II-114
SELECTED FINANCIAL AND OPERATING DATA 1997-2001 (continued) Georgia Power Company 2001 Annual Report - ---------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $ 1,507,031 $1,535,684 $ 1,410,099 $ 1,486,699 $ 1,326,787 Commercial 1,682,918 1,620,466 1,527,880 1,591,363 1,493,353 Industrial 1,106,420 1,154,789 1,143,001 1,170,881 1,110,311 Other 52,943 6,399 (30,892) 49,274 47,848 - ---------------------------------------------------------------------------------------------------------------------------- Total retail 4,349,312 4,317,338 4,050,088 4,298,217 3,978,299 Sales for resale - non-affiliates 366,085 297,643 210,104 259,234 282,365 Sales for resale - affiliates 99,411 96,150 76,426 81,606 38,708 - ---------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 4,814,808 4,711,131 4,336,618 4,639,057 4,299,372 Other revenues 150,986 159,487 120,057 99,196 86,345 - ---------------------------------------------------------------------------------------------------------------------------- Total $4,965,794 $4,870,618 $4,456,675 $4,738,253 $4,385,717 ============================================================================================================================ Kilowatt-Hour Sales (in thousands): Residential 20,119,080 20,693,481 19,404,709 19,481,486 17,295,022 Commercial 26,493,255 25,628,402 23,715,485 22,861,391 21,134,346 Industrial 25,349,477 27,543,265 27,300,355 27,283,147 26,701,685 Other 583,007 568,906 551,451 543,462 538,163 - ---------------------------------------------------------------------------------------------------------------------------- Total retail 72,544,819 74,434,054 70,972,000 70,169,486 65,669,216 Sales for resale - non-affiliates 8,110,096 6,463,723 5,060,931 6,438,891 6,795,300 Sales for resale - affiliates 3,133,485 2,435,106 1,795,243 2,038,400 1,706,699 - ---------------------------------------------------------------------------------------------------------------------------- Total 83,788,400 83,332,883 77,828,174 78,646,777 74,171,215 ============================================================================================================================ Average Revenue Per Kilowatt-Hour (cents): Residential 7.49 7.42 7.27 7.63 7.67 Commercial 6.35 6.32 6.44 6.96 7.07 Industrial 4.36 4.19 4.19 4.29 4.16 Total retail 6.00 5.80 5.71 6.13 6.06 Sales for resale 4.14 4.43 4.18 4.02 3.78 Total sales 5.75 5.65 5.57 5.90 5.80 Residential Average Annual Kilowatt-Hour Use Per Customer 11,933 12,520 12,006 12,314 11,171 Residential Average Annual Revenue Per Customer $893.84 $929.11 $872.48 $939.73 $857.01 Plant Nameplate Capacity Ratings (year-end) (megawatts) 14,474 15,114 14,474 14,437 14,437 Maximum Peak-Hour Demand (megawatts): Winter 11,977 12,014 11,568 11,959 10,407 Summer 14,294 14,930 14,575 13,923 13,153 Annual Load Factor (percent) 61.7 61.6 58.9 58.7 57.4 Plant Availability (percent): Fossil-steam 88.5 86.1 84.3 86.0 85.8 Nuclear 94.4 91.5 89.3 91.6 88.8 - ---------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 58.5 62.3 63.0 62.3 64.3 Nuclear 18.1 17.4 18.0 18.3 18.8 Hydro 1.1 0.7 0.9 2.2 2.2 Oil and gas 0.4 1.8 1.6 2.2 0.6 Purchased power - From non-affiliates 7.8 8.1 6.6 6.5 2.7 From affiliates 14.1 9.7 9.9 8.5 11.4 - ---------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 100.0 ============================================================================================================================ II-115
GULF POWER COMPANY FINANCIAL SECTION II-116 MANAGEMENT'S REPORT Gulf Power Company 2001 Annual Report The management of Gulf Power Company has prepared -- and is responsible for -- the financial statements and related information included in this report. These statements were prepared in accordance with accounting principles generally accepted in the United States and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that the accounting records reflect only authorized transactions of the Company. Limitations exist in any system of internal controls, however, based on a recognition that the cost of the system should not exceed its benefits. The Company believes its system of internal accounting controls maintains an appropriate cost/benefit relationship. The Company's system of internal accounting controls is evaluated on an ongoing basis by the Company's internal audit staff. The Company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, composed of five independent directors, provides a broad overview of management's financial reporting and control functions. Periodically, this committee meets with management, the internal auditors, and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal controls, and financial reporting matters. The internal auditors and independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the Company's operations are conducted according to a high standard of business ethics. In management's opinion, the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of Gulf Power Company in conformity with accounting principles generally accepted in the United States. /s/ Travis J. Bowden Travis J. Bowden President and Chief Executive Officer /s/Ronnie R. Labrato Ronnie R. Labrato Vice President, Chief Financial Officer and Comptroller February 13, 2002 II-117 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Gulf Power Company: We have audited the accompanying balance sheets and statements of capitalization of Gulf Power Company (a Maine corporation and a wholly owned subsidiary of Southern Company) as of December 31, 2001 and 2000, and the related statements of income, common stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements (pages II-129 through II-144) referred to above present fairly, in all material respects, the financial position of Gulf Power Company as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. As explained in Note 1 to the financial statements, effective January 1, 2001, Gulf Power Company changed its method of accounting for derivative instruments and hedging activities. /s/Arthur Andersen LLP Atlanta, Georgia February 13, 2002 II-118 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Gulf Power Company 2001 Annual Report RESULTS OF OPERATIONS Earnings Gulf Power Company's 2001 net income after dividends on preferred stock was $58.3 million, an increase of $6.5 million from the previous year. In 2000, earnings were $51.8 million, down $1.9 million when compared to 1999. The increase in earnings in 2001 was due primarily to an increase in Allowance for Funds Used During Construction (AFUDC) and lower interest expense; the decrease in 2000 was primarily a result of expenses related to the discontinuance of the Company's appliance sales division, and higher interest expense. Revenues Operating revenues increased in 2001 when compared to 2000. The following table summarizes the change in operating revenues for the past two years: Increase (Decrease) Amount From Prior Year ------------------------------------ 2001 2001 2000 ------------------------------------ (in thousands) Retail -- Base Revenues $340,620 $4,517 $3,771 Regulatory cost recovery and other 243,971 31,434 27,920 - ----------------------------------------------------------------- Total retail 584,591 35,951 31,691 - ------------------------------------------------------ ---------- Sales for resale-- Non-affiliates 82,252 15,362 4,536 Affiliates 27,256 (39,739) 885 - ----------------------------------------------------------------- Total sales for resale 109,508 (24,377) 5,421 Other operating revenues 31,104 (690) 3,108 - ----------------------------------------------------------------- Total operating revenues $725,203 $10,884 $40,220 ================================================================= Percent change 1.5% 6.0% - ---------------------------------------------------------------- Retail revenues increased $36 million, or 6.6 percent in 2001, and $31.7 million or 6.1 percent in 2000, due primarily to the recovery of higher fuel and purchased power costs. Retail base rate revenues increased $4.5 million due to slightly higher energy sales and lower revenues subject to refund. Revenues subject to refund were $1.5 million in 2001 compared to $6.9 million in 2000. See Note 3 to the financial statements under "Retail Revenue Sharing Plan" for further information. "Regulatory cost recovery and other" includes: recovery provisions for fuel expenses and the energy component of purchased power costs, energy conservation costs, purchased power capacity costs, and environmental compliance costs. Annually, the Company seeks recovery of projected costs plus any true-up amount from prior periods. Approved rates are implemented each January. Therefore, the recovery provisions generally equal the related expenses and have no material effect on net income. See Notes 1 and 3 to the financial statements under "Revenues and Regulatory Cost Recovery Clauses" and "Environmental Cost Recovery," respectively, for further information. Sales for resale were $109.5 million in 2001, a decrease of $24.4 million, or 18.2 percent, from 2000 primarily due to reduced energy sales for resale to affiliates. Revenues from sales to utilities outside the service area under long-term contracts consist of capacity and energy components. Capacity revenues reflect the recovery of fixed costs and a return on investment under the contracts. Energy is generally sold at variable cost. The capacity and energy components under these long-term contracts were as follows: 2001 2000 1999 ---------------------------------------- (in thousands) Capacity $19,472 $20,270 $19,792 Energy 27,579 21,922 20,251 - ------------------------------------------------------------- Total $47,051 $42,192 $40,043 ============================================================= Capacity revenues remained relatively unchanged during 2001 and 2000. Sales to affiliated companies vary from year to year depending on demand and the availability and cost of generating resources at each company. These sales have little impact on earnings. Other operating revenues for 2000 increased due primarily to higher franchise fees and higher revenues from the transmission of electricity to others. II-119 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 2001 Annual Report Energy Sales Kilowatt-hour sales for 2001 and the percent changes by year were as follows: KWH Percent Change -------------------------------- 2001 2001 2000 -------------------------------- (millions) Residential 4,716 (1.5)% 7.1% Commercial 3,418 1.2 4.9 Industrial 2,018 4.8 4.3 Other 21 10.5 0.0 ------------- Total retail 10,173 0.6 5.8 Sales for resale Non-affiliates 2,093 22.8 9.2 Affiliates 963 (49.8) (23.7) ------------- Total 13,229 (3.7) 0.7 ===================================================== Total retail energy sales increased in both 2001 and 2000 primarily due to an increase in the total number of customers. An increase in energy sales for resale to non-affiliates of 22.8 percent in 2001 when compared to 2000 is primarily related to unit power sales under long-term contracts to other Florida utilities and bulk power sales under short-term contracts to other non-affiliated utilities. Energy sales to affiliated companies vary from year to year depending on demand and availability and cost of generating resources at each company. Expenses Total operating expenses in 2001 increased $13.5 million, or 2.3 percent, over the amount recorded in 2000 due primarily to higher purchased power expenses and maintenance expenses. In 2000, total operating expenses increased $39.5 million, or 7.1 percent, compared to 1999 due primarily to higher fuel and purchased power expenses. Fuel expenses in 2001, when compared to 2000, decreased $15.1 million, or 7.0 percent, due primarily to decreased generation, while average fuel costs increased as noted below. In 2000, fuel expenses increased $6.7 million, or 3.2 percent, when compared to 1999. The increase in 2000 was a result of an increase in average fuel costs. The amount and sources of generation and the average cost of fuel per net kilowatt-hour generated were as follows: 2001 2000 1999 ------------------------------- Total generation (millions of kilowatt-hours) 11,423 12,866 13,095 Sources of generation (percent) Coal 99.0 98.2 97.4 Oil and gas 1.0 1.8 2.6 Average cost of fuel per net kilowatt-hour generated (cents)-- 1.76 1.68 1.60 - --------------------------------------------------------------------- Purchased power expenses increased in 2001 by $23.8 million, or 28.8 percent, over 2000 primarily due to an increase in purchased power from affiliate companies. Purchased power expenses for 2000 increased over 1999 by $25.5 million, or 44.7 percent, due primarily to a higher demand for energy. Purchases of energy from affiliates will vary from year to year depending on demand and the availability and cost of generating resources at each company. These purchases have little impact on earnings. Depreciation and amortization expense increased $1.3 million, or 2.0 percent, in 2001, and $2.3 million, or 3.5 percent, in 2000 due to an increase in depreciable property and the amortization of a portion of a regulatory asset, which was allowed in the current retail revenue sharing plan. Other income, net increased in 2001 by $6.8 million compared to 2000 due primarily to higher allowance for equity funds used during construction related to the Company's new combined cycle unit. In 2000, other income, net decreased $2.8 million due primarily to expenses related to the discontinuance of the Company's appliance sales division. See Note 1 to the financial statements under "Other Income" for further information. Interest expense, net decreased $3.1 million, or 10.9 percent, in 2001 due primarily to higher allowance for debt funds used during construction related to the Company's new combined cycle unit, as well as lower interest rates on notes payable and variable rate pollution control bonds. These decreases were partially offset by the issuance of $60 million of senior notes in August 2001 and $75 million of senior notes in October 2001. In 2000, interest expense, net II-120 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 2001 Annual Report increased $1.2 million, or 4.6 percent, due primarily to the issuance of $50 million of senior notes in August 1999. Effects of Inflation The Company is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the Company is recovering its cost of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on the Company because of the large investment in utility plant with long economic lives. Conventional accounting for historical cost does not recognize this economic loss nor the partially offsetting gain that arises through financing facilities with fixed-money obligations, such as long-term debt and preferred securities. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. Future Earnings Potential General The results of operations for the past three years are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors. The major factor is the ability to achieve energy sales growth while containing costs in a more competitive environment. In accordance with Financial Accounting Standards Board (FASB) Statement No. 87, Employers' Accounting for Pensions, the Company recorded non-cash income of approximately $5.9 million in 2001. Future pension income is dependent on several factors including trust earnings and changes to the plan. The Company is involved in various matters being litigated. See Note 3 to the financial statements for information regarding material issues that could possibly affect future earnings. The Company currently operates as a vertically integrated utility providing electricity to customers within its traditional service area located in northwest Florida. Prices for electricity provided by the Company to retail customers are set by the Florida Public Service Commission (FPSC). Future earnings in the near term will depend upon growth in energy sales, which is subject to a number of factors. Traditionally, these factors have included the rate of economic growth in the Company's service area, weather, competition, changes in contracts with neighboring utilities, the elasticity of demand, and energy conservation practiced by the Company's customers. The Company is actively pursuing additional earnings through unregulated new products and services. In early 1999, the FPSC staff and the Company became involved in discussions primarily related to reducing the Company's authorized rate of return. On October 1, 1999, the Office of Public Counsel, the Coalition for Equitable Rates, the Florida Industrial Power Users Group, and the Company jointly filed a petition to resolve the issues. The stipulation included a reduction to retail base rates of $10 million annually and provides for revenues to be shared within set ranges for 1999 through 2002. Customers receive two-thirds of any revenue within the sharing range and the Company retains one-third. Any revenue above this range is refunded to the customers. The stipulation also included authorization for the Company, at its discretion, to accrue up to an additional $5 million to the property insurance reserve and $1 million to amortize a regulatory asset related to the corporate office. The Company also filed a request to prospectively reduce its authorized return on equity (ROE) range from 11 to 13 percent to 10.5 to 12.5 percent in order to help ensure that the FPSC would approve the stipulation. The FPSC approved both the stipulation and the ROE request with an effective date of November 4, 1999. On September 10, 2001, the Company filed a request with the FPSC for a base rate increase of approximately $70 million, the majority of which is needed to recover costs related to the Smith Unit 3 combined cycle facility currently under construction and scheduled to be placed in service by June 2002. Hearings are scheduled for February 25 through March 1, 2002 with a decision expected in early May 2002 and new rates effective June 6, 2002. For calendar year 2001, the Company's retail revenue range for sharing was $358 million to $374 million. Actual retail revenues in 2001 were $360.3 million and the Company recorded revenues subject to refund of $1.5 million. The estimated refund with interest was reflected in customer billings in February 2002. For calendar year 2002, there are specified sharing ranges for each month from the expected in-service date of Smith Unit 3 until the end of the year. The II-121 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 2001 Annual Report sharing plan will expire at the earlier of the in-service date of Smith Unit 3 or December 31, 2002. Compliance costs related to current and future environmental laws and regulations could affect earnings if such costs are not fully recovered. The Clean Air Act and other important environmental items are discussed later under "Environmental Matters." Also, Florida legislation adopted in 1993 that provides for recovery of prudent environmental compliance costs is discussed in Note 3 to the financial statements under "Environmental Cost Recovery." Industry Restructuring The electric utility industry in the United States is continuing to evolve as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). The Energy Act allows independent power producers (IPPs) to access a utility's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for a utility's large industrial and commercial customers and sell energy generation to other utilities. Also, electricity sales for resale rates are being driven down by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. Although the Energy Act does not permit retail customer access, it has been a major catalyst for recent restructuring and consolidations taking place within the utility industry. Numerous federal and state initiatives are in varying stages to promote wholesale and retail competition. Among other things, these initiatives allow customers to choose their electricity provider. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While various restructuring and competition initiatives have been discussed in Florida, none have been enacted. Enactment would require numerous issues to be resolved, including significant ones relating to recovery of any stranded investments, full cost recovery of energy produced, and other issues related to the energy crisis that occurred in California. As a result of that crisis, many states have either discontinued or delayed implementation of initiatives involving retail deregulation. In 2000, Florida's Governor appointed a 17 member study commission to look at the state's electric industry, studying issues ranging from current and future reliability of electric and natural gas supply, electric industry retail and wholesale competition, environmental impacts of energy supply, conservation, and tax issues. A deadline of December 1, 2001 was set for the commission's final report and recommendations to the Governor and the Legislature. During the course of the study, the Stranded Investment Task Force Subcommittee recommended a discretionary transfer approach regarding the transfer or sale of generation assets by an investor owned utility (IOU). This would allow all new generation to be competitively bid while allowing IOU's to transfer generation units to an affiliate or sell generation units and share proceeds with both shareholders and consumers. Merchants would also be allowed to compete in this restructured wholesale market. This recommendation was approved during the final meeting of the study commission on November 15, 2001 and has been incorporated into the final report. The final report, entitled "Florida...Energy Wise" was presented on December 11, 2001 to the Governor and the Legislature. Any recommendations from the commission will have to be drafted and voted into law by the Legislature. This is unlikely to occur in the upcoming 2002 legislative session. The effects of any proposed changes cannot presently be determined, but could have a material effect on the Company's financial condition and results of operations. Continuing to be a low-cost producer could provide opportunities to increase market share and profitability in markets that evolve with changing regulation. Conversely, if the Company does not remain a low-cost producer and provide quality service, then energy sales growth could be limited, and this could significantly erode earnings. In December 1999, the Federal Energy Regulatory Commission (FERC) issued its final rule on Regional Transmission Organizations (RTOs). The order encouraged utilities owning transmission systems to form RTOs on a voluntary basis. Southern Company has submitted a series of status reports informing the FERC of progress toward the development of a Southeastern RTO. In these status reports, Southern Company explained that it is developing a for profit RTO known as SeTrans with a number of non-jurisdictional cooperative and public power entities. Recently, Entergy Corporation and Cleco Power joined the SeTrans development process. In January 2002, the sponsors of SeTrans held a public II-122 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 2001 Annual Report meeting to form a Stakeholder Advisory Committee, which will participate in the development of the SeTrans RTO. Southern Company continues to work with the other sponsors to develop the SeTrans RTO. The creation of SeTrans is not expected to have a material impact on the Company's financial statements. The outcome of this matter cannot now be determined. Accounting Policies Critical Policy Gulf Power Company's significant accounting policies are described in Note 1 to the financial statements. The Company's most critical accounting policy involves rate regulation. The Company is subject to the provisions of FASB Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of the Company's operations is no longer subject to these provisions, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable, and determine if any other assets have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. New Accounting Standards Effective January 2001, the Company adopted FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Statement No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. This statement requires that certain derivative instruments be recorded in the balance sheet as either an asset or liability measured at fair value and that changes in the fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The impact on net income in 2001 was not material. (See Note 1 to the financial statements under "Financial Instruments" for additional information). An additional interpretation of Statement No. 133 will result in a change -- effective April 1, 2002 -- in accounting for certain contracts related to fuel supplies that contain quantity options. These contracts will be accounted for as derivatives and marked to market. However, due to the existence of specific cost-based fuel recovery clauses for the Company, this change is not expected to have a material impact on net income. In June 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible Assets, which establishes new accounting and reporting standards for acquired goodwill and other intangible assets and supersedes Accounting Principles Board Opinion No. 17. Statement No. 142 addresses how intangible assets that are acquired individually or with a group of other assets -- but not those acquired in a business combination -- should be accounted for upon acquisition and on an ongoing basis. Goodwill and intangible assets that have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. Intangible assets that have finite useful lives will continue to be amortized over their useful lives, which are no longer limited to 40 years. The Company adopted Statement No. 142 in January 2002 with no material impact on the financial statements. Also in June 2001, the FASB issued Statement No. 143, Asset Retirement Obligations, which establishes new accounting and reporting standards for legal obligations associated with retiring assets, including decommissioning of nuclear plants. The liability 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. Changes in the liability resulting from the passage of time will be recognized as operating expenses. Statement No. 143 must be adopted by January 1, 2003. The Company has not yet quantified the impact of adopting Statement No. 143 on its financial statements. FINANCIAL CONDITION Overview During 2001, gross property additions were $274.7 million. Funds for the Company's property additions were provided by operating activities and additional financings, which were utilized to finance the construction of the Company's new combined cycle unit. See the Statements of Cash Flows for further details. Credit Rating Risk The Company does not have any credit agreements that would require material changes in payment schedules or terminations as a result of a credit rating downgrade. II-123 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 2001 Annual Report Exposure to Market Risks Due to cost-based rate regulations, the Company has limited exposure to market volatility in interest rates, commodity fuel prices, and prices of electricity. To mitigate residual risks relative to movements in electricity prices, the Company enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market and, to a lesser extent, similar contracts for gas purchases. Realized gains and losses are recognized in the income statement as incurred. At December 31, 2001, exposure from these activities was not material. Fair value of changes in energy trading contracts and year-end valuations are as follows: Changes During the Year - ---------------------------------------------------------------- Fair Value - ---------------------------------------------------------------- (in thousands) Contracts beginning of year $110 Contracts realized or settled (100) New contracts at inception - Changes in valuation techniques - Current period changes (120) - ---------------------------------------------------------------- Contracts end of year $(110) ================================================================ Source of Year-End Valuation Prices - ---------------------------------------------------------------- Maturity Total --------- Fair Value Year 1 1-3 Years - ---------------------------------------------------------------- (in thousands) Actively quoted $(110) $(102) $(8) External sources - - - Models and other methods - - - - ---------------------------------------------------------------- Contracts end of year $(110) $(102) $(8) ================================================================ If the Company sustained a 100 basis point change in interest rates for all variable rate long-term debt, the change would affect annualized interest expense by approximately $0.61 million at December 31, 2001. Financing Activities In 2001, the Company sold $135 million of senior notes and $30 million of trust preferred securities and used the proceeds to retire $30 million of first mortgage bonds and to pay for construction of the Company's new combined cycle unit. In 2000, there were no issuances or retirements of long-term debt. See the Statements of Cash Flows for further details. Composite financing rates for the years 1999 through 2001 as of year end were as follows: 2001 2000 1999 ----------------------------- Composite interest rate on long-term debt 5.6% 6.2% 6.0% Composite rate on trust preferred securities 7.2% 7.3% 7.3% Composite preferred stock dividend rate 5.1% 5.1% 5.1% - ----------------------------------------------------------------- The composite interest rate on long-term debt decreased in 2001 due to lower interest rates on variable rate pollution control bonds and lower rates on new senior notes. Capital Requirements for Construction The Company's gross property additions, including those amounts related to environmental compliance, are budgeted at $282 million for the three years beginning in 2002 ($103 million in 2002, $72 million in 2003, and $107 million in 2004). These amounts include $24.3 million in 2002 for the remaining cost of a 574 megawatt combined cycle gas generating unit and related interconnections to be located in the eastern portion of the Company's service area. The unit is expected to have an in-service date of June 2002. The remaining property additions budget is primarily for maintaining and upgrading transmission and distribution facilities and generating plants. Actual construction costs may vary from this estimate because of changes in such factors as the following: business conditions; environmental regulations; load projections; the cost and efficiency of construction labor, equipment, and materials; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. Other Capital Requirements The Company will continue to retire higher-cost debt and preferred securities and replace these securities with lower-cost capital as market conditions and terms of the instruments permit. II-124 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 2001 Annual Report Future note maturities, operating lease obligations, and purchase commitments - discussed in notes 4 and 8 to the financial statements -- are as follows: 2002 2003 2004 - -------------------------------------------------------------- (in millions) Bonds - First mortgage $ - $ - $ - Pollution control - - - Notes - 61 51 Leases - Capital - - - Operating 2 2 2 - -------------------------------------------------------------- Purchase commitments Fuel 140 109 112 Purchased power 2 1 1 - -------------------------------------------------------------- At the beginning of 2002, the Company had not used any of its available credit arrangements. Credit arrangements are as follows: Expires ----------------------------- Total Unused 2002 2003 & beyond - -------------------------------------------------------------- (in millions) $103 $103 $103 $ - - -------------------------------------------------------------- Environmental Matters In November 1990, the Clean Air Act Amendments of 1990 (Clean Air Act) was signed into law. Title IV of the Clean Air Act -- the acid rain compliance provision of the law -- significantly affected the Company. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants were required in two phases. Phase I compliance began in 1995. Southern Company achieved Phase I compliance at the affected plants by primarily switching to low-sulfur coal and with some equipment upgrades. Construction expenditures for Phase I nitrogen oxide and sulfur dioxide emissions compliance totaled approximately $42 million for the Company. Phase II sulfur dioxide compliance was required in 2000. Southern Company used emission allowances and fuel switching to comply with Phase II requirements. Also, equipment to control nitrogen oxide emissions was installed on additional system fossil-fired units as necessary to meet Phase II limits and ozone non-attainment requirements for metropolitan Atlanta through 2000. Phase II compliance did not have a material impact on the Company. A significant portion of costs related to the acid rain and ozone non-attainment provisions of the Clean Air Act is expected to be recovered through existing ratemaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. In 1993, the Florida Legislature adopted legislation that allows a utility to petition the FPSC for recovery of prudent environmental compliance costs that are not being recovered through base rates or any other recovery mechanism. The legislation is discussed in Note 3 to the financial statements under "Environmental Cost Recovery." Substantially all of the costs for the Clean Air Act and other new environmental legislation discussed below are expected to be recovered through the Environmental Cost Recovery Clause. In July 1997, the Environmental Protection Agency (EPA) revised the national ambient air quality standards for ozone and particulate matter. This revision made the standards significantly more stringent. In the subsequent litigation of these standards, the U.S. Supreme Court found the EPA's implementation program for the new ozone standard unlawful and remanded it to the EPA. In addition, the Federal District of Columbia Circuit Court of Appeals is considering other legal challenges to these standards. If the standards are eventually upheld, implementation could be required by 2007 to 2010. In September 1998, the EPA issued regional nitrogen oxide reduction rule to the states for implementation. Compliance is required by May 31, 2004 for most states, but for Georgia, further ratemaking is required and compliance may be delayed until May 2005. The final rule affects 21 states, including Georgia, but not Florida. See Note 5 to the financial statements under "Joint Ownership Agreements" related to the Company's ownership interest in Georgia Power's Plant Scherer Unit No. 3. The EPA is presently evaluating whether to bring an additional 15 states, not including Florida, under this regional nitrogen oxide rule. In December 2000, the EPA completed its utility study for mercury and other hazardous air pollutants (HAPS) and issued a determination that an emission control program for mercury and, perhaps, other HAPS is warranted. The program is to be developed over the next four years under the Maximum Achievable Control Technology provisions of the Clean Air Act, and the regulations are scheduled to be finalized by the end of 2004 with implementation to take place around 2007. In January 2001, the EPA proposed guidance for the determination of Best II-125 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 2001 Annual Report Available Retrofit Technology (BART) emission controls under the Regional Haze Regulations. Installation of BART controls is expected to take place around 2010. Litigation of the Regional Haze Regulations, including the BART provisions, is ongoing in the Federal District of Columbia Circuit Court of Appeals. A court decision is expected in mid-2002. Implementation of the final state rules for these initiatives could require substantial further reductions in nitrogen oxide and sulfur dioxide and reductions in mercury and other HAPS emissions from fossil-fired generating facilities and other industries in these states. Additional compliance costs and capital expenditures resulting from the implementation of these rules and standards cannot be determined until the results of legal challenges are known, and the states have adopted their final rules. In October 1997, EPA issued regulations setting forth requirements for Compliance Assurance Monitoring (CAM) in its state and federal operating permit programs. These regulations were amended by EPA in March 2001 in response to a court order resolving challenges to the rules brought by environmental groups and industry. Generally, this rule affects the operation and maintenance of electrostatic precipitators and could involve significant additional ongoing expense. The EPA and state environmental regulatory agencies are also reviewing and evaluating various other matters including: control strategies to reduce regional haze; limits on pollutant discharges to impaired waters; cooling water intake restrictions; and hazardous waste disposal requirements. The impact of any new standards will depend on the development and implementation of applicable regulations. On November 3, 1999, the EPA brought a civil action in the U.S. District Court against Alabama Power, Georgia Power, and the system service company. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The EPA concurrently issued to the integrated Southeast utilities a notice of violation related to 10 generating facilities, including the five facilities mentioned previously and the Company's Plants Crist and Scherer. For additional information, see Note 5 to the financial statements under "Joint Ownership Agreements" related to the Company's ownership interest in Georgia Power's Plant Scherer Unit No. 3. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation, and to add the Company, Mississippi Power, and Savannah Electric as defendants. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution control equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. The U.S. District Court granted Alabama Power's motion to dismiss for lack of jurisdiction in Georgia and granted the system service company's motion to dismiss on the grounds that it neither owned nor operated the generating units involved in the proceedings. The court directed the EPA to re-file its amended complaint limiting claims to those brought against Georgia Power and Savannah Electric. The EPA re-filed those claims as directed by the court. Also, the EPA re-filed its claims against Alabama Power in U.S. District Court in Alabama. It has not re-filed against the Company, Mississippi Power, or the system service company. The Alabama Power, Georgia Power, and Savannah Electric cases have been stayed since the spring of 2001, pending a ruling by the U.S. Court of Appeals for the Eleventh Circuit in the appeal of a very similar New Source Review enforcement action against the Tennessee Valley Authority (TVA). The TVA case involves many of the same legal issues raised by the actions against Alabama Power, Georgia Power, and Savannah Electric. Because the outcome of the TVA case could have a significant adverse impact on Alabama Power and Georgia Power, both companies are parties to that case as well. The U.S. District Court in Alabama has indicated that it will revisit the issue of a continued stay in April 2002. The U.S. District Court in Georgia is currently considering a motion by the EPA to reopen the Georgia case. Georgia Power and Savannah Electric have opposed that motion. The Company believes that it has complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. An adverse outcome of this matter could require substantial II-126 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 2001 Annual Report capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. The Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the Company could incur substantial costs to clean up properties. The Company conducts studies to determine the extent of any required cleanup costs and has recognized in the financial statements costs to clean up known sites. For additional information, see Note 3 to the financial statements under "Environmental Cost Recovery." Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of the Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electric and magnetic fields, and other environmental health concerns could significantly affect the Company. The impact of new legislation -- if any - -- will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electric and magnetic fields. Sources of Capital At December 31, 2001, the Company had approximately $2.2 million of cash and cash equivalents and $2.6 million of unused commercial paper backed by lines of credit with banks to meet its short-term cash needs. See the Statements of Cash Flows for details related to the Company's financing activities. See Note 8 to the financial statements under "Bank Credit Arrangements" for additional information. The Company may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper at the request and for the benefit of the Company and the other Southern Company operating companies. At December 31, 2001, the Company had outstanding $37.4 million of commercial paper. The Company historically has relied on issuances of first mortgage bonds and preferred stock, in addition to pollution control bonds issued for its benefit by public authorities, to meet its long-term external financing requirements. Recently, the Company's financings have consisted of unsecured debt and trust preferred securities. The Company has no restrictions on the amounts of unsecured indebtedness it may incur. However, in order to issue first mortgage bonds or preferred stock, the Company is required to meet certain coverage requirements specified in its mortgage indenture and corporate charter. The Company's ability to satisfy all coverage requirements is such that it could issue new first mortgage bonds and preferred stock to provide sufficient funds for all anticipated requirements. Cautionary Statement Regarding Forward-Looking Information The Company's 2001 Annual Report contains forward looking and historical information. 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 Company cautions 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 the Company is subject, as well as changes in application of existing laws and regulations; current and future litigation, including the pending EPA civil action; the effects, extent, and timing of the entry of additional competition in the markets of the Company; 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 II-127 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 2001 Annual Report 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 the Company the effects of, and changes in, economic conditions in the Company's service territory; the direct or indirect effects on the Company's business resulting from the terrorist incident on September 11, 2001, or any similar such incidents or responses to such incidents; the timing and acceptance of the Company's new product and services offerings; financial market conditions and the results of financing efforts; weather and other natural phenomena; the ability of the Company to obtain additional generating capacity at competitive prices; and other factors discussed elsewhere herein and in other reports (including Form 10-K) filed from time to time by the Company with the Securities and Exchange Commission. II-128
STATEMENTS OF INCOME For the Years Ended December 31, 2001, 2000, and 1999 Gulf Power Company 2001 Annual Report - ------------------------------------------------------------------------------------------------------------------ 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------ (in thousands) Operating Revenues: Retail sales $584,591 $548,640 $516,949 Sales for resale -- Non-affiliates 82,252 66,890 62,354 Affiliates 27,256 66,995 66,110 Other revenues 31,104 31,794 28,686 - ------------------------------------------------------------------------------------------------------------------ Total operating revenues 725,203 714,319 674,099 - ------------------------------------------------------------------------------------------------------------------ Operating Expenses: Operation -- Fuel 200,633 215,744 209,031 Purchased power -- Non-affiliates 65,585 73,846 46,332 Affiliates 40,660 8,644 10,703 Other 117,394 117,146 114,670 Maintenance 60,193 56,281 57,830 Depreciation and amortization 68,218 66,873 64,589 Taxes other than income taxes 55,261 55,904 51,782 - ------------------------------------------------------------------------------------------------------------------ Total operating expenses 607,944 594,438 554,937 - ------------------------------------------------------------------------------------------------------------------ Operating Income 117,259 119,881 119,162 Other Income (Expense): Interest income 1,258 1,137 1,771 Other, net 2,710 (4,126) (1,357) - ------------------------------------------------------------------------------------------------------------------ Earnings Before Interest and Income Taxes 121,227 116,892 119,576 - ------------------------------------------------------------------------------------------------------------------ Interest and Other: Interest expense, net 25,034 28,085 26,861 Distributions on preferred securities of subsidiary 6,477 6,200 6,200 - ------------------------------------------------------------------------------------------------------------------ Total interest charges and other, net 31,511 34,285 33,061 - ------------------------------------------------------------------------------------------------------------------ Earnings Before Income Taxes 89,716 82,607 86,515 Income taxes (Note 7) 31,260 30,530 32,631 - ------------------------------------------------------------------------------------------------------------------ Earnings Before Cumulative Effect of 58,456 52,077 53,884 Accounting Change Cumulative effect of accounting change-- less income taxes of $42 thousand 68 - - - ------------------------------------------------------------------------------------------------------------------ Net Income 58,524 52,077 53,884 Dividends on Preferred Stock 217 234 217 - ------------------------------------------------------------------------------------------------------------------ Net Income After Dividends on Preferred Stock $ 58,307 $ 51,843 $ 53,667 ================================================================================================================== The accompanying notes are an integral part of these statements.
II-129
STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2001, 2000, and 1999 Gulf Power Company 2001 Annual Report - ------------------------------------------------------------------------------------------------------------------------ 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------ (in thousands) Operating Activities: Net income $ 58,524 $ 52,077 $ 53,884 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 72,320 69,915 68,721 Deferred income taxes, net 3,394 (12,516) (6,609) Other, net (1,804) 10,686 3,735 Changes in certain current assets and liabilities -- Receivables, net 15,991 (20,212) (10,484) Fossil fuel stock (30,887) 13,101 (5,656) Materials and supplies 176 1,055 (2,063) Accounts payable (14,492) 15,924 (2,023) Provision for rate refund 1,530 7,203 - Other (31,249) 12,521 7,030 - ------------------------------------------------------------------------------------------------------------------------ Net cash provided from operating activities 73,503 149,754 106,535 - ------------------------------------------------------------------------------------------------------------------------ Investing Activities: Gross property additions (274,668) (95,807) (69,798) Other 5,290 (4,432) (8,856) - ------------------------------------------------------------------------------------------------------------------------ Net cash used for investing activities (269,378) (100,239) (78,654) - ------------------------------------------------------------------------------------------------------------------------ Financing Activities: Increase (decrease) in notes payable, net 44,311 (12,000) 23,500 Proceeds -- Other long-term debt 135,000 - 50,000 Preferred securities 30,000 - - Capital contributions from parent company 72,484 12,222 2,294 Retirements -- First mortgage bonds (30,000) - - Other long-term debt (862) (1,853) (27,074) Preferred stock - - - Payment of preferred stock dividends (217) (234) (271) Payment of common stock dividends (53,275) (59,000) (61,300) Other (3,703) (22) (246) - ------------------------------------------------------------------------------------------------------------------------ Net cash provided from (used for) financing activities 193,738 (60,887) (13,097) - ------------------------------------------------------------------------------------------------------------------------ Net Change in Cash and Cash Equivalents (2,137) (11,372) 14,784 Cash and Cash Equivalents at Beginning of Period 4,381 15,753 969 - ------------------------------------------------------------------------------------------------------------------------ Cash and Cash Equivalents at End of Period $ 2,244 $ 4,381 $ 15,753 ======================================================================================================================== Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of amount capitalized) $30,813 $32,277 $27,670 Income taxes (net of refunds) 33,349 42,252 29,462 - ------------------------------------------------------------------------------------------------------------------------ The accompanying notes are an integral part of these statements.
II-130
BALANCE SHEETS At December 31, 2001 and 2000 Gulf Power Company 2001 Annual Report - ------------------------------------------------------------------------------------------------------------- Assets 2001 2000 - ------------------------------------------------------------------------------------------------------------- (in thousands) Current Assets: Cash and cash equivalents $ 2,244 $ 4,381 Receivables -- Customer accounts receivable 64,113 69,820 Other accounts and notes receivable 4,316 2,179 Affiliated companies 2,689 15,026 Accumulated provision for uncollectible accounts (1,342) (1,302) Fossil fuel stock, at average cost 47,655 16,768 Materials and supplies, at average cost 28,857 29,033 Regulatory clauses under recovery 24,912 2,112 Other 12,662 6,543 - ------------------------------------------------------------------------------------------------------------- Total current assets 186,106 144,560 - ------------------------------------------------------------------------------------------------------------- Property, Plant, and Equipment: In service 1,951,512 1,892,023 Less accumulated provision for depreciation 912,581 867,260 - ------------------------------------------------------------------------------------------------------------- 1,038,931 1,024,763 Construction work in progress 264,525 71,008 - ------------------------------------------------------------------------------------------------------------- Total property, plant, and equipment 1,303,456 1,095,771 - ------------------------------------------------------------------------------------------------------------- Other Property and Investments 7,049 4,510 - ------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes (Note 7) 16,766 15,963 Prepaid pension costs (Note 2) 26,364 20,058 Debt expense, being amortized 3,036 2,392 Premium on reacquired debt, being amortized 14,518 15,866 Other 12,222 12,944 - ------------------------------------------------------------------------------------------------------------- Total deferred charges and other assets 72,906 67,223 - ------------------------------------------------------------------------------------------------------------- Total Assets $1,569,517 $1,312,064 ============================================================================================================= The accompanying notes are an integral part of these balance sheets.
II-131
BALANCE SHEETS At December 31, 2001 and 2000 Gulf Power Company 2001 Annual Report - -------------------------------------------------------------------------------------------------------------- Liabilities and Stockholder's Equity 2001 2000 - -------------------------------------------------------------------------------------------------------------- (in thousands) Current Liabilities: Notes payable $ 87,311 $ 43,000 Accounts payable -- Affiliated 18,202 17,558 Other 38,308 38,153 Customer deposits 14,506 13,474 Taxes accrued -- Income taxes 8,162 3,864 Other 8,053 8,749 Interest accrued 8,305 8,324 Provision for rate refund 1,530 7,203 Vacation pay accrued 4,725 4,512 Regulatory clauses over recovery 3,719 6,848 Other 6,528 1,584 - -------------------------------------------------------------------------------------------------------------- Total current liabilities 199,349 153,269 - -------------------------------------------------------------------------------------------------------------- Long-term debt (See accompanying statements) 467,784 365,993 - -------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 7) 161,968 155,074 Deferred credits related to income taxes (Note 7) 28,293 38,255 Accumulated deferred investment tax credits 24,056 25,792 Employee benefits provisions 37,892 31,075 Other 26,045 25,992 - -------------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 278,254 276,188 - -------------------------------------------------------------------------------------------------------------- Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding company junior subordinated notes (See accompanying statements) 115,000 85,000 - -------------------------------------------------------------------------------------------------------------- Preferred stock (See accompanying statements) 4,236 4,236 - -------------------------------------------------------------------------------------------------------------- Common stockholder's equity (See accompanying statements) 504,894 427,378 - -------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholder's Equity $1,569,517 $1,312,064 ============================================================================================================== The accompanying notes are an integral part of these balance sheets.
II-132
STATEMENTS OF CAPITALIZATION At December 31, 2001 and 2000 Gulf Power Company 2001 Annual Report - ----------------------------------------------------------------------------------------------------------------------------- 2001 2000 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Long Term Debt: First mortgage bonds -- Maturity Interest Rates --------- -------------- July 1, 2003 6.125% $ - $ 30,000 November 1, 2006 6.50% 25,000 25,000 January 1, 2026 6.875% 30,000 30,000 - ----------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 55,000 85,000 - ----------------------------------------------------------------------------------------------------------------------------- Long-term notes payable -- 4.69% due August 1, 2003 60,000 - 7.05% due August 15, 2004 50,000 50,000 6.10% due September 30, 2016 75,000 - 7.50% due June 30, 2037 20,000 20,000 6.70% due June 30, 2038 47,211 48,073 - ----------------------------------------------------------------------------------------------------------------------------- Total long-term notes payable 252,211 118,073 - ----------------------------------------------------------------------------------------------------------------------------- Other long-term debt -- Pollution control revenue bonds -- Collateralized: 5.25% to 6.30% due 2006-2026 108,700 108,700 Non-collateralized: Variable rates (1.75% to 1.95% at 1/1/02) due 2022-2024 60,930 60,930 - ----------------------------------------------------------------------------------------------------------------------------- Total other long-term debt 169,630 169,630 - ----------------------------------------------------------------------------------------------------------------------------- Unamortized debt premium (discount), net (9,057) (6,710) - ----------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $29.2 million) 467,784 365,993 42.9% 41.5% - ----------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock: $100 par value, 4.64% to 5.44% 4,236 4,236 - ----------------------------------------------------------------------------------------------------------------------------- Total (annual dividend requirement -- $0.2 million) 4,236 4,236 0.4% 0.5% - ----------------------------------------------------------------------------------------------------------------------------- Company Obligated Mandatorily Redeemable Preferred Securities: $25 liquidation value -- 7.00% 45,000 45,000 7.38% 30,000 - 7.63% 40,000 40,000 - ----------------------------------------------------------------------------------------------------------------------------- Total (annual distribution requirement -- $8.4 million) 115,000 85,000 10.5% 9.6% - ----------------------------------------------------------------------------------------------------------------------------- Common Stockholder's Equity: Common stock, without par value -- Authorized and outstanding - 992,717 shares in 2001 and 2000 38,060 38,060 Paid-in capital 305,960 233,476 Premium on preferred stock 12 12 Retained earnings 160,862 155,830 - ----------------------------------------------------------------------------------------------------------------------------- Total common stockholder's equity 504,894 427,378 46.2% 48.4% - ----------------------------------------------------------------------------------------------------------------------------- Total Capitalization $1,091,914 $882,607 100.0% 100.0% ============================================================================================================================= The accompanying notes are an integral part of these statements.
II-133
STATEMENTS OF COMMON STOCKHOLDER'S EQUITY For the Years Ended December 31, 2001, 2000, and 1999 Gulf Power Company 2001 Annual Report - ----------------------------------------------------------------------------------------------------------------------------- Premium on Common Paid-In Preferred Retained Stock Capital Stock Earnings Total - ----------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at January 1, 1999 $38,060 $218,960 $12 $170,620 $427,652 Net income after dividends on preferred stock - - - 53,667 53,667 Capital contributions from parent company - 2,294 - - 2,294 Cash dividends on common stock - - - (51,300) (51,300) Other - - - (10,000) (10,000) - ----------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 38,060 221,254 12 162,987 422,313 Net income after dividends on preferred stock - - - 51,843 51,843 Capital contributions from parent company - 12,222 - - 12,222 Cash dividends on common stock - - - (59,000) (59,000) Balance at December 31, 2000 38,060 233,476 12 155,830 427,378 - ----------------------------------------------------------------------------------------------------------------------------- Net income after dividends on preferred stock - - - 58,307 58,307 Capital contributions from parent company - 72,484 - - 72,484 Cash dividends on common stock - - - (53,275) (53,275) - ----------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2001 $38,060 $305,960 $12 $160,862 $504,894 ============================================================================================================================= The accompanying notes are an integral part of these statements.
II-134 NOTES TO FINANCIAL STATEMENTS Gulf Power Company 2001 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Gulf Power Company (Company) is a wholly owned subsidiary of Southern Company, which is the parent company of five operating companies, a system service company (SCS), Southern Communications Services (Southern LINC), Southern Nuclear Operating Company (Southern Nuclear), Southern Power Company (Southern Power), and other direct and indirect subsidiaries. The operating companies -- Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Savannah Electric -- provide electric service in four southeastern states. Contracts among the operating companies -- related to jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power -- are regulated by the Federal Energy Regulatory Commission (FERC) and/or the Securities and Exchange Commission. SCS provides, at cost, specialized services to Southern Company and subsidiary companies. Southern LINC provides digital wireless communications services to the operating companies and also markets these services to the public within the Southeast. Southern Nuclear provides services to Southern Company's nuclear power plants. Southern Power was established in 2001 to construct, own, and manage Southern Company's competitive generation assets and sell electricity at market-based rates in the wholesale market. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries are subject to the regulatory provisions of the PUHCA. The Company is also subject to regulation by the FERC and the Florida Public Service Commission (FPSC). The Company follows accounting principles generally accepted in the United States and complies with the accounting policies and practices prescribed by the FPSC and the FERC. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates, and the actual results may differ from those estimates. Certain prior years' data presented in the financial statements have been reclassified to conform with current year presentation. Affiliate Transactions The Company has an agreement with SCS under which the following services are rendered to the Company at cost: general and design engineering, purchasing, accounting and statistical, finance and treasury, tax, information resources, marketing, auditing, insurance and pension administration, human resources, systems and procedures, and other services with respect to business and operations and power pool operations. Costs for these services amounted to $45 million, $44 million, and $43 million during 2001, 2000, and 1999, respectively. Regulatory Assets and Liabilities The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues to the Company associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are expected to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Balance Sheets at December 31 relate to the following: 2001 2000 -------------------------- (in thousands) Deferred income tax charges $ 16,766 $ 15,963 Deferred loss on reacquired debt 14,518 15,866 Environmental remediation 7,163 7,638 Vacation pay 4,725 4,512 Accumulated provision for rate refunds (1,530) (7,203) Accumulated provision for property damage (13,565) (8,731) Deferred income tax credits (28,293) (38,255) Other, net (1,443) (1,074) - ------------------------------------------------------------------ Total $ (1,659) $(11,284) ================================================================== In the event that a portion of the Company's operations is no longer subject to the provisions of FASB Statement No. 71, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the Company would be required to determine any impairment to other assets, including plant, and write down the assets, if impaired, to their fair value. II-135 NOTES (continued) Gulf Power Company 2001 Annual Report Revenues and Regulatory Cost Recovery Clauses The Company currently operates as a vertically integrated utility providing electricity to retail customers within its service area located in northwest Florida and to wholesale customers in the Southeast. Revenues are recognized as services are rendered. Unbilled revenues are accrued at the end of each fiscal period. Fuel costs are expensed as the fuel is used. The Company's retail electric rates include provisions to annually adjust billings for fluctuations in fuel costs, the energy component of purchased power costs, and certain other costs. The Company also has similar retail cost recovery clauses for energy conservation costs, purchased power capacity costs, and environmental compliance costs. Revenues are adjusted monthly for differences between recoverable costs and amounts actually reflected in current rates. The Company has a diversified base of customers and no single customer or industry comprises 10 percent or more of revenues. For all periods presented, uncollectible accounts averaged significantly less than 1 percent of revenues. Depreciation and Amortization Depreciation of the original cost of plant in service is provided primarily by using composite straight-line rates, which approximated 3.7 percent in 2001 and 3.8 percent in both 2000, and 1999. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its cost -- together with the cost of removal, less salvage -- is charged to the accumulated provision for depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Also, the provision for depreciation expense includes an amount for the expected cost of removal of facilities. Other Income Other income consists principally of interest and dividend income, Allowance for Funds Used During Construction (AFUDC)-equity, and income or expenses on other non-regulated activities. In 2000 and 1999, the non-regulated activities included the results of the Company's merchandising operations, which were discontinued in the latter part of 2000. Income Taxes The Company uses the liability method of accounting for income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. Property, Plant, and Equipment Property, plant, and equipment is stated at original cost. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and the estimated cost of funds used during construction. The cost of maintenance, repairs, and replacement of minor items of property is charged to maintenance expense. The cost of replacements of property (exclusive of minor items of property) is charged to utility plant. Impairment of Long-Lived Assets and Intangibles The Company evaluates long-lived assets for impairment when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. The determination of whether an impairment has occurred is based on an estimate of undiscounted future cash flows attributable to the assets, as compared to the carrying value of the assets. If an impairment has occurred, the amount of the impairment recognized is determined by estimating the fair value of the assets and recording a provision for loss if the carrying value is greater than the fair value. For assets identified as held for sale, the carrying value is compared to the estimated fair value less the cost to sell in order to determine if an impairment provision is required. Until the assets are disposed of, their estimated fair value is re-evaluated when circumstances or events change. Cash and Cash Equivalents Temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. Financial Instruments Effective January 2001, the Company adopted FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. The impact on net income was immaterial. II-136 NOTES (continued) Gulf Power Company 2001 Annual Report The Company uses derivative financial instruments to hedge exposures to fluctuations in interest rates, and certain commodity prices. Gains and losses on qualifying hedges are deferred and recognized either in income or as an adjustment to the carrying amount of the hedged item when the transaction occurs. The Company is exposed to losses related to financial instruments in the event of counterparties' nonperformance. The Company has established controls to determine and monitor the creditworthiness of counterparties in order to mitigate the Company's exposure to counterparty credit risk. The Company and its affiliates, through SCS acting as their agent, enters into commodity related forward and option contracts to limit exposure to changing prices on certain fuel purchases and electricity purchases and sales. Substantially all of the Company's bulk energy purchases and sales contracts meet the definition of a derivative under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. In many cases, these fuel and electricity contracts qualify for normal purchase and sale exceptions under Statement No. 133 and are accounted for under the accrual method. Other contracts qualify as cash flow hedges of anticipated transactions, resulting in the deferral of related gains and losses, and are recorded in other comprehensive income until the hedged transactions occur. Any ineffectiveness is recognized currently in net income. Contracts that do not qualify for the normal purchase and sale exception and that do not meet the hedge requirements are marked to market through current period income. Other financial instruments for which the carrying amount did not equal fair value at December 31 were as follows: Carrying Fair Amount Value --------------------------- (in thousands) Long-term debt: At December 31, 2001 $467,784 $474,911 At December 31, 2000 $365,993 $364,697 Capital trust preferred securities: At December 31, 2001 $115,000 $114,898 At December 31, 2000 $85,000 $80,988 - -------------------------------------------------------------- The fair values for long-term debt and preferred securities were based on either closing market prices or closing prices of comparable instruments. Materials and Supplies Generally, materials and supplies include the cost of transmission, distribution, and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when installed. Provision for Injuries and Damages The Company is subject to claims and suits arising in the ordinary course of business. As permitted by regulatory authorities, the Company provides for the uninsured costs of injuries and damages by charges to income amounting to $1.2 million annually. The expense of settling claims is charged to the provision to the extent available. The accumulated provision of $1.3 million and $1.2 million at December 31, 2001 and 2000, respectively, is included in other current liabilities in the accompanying Balance Sheets. Provision for Property Damage The Company provides for the cost of repairing damages from major storms and other uninsured property damages. This includes the full cost of major storms and other damages to its transmission and distribution lines and the cost of uninsured damages to its generation and other property. The expense of such damages is charged to the provision account. At December 31, 2001 and 2000, the accumulated provision for property damage was $13.6 million and $8.7 million, respectively. The FPSC approved annual accrual to the accumulated provision for property damage is $3.5 million, with a target level for the accumulated provision account between $25.1 and $36.0 million. The FPSC has also given the Company the flexibility to increase its annual accrual amount above $3.5 million at the Company's discretion. The Company accrued $4.5 million in 2001, $3.5 million in 2000, and $5.5 million in 1999 to the accumulated provision for property damage. The Company had a net credit of $(0.3) million to the provision account in 2001 related to insurance proceeds that exceeded actual claims. In 2000 and 1999, the Company charged $0.3 million and $1.6 million, respectively, to the provision account. 2. RETIREMENT BENEFITS The Company has a defined benefit, trusteed, non-contributory pension plan that covers substantially all regular employees. The Company provides certain medical care and life insurance benefits for retired employees. Substantially all employees may become eligible for these benefits when they retire. Trusts are II-137 NOTES (continued) Gulf Power Company 2001 Annual Report funded to the extent required by the Company's regulatory commissions. In late 2000, the Company adopted several pension and postretirement benefit plan changes that had the effect of increasing benefits to both current and future retirees. The measurement date for plan assets and obligations is September 30 for each year. Pension Plan Changes during the year in the projected benefit obligations and in the fair value of plan assets were as follows: Projected Benefit Obligations --------------------------- 2001 2000 - --------------------------------------------------------------- (in thousands) Balance at beginning of year $153,214 $146,106 Service cost 4,703 4,367 Interest cost 11,644 10,695 Benefits paid (8,105) (7,169) Actuarial gain and employee transfers, net (195) (785) Amendments 7,997 - Other (7) - - --------------------------------------------------------------- Balance at end of year $169,251 $153,214 =============================================================== Plan Assets -------------------------- 2001 2000 - --------------------------------------------------------------- (in thousands) Balance at beginning of year $283,266 $241,485 Actual return on plan assets (40,841) 43,833 Benefits paid (7,758) (6,973) Employee transfers (961) 4,921 - --------------------------------------------------------------- Balance at end of year $233,706 $283,266 =============================================================== The accrued pension costs recognized in the Balance Sheets were as follows: 2001 2000 - --------------------------------------------------------------- (in thousands) Funded status $ 64,455 $ 130,052 Unrecognized transition obligation (2,832) (3,503) Unrecognized prior service cost 11,689 4,529 Unrecognized net gain (47,038) (111,092) 4th quarter cash flow adjustment 90 72 --------------------------------------------------------------- Prepaid asset recognized in the Balance Sheets $ 26,364 $20,058 =============================================================== Components of the pension plan's net periodic cost were as follows: 2001 2000 1999 - ------------------------------------------------------------------- Service cost $ 4,703 $ 4,367 $ 4,556 Interest cost 11,644 10,695 9,729 Expected return on plan assets (19,312) (17,504) (15,968) Recognized net gain (3,072) (2,582) (234) Net amortization 165 (235) (1,549) - ------------------------------------------------------------------- Net pension income $ (5,872) $ (5,259) $ (3,466) =================================================================== Postretirement Benefits Changes during the year in the accumulated benefit obligations and in the fair value of plan assets were as follows: Accumulated Benefit Obligations --------------------------- 2001 2000 - --------------------------------------------------------------- (in thousands) Balance at beginning of year $50,025 $48,010 Service cost 983 896 Interest cost 3,886 3,515 Benefits paid (1,823) (1,462) Amendments 3,412 - - --------------------------------------------------------------- Actuarial gain (2,146) (934) - --------------------------------------------------------------- Balance at end of year $54,337 $50,025 =============================================================== Plan Assets --------------------------- 2001 2000 - --------------------------------------------------------------- (in thousands) Balance at beginning of year $13,388 $11,196 Actual return on plan assets (1,830) 2,079 Employer contributions 1,897 1,575 Benefits paid (1,823) (1,462) - --------------------------------------------------------------- Balance at end of year $11,632 $13,388 =============================================================== The accrued postretirement costs recognized in the Balance Sheets were as follows: 2001 2000 - ---------------------------------------------------------------- (in thousands) Funded status $(42,705) $(36,638) Unrecognized transition obligation 4,012 4,368 Unrecognized prior service cost 5,695 2,582 Unrecognized net loss 1,235 496 Fourth quarter contributions 386 316 - ---------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $(31,377) $(28,876) ================================================================ II-138 NOTES (continued) Gulf Power Company 2001 Annual Report Components of the postretirement plan's net periodic cost were as follows: 2001 2000 1999 - ----------------------------------------------------------------- Service cost $ 983 $ 896 $ 1,087 Interest cost 3,886 3,515 3,261 Expected return on plan assets (1,037) (901) (794) Transition obligation 356 355 356 Prior service cost 299 159 159 Recognized net (gain)/loss (18) 13 264 - ----------------------------------------------------------------- Net post-retirement cost $ 4,469 $ 4,037 $ 4,333 ================================================================= The weighted average rates assumed in the actuarial calculations for both the pension plan and postretirement benefits plan were: 2001 2000 - ---------------------------------------------------------- Discount 7.50% 7.50% Annual salary increase 5.00% 5.00% Long-term return on plan assets 8.50% 8.50% - ---------------------------------------------------------- An additional assumption used in measuring the accumulated postretirement benefit obligations was a weighted average medical care cost trend rate of 9.25 percent for 2001, decreasing gradually to 5.25 percent through the year 2010, and remaining at that level thereafter. An annual increase or decrease in the assumed medical care cost trend rate of 1 percent would affect the accumulated benefit obligation and the service and interest cost components at December 31, 2001 as follows (in thousands): 1 Percent 1 Percent Increase Decrease - --------------------------------------------------------------- Benefit obligation $4,575 $3,985 Service and interest costs $410 $351 =============================================================== Employee Savings Plan The Company also sponsors a 401(k) defined contribution plan covering substantially all employees. The Company provides a 75 percent matching contribution up to 6 percent of an employee's base salary. Total matching contributions made to the plan for the years 2001, 2000, and 1999 were $2.3 million, $2.2 million, and $2.0 million, respectively. 3. CONTINGENCIES AND REGULATORY MATTERS General The Company is subject to certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the Company's financial condition. Environmental Cost Recovery In 1993, the Florida Legislature adopted legislation for an Environmental Cost Recovery Clause (ECRC), which allows a utility to petition the FPSC for recovery of prudent environmental compliance costs that are not being recovered through base rates or any other recovery mechanism. Such environmental costs include operation and maintenance expense, emission allowance expense, depreciation, and a return on invested capital. In 1994, the FPSC approved the Company's initial petition under the ECRC for recovery of environmental costs. During 2001, 2000, and 1999, the Company recorded ECRC revenues of $10.0 million, $9.9 million, and $11.5 million, respectively. At December 31, 2001, the Company's liability for the estimated costs of environmental remediation projects for known sites was $7.2 million. These estimated costs are expected to be expended from 2002 through 2008. These projects have been approved by the FPSC for recovery through the ECRC discussed above. Therefore, the Company recorded $1.2 million in current assets and current liabilities and $6.0 million in deferred assets and deferred liabilities representing the future recoverability of these costs. Environmental Litigation On November 3, 1999, the Environmental Protection Agency (EPA) brought a civil action in the U.S. District Court against Alabama Power, Georgia Power, and SCS. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The civil action II-139 NOTES (continued) Gulf Power Company 2001 Annual Report requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The Clean Air Act authorizes civil penalties of up to $27,500 per day, per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. The EPA concurrently issued to the integrated Southeast utilities a notice of violation related to 10 generating facilities, including the five facilities mentioned previously and the Company's Plants Crist and Scherer. See Note 5 under "Joint Ownership Agreements" related to the Company's ownership interest in Georgia Power's Plant Scherer Unit No. 3. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation, and to add the Company, Mississippi Power, and Savannah Electric as defendants. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution control equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. On August 1, 2000, the U.S. District Court granted Alabama Power's motion to dismiss for lack of jurisdiction in Georgia and granted SCS's motion to dismiss on the grounds that it neither owned nor operated the generating units involved in the proceedings. The court directed the EPA to re-file its amended complaint limiting claims to those brought against Georgia Power and Savannah Electric. The EPA re-filed those claims as directed by the court. Also, the EPA re-filed its claims against Alabama Power in U.S. District Court in Alabama. It has not re-filed against the Company, Mississippi Power, or the system service company. The Alabama Power, Georgia Power, and Savannah Electric cases have been stayed since the spring of 2001, pending a ruling by the U.S. Court of Appeals for the Eleventh Circuit in the appeal of a very similar New Source Review enforcement action against the Tennessee Valley Authority (TVA). The TVA case involves many of the same legal issues raised by the actions against Alabama Power, Georgia Power, and Savannah Electric. Because the outcome of the TVA case could have a significant adverse impact on Alabama Power and Georgia Power, both companies are parties to that case as well. The U.S. District Court in Alabama has indicated that it will revisit the issue of a continued stay in April 2002. The U.S. District Court in Georgia is currently considering a motion by the EPA to reopen the Georgia case. Georgia Power and Savannah Electric have opposed that motion. The Company believes that it has complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. Retail Revenue Sharing Plan In early 1999, the FPSC staff and the Company became involved in discussions primarily related to reducing the Company's authorized rate of return. On October 1, 1999, the Office of Public Counsel, the Coalition for Equitable Rates, the Florida Industrial Power Users Group, and the Company jointly filed a petition to resolve the issues. The stipulation included a reduction to retail base rates of $10 million annually and provided for revenues to be shared within set ranges for 1999 through 2002. Customers receive two-thirds of any revenue within the sharing range and the Company retains one-third. Any revenue above this range is refunded to the customers. The stipulation also included authorization for the Company, at its discretion, to accrue up to an additional $5 million to the property insurance reserve and $1 million to amortize a regulatory asset related to the corporate office. The Company also filed a request to prospectively reduce its authorized return on equity (ROE) range from 11 to 13 percent to 10.5 to 12.5 percent in order to help ensure that the FPSC would approve the stipulation. The FPSC approved both the stipulation and the ROE request with an effective date of November 4, 1999. The Company's retail revenue range for sharing was $358 million to $374 million in calendar year 2001, and $352 million to $368 million in 2000, to be shared between the Company and its retail customers on the one-third/two-thirds basis. Actual retail revenues in 2001 were $360.3 million and $362.4 million in 2000. The Company recorded revenues subject to refund of $1.5 million in 2001 and $6.9 million in 2000. The estimated refund with interest was $0.03 million in 2001 and $0.3 million in 2000 and was reflected in customer billings in February 2002 and 2001 respectively. In addition to the refund, the Company amortized $1 million of the regulatory assets related to the corporate office in 2001 and 2000, and accrued an additional $1.0 million to the property insurance II-140 NOTES (continued) Gulf Power Company 2001 Annual Report reserve in 2001. For calendar year 2002, there are specified sharing ranges for each month from the expected in-service date of Smith Unit 3 until the end of the year. The sharing plan will expire at the earlier of the in-service date of Smith Unit 3 or December 31, 2002. Retail Rate Case On September 10, 2001, the Company filed a request with the FPSC for a base rate increase of approximately $70 million, the majority of which is needed to recover costs related to the Smith Unit 3 combined cycle facility currently under construction and scheduled to be placed in service by June 2002. Hearings are scheduled for February 25 through March 1, 2002 with a decision expected in early May 2002 and new rates effective June 6, 2002. 4. COMMITMENTS Construction Program The Company is engaged in a continuous construction program, the cost of which is currently estimated to total $103 million in 2002, $72 million in 2003, and $107 million in 2004. The construction program is subject to periodic review and revision, and actual construction costs may vary from the above estimates because of numerous factors. These factors include changes in business conditions; revised load growth estimates; changes in environmental regulations; increasing costs of labor, equipment, and materials; and cost of capital. At December 31, 2001, significant purchase commitments were outstanding in connection with the construction program. The Company has budgeted $24.3 million in 2002 as the remaining cost of a 574 megawatt combined cycle gas generating unit to be located in the eastern portion of its service area. The unit is expected to have an in-service date of June 2002. The Company's remaining construction program is related to maintaining and upgrading the transmission, distribution, and generating facilities. Fuel Commitments To supply a portion of the fuel requirements of its generating plants, the Company has entered into contract commitments for the procurement of fuel. In some cases, these contracts contain provisions for price escalations, minimum purchase levels, and other financial commitments. Total estimated obligations at December 31, 2001 were as follows: Year Fuel --------- ---------------- (in millions) 2002 $140 2003 109 2004 112 2005 113 2006 115 2007-2025 398 ---------------------------------------------------------- Total commitments $987 ========================================================== In addition, SCS acts as agent for the five operating companies and Southern Power with regard to natural gas purchases. Natural gas purchases (in dollars) are based on various indices at the actual time of delivery; therefore, only the volume commitments are firm. The Company's committed volumes are allocated based on usage projections as of December 31 as follows: Year Natural Gas --------- ---------------- (MMBtu) 2002 14,194,988 2003 28,377,592 2004 15,071,438 2005 6,913,093 2006 4,187,658 2007 and thereafter 1,676,250 ------------------------------------------------------ Total commitments 70,421,019 ====================================================== Additional commitments for fuel will be required in the future to supply the Company's fuel needs. Lease Agreements In 1989, the Company and Mississippi Power jointly entered into a twenty-two year operating lease agreement for the use of 495 aluminum railcars. In 1994, a second lease agreement for the use of 250 additional aluminum railcars was entered into for twenty-two years. Both of these leases are for the transportation of coal to Plant Daniel. At the end of each lease term, the Company has the option to purchase the 745 railcars at the greater of lease termination value or fair market value, or to renew the leases at the end of the lease term. II-141 NOTES (continued) Gulf Power Company 2001 Annual Report The Company, as a joint owner of Plant Daniel, is responsible for one half of the lease costs. The lease costs are charged to fuel inventory and are allocated to fuel expense as the fuel is used. The Company's share of the lease costs charged to fuel inventories was $1.9 million in 2001 and $2.4 million in 2000. The annual amounts for 2002 through 2006 are expected to be $1.9 million, $1.9 million, $1.9 million, $2.0 million, and $2.0 million, respectively, and after 2006 are expected to total $11.7 million. 5. JOINT OWNERSHIP AGREEMENTS The Company and Mississippi Power jointly own Plant Daniel Unit No. 1 and Unit No. 2. Plant Daniel is a generating plant located in Jackson County, Mississippi. In accordance with the operating agreement, Mississippi Power acts as the Company's agent with respect to the construction, operation, and maintenance of these units. The Company and Georgia Power jointly own Plant Scherer Unit No. 3. Plant Scherer is a generating plant located near Forsyth, Georgia. In accordance with the operating agreement, Georgia Power acts as the Company's agent with respect to the construction, operation, and maintenance of the unit. The Company's pro rata share of expenses related to both plants is included in the corresponding operating expense accounts in the Statements of Income. At December 31, 2001, the Company's percentage ownership and its investment in these jointly owned facilities were as follows: Plant Plant Scherer Daniel Unit Unit No. 3 Nos. 1 & 2 (coal-fired) (coal-fired) ----------------------------- (in thousands) Plant In Service $184,901(1) $228,278 Accumulated Depreciation $73,684 $120,646 Construction Work in Progress $1,556 $6,174 Nameplate Capacity (2) (megawatts) 205 500 Ownership 25% 50% - ------------------------------------------------------------------ (1) Includes net plant acquisition adjustment. (2) Total megawatt nameplate capacity: Plant Scherer Unit No. 3: 818 Plant Daniel Unit Nos. 1&2: 1,000 6. LONG-TERM POWER SALES AGREEMENTS The Company and the other operating affiliates have long-term contractual agreements for the sale of capacity to certain non-affiliated utilities located outside the system's service area. The unit power sales agreements are firm and pertain to capacity related to specific generating units. Because the energy is generally sold at cost under these agreements, profitability is primarily affected by revenues from capacity sales. The capacity revenues from these sales were $19.5 million in 2001, $20.3 million in 2000, and $19.8 million in 1999. Unit power from specific generating plants of Southern Company is currently being sold to Florida Power Corporation (FPC), Florida Power & Light Company (FP&L), and Jacksonville Electric Authority (JEA). Under these agreements, 210 megawatts of net dependable capacity were sold by the Company during 2001. Sales will remain close to that level, unless reduced by FP&L, FPC, and JEA with a minimum of three years notice, until the expiration of the contracts in 2010. 7. INCOME TAXES At December 31, 2001, the tax-related regulatory assets to be recovered from customers were $16.8 million. These assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized allowance for funds used during construction. At December 31, 2001, the tax-related regulatory liabilities to be credited to customers were $28.3 million. These liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. Details of the federal and state income tax provisions are as follows: 2001 2000 1999 ---------------------------------- (in thousands) Total provision for income taxes: Federal-- Current $24,207 $37,250 $33,973 Deferred 2,568 (11,159) (6,107) 26,775 26,091 27,866 - ------------------------------------------------------------------ State-- Current 3,701 5,796 5,267 Deferred 826 (1,357) (502) 4,527 4,439 4,765 - ------------------------------------------------------------------ Total $31,302 $30,530 $32,631 ================================================================== II-142 NOTES (continued) Gulf Power Company 2001 Annual Report The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows: 2001 2000 --------------------------- (in thousands) Deferred tax liabilities: Accelerated depreciation $179,071 $172,646 Other 27,328 14,262 - --------------------------------------------------------------------- Total 206,399 186,908 - --------------------------------------------------------------------- Deferred tax assets: Federal effect of state deferred taxes 9,009 8,703 Postretirement benefits 9,379 9,205 Other 17,881 14,742 - --------------------------------------------------------------------- Total 36,269 32,650 - --------------------------------------------------------------------- Net deferred tax liabilities 170,130 154,258 Less current portion, net (8,162) (816) - --------------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $161,968 $155,074 ===================================================================== Deferred investment tax credits are amortized over the lives of the related property with such amortization normally applied as a credit to reduce depreciation and amortization in the Statements of Income. Credits amortized in this manner amounted to $1.7 million in 2001 and $1.9 million in each of 2000 and 1999. At December 31, 2001, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: 2001 2000 1999 --------------------------- Federal statutory rate 35% 35% 35% State income tax, net of federal deduction 4 4 4 Non-deductible book depreciation 1 1 1 Difference in prior years' deferred and current tax rate (2) (2) (2) Other, net (3) (1) - - --------------------------------------------------------------- Effective income tax rate 35% 37% 38% =============================================================== The Company and the other subsidiaries of Southern Company file a consolidated federal tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. In accordance with Internal Revenue Service regulations, each company is jointly and severally liable for the tax liability. 8. CAPITALIZATION Preferred Securities In January 1997, Gulf Power Capital Trust I (Trust I), of which the Company owns all of the common securities, issued $40 million of 7.625 percent mandatorily redeemable preferred securities. Substantially all of the assets of Trust I are $41 million aggregate principal amount of the Company's 7.625 percent junior subordinated notes due December 31, 2036. In January 1998, Gulf Power Capital Trust II (Trust II), of which the Company owns all of the common securities, issued $45 million of 7.0 percent mandatorily redeemable preferred securities. Substantially all of the assets of Trust II are $46 million aggregate principal amount of the Company's 7.0 percent junior subordinated notes due December 31, 2037. In November 2001, Gulf Power Capital Trust III (Trust III), of which the Company owns all of the common securities, issued $30 million of 7.375 percent mandatorily redeemable preferred securities. Substantially all of the assets of Trust III are $31 million aggregate principal amount of the Company's 7.375 percent junior subordinated notes due September 30, 2041. The Company considers that the mechanisms and obligations relating to the preferred securities, taken together, constitute a full and unconditional guarantee by the Company of payment obligations with respect to the preferred securities of Trust I, Trust II, and Trust III. Trust I, Trust II, and Trust III are subsidiaries of the Company, and accordingly are consolidated in the Company's financial statements. Securities Due Within One Year At December 31, 2001, the Company had an improvement fund requirement of $550,000. The first mortgage bond improvement fund requirement amounts to 1 percent of each outstanding series of bonds authenticated under the indenture prior to January 1 of each year, other than those issued to collateralize pollution control revenue bond obligations. The requirement may be satisfied by depositing cash, reacquiring bonds, or by pledging additional property equal to 1 and 2/3 times the requirement. The sinking fund requirements of first mortgage bonds were satisfied by certifying property additions in 2001 and 2000. It is anticipated that the 2002 II-143 NOTES (continued) Gulf Power Company 2001 Annual Report requirement will be satisfied by certifying property additions. Sinking fund requirements and/or maturities through 2006 applicable to long-term debt are as follows: none in 2002; $60.6 million in 2003; $50.6 million on 2004; none in 2005; and $37.6 million in 2006. Dividend Restrictions The Company's first mortgage bond indenture contains various common stock dividend restrictions, which remain in effect as long as the bonds are outstanding. At December 31, 2001, retained earnings of $127 million were restricted against the payment of cash dividends on common stock under the terms of the mortgage indenture. Bank Credit Arrangements At December 31, 2001, the Company had $41.5 million of lines of credit with banks subject to renewal June 1 of each year, of which $41.5 million remained unused. In addition, the Company has two unused committed lines of credit totaling $61.9 million that were established for liquidity support of its variable rate pollution control bonds. In connection with these credit lines, the Company has agreed to pay commitment fees and/or to maintain compensating balances with the banks. The compensating balances, which represent substantially all of the cash of the Company except for daily working funds and like items, are not legally restricted from withdrawal. The Company borrows through commercial paper programs that have the liquidity support of committed bank credit arrangements. In addition, the Company from time to time borrows under uncommitted lines of credit with banks. The amount of commercial paper outstanding at December 31, 2001 was $37.4 million. In addition, the Company has bid-loan facilities with five major money center banks that total $110 million, of which $50 million was committed at December 31, 2001. Assets Subject to Lien The Company's mortgage, which secures the first mortgage bonds issued by the Company, constitutes a direct first lien on substantially all of the Company's fixed property and franchises. 9. QUARTERLY FINANCIAL DATA (Unaudited) Summarized quarterly financial data for 2001 and 2000 are as follows: Net Income After Dividends Operating Operating on Preferred Quarter Ended Revenues Income Stock - -------------------------------------------------------------------- (in thousands) March 2001 $165,029 $24,785 $10,196 June 2001 180,430 30,702 14,770 September 2001 226,616 45,504 26,657 December 2001 153,128 16,268 6,684 March 2000 $138,498 $16,007 $4,653 June 2000 182,120 30,505 12,927 September 2000 232,533 52,614 26,438 December 2000 161,168 20,755 7,825 - -------------------------------------------------------------------- The Company's business is influenced by seasonal weather conditions and the timing of rate changes, among other factors. II-144
SELECTED FINANCIAL AND OPERATING DATA 1997-2001 Gulf Power Company 2001 Annual Report - --------------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $725,203 $714,319 $674,099 $650,518 $625,856 Net Income after Dividends on Preferred Stock (in thousands) $58,307 $51,843 $53,667 $56,521 $57,610 Cash Dividends on Common Stock (in thousands) $53,275 $59,000 $61,300 $57,200 $64,600 Return on Average Common Equity (percent) 12.51 12.20 12.63 13.20 13.33 Total Assets (in thousands) $1,569,517 $1,312,064 $1,308,495 $1,267,901 $1,265,612 Gross Property Additions (in thousands) $274,668 $95,807 $69,798 $69,731 $54,289 - --------------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $504,894 $427,378 $422,313 $427,652 $428,718 Preferred stock 4,236 4,236 4,236 4,236 13,691 Company obligated mandatorily redeemable preferred securities 115,000 85,000 85,000 85,000 40,000 Long-term debt 467,784 365,993 367,449 317,341 296,993 - --------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $1,091,914 $882,607 $878,998 $834,229 $779,402 ================================================================================================================================= Capitalization Ratios (percent): Common stock equity 46.2 48.4 48.0 51.3 55.0 Preferred stock 0.4 0.5 0.5 0.5 1.8 Company obligated mandatorily redeemable preferred securities 10.5 9.6 9.7 10.2 5.1 Long-term debt 42.9 41.5 41.8 38.0 38.1 - --------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 100.0 ================================================================================================================================= Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 A1 A1 Standard and Poor's A+ A+ AA- AA- AA- Fitch A+ AA- AA- AA- AA- Preferred Stock - Moody's Baa1 a2 a2 a2 a2 Standard and Poor's BBB+ BBB+ A- A A Fitch A- A A A+ A+ Unsecured Long-Term Debt - Moody's A2 A2 A2 A2 A2 Standard and Poor's A A A A A Fitch A A+ A+ A+ A+ ================================================================================================================================= Customers (year-end): Residential 327,128 321,731 315,240 307,077 300,257 Commercial 48,654 47,666 47,728 46,370 44,589 Industrial 270 280 267 257 267 Other 468 442 316 268 264 - --------------------------------------------------------------------------------------------------------------------------------- Total 376,520 370,119 363,551 353,972 345,377 ================================================================================================================================= Employees (year-end): 1,309 1,327 1,339 1,328 1,328 - ---------------------------------------------------------------------------------------------------------------------------------
II-145
SELECTED FINANCIAL AND OPERATING DATA 1997-2001 (continued) Gulf Power Company 2001 Annual Report - -------------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $ 313,165 $302,210 $ 279,238 $ 279,621 $ 276,924 Commercial 188,759 177,047 167,305 163,207 163,751 Industrial 81,719 74,095 68,222 71,119 77,045 Other 948 (4,712) 2,184 2,113 2,077 - -------------------------------------------------------------------------------------------------------------------------------- Total retail 584,591 548,640 516,949 516,060 519,797 Sales for resale - non-affiliates 82,252 66,890 62,354 61,893 63,697 Sales for resale - affiliates 27,256 66,995 66,110 42,642 16,760 - -------------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 694,099 682,525 645,413 620,595 600,254 Other revenues 31,104 31,794 28,686 29,923 25,602 - -------------------------------------------------------------------------------------------------------------------------------- Total $725,203 $714,319 $674,099 $650,518 $625,856 ================================================================================================================================ Kilowatt-Hour Sales (in thousands): Residential 4,716,404 4,790,038 4,471,118 4,437,558 4,119,492 Commercial 3,417,427 3,379,449 3,222,532 3,111,933 2,897,887 Industrial 2,018,206 1,924,749 1,846,237 1,833,575 1,903,050 Other 21,208 18,730 19,296 18,952 18,101 - -------------------------------------------------------------------------------------------------------------------------------- Total retail 10,173,245 10,112,966 9,559,183 9,402,018 8,938,530 Sales for resale - non-affiliates 2,093,203 1,705,486 1,561,972 1,341,990 1,531,179 Sales for resale - affiliates 962,892 1,916,526 2,511,983 1,758,150 848,135 - -------------------------------------------------------------------------------------------------------------------------------- Total 13,229,340 13,734,978 13,633,138 12,502,158 11,317,844 ================================================================================================================================ Average Revenue Per Kilowatt-Hour (cents): Residential 6.64 6.31 6.25 6.30 6.72 Commercial 5.52 5.24 5.19 5.24 5.65 Industrial 4.05 3.85 3.70 3.88 4.05 Total retail 5.75 5.43 5.41 5.49 5.82 Sales for resale 3.58 3.70 3.15 3.37 3.38 Total sales 5.25 4.97 4.73 4.96 5.30 Residential Average Annual Kilowatt-Hour Use Per Customer 14,497 14,992 14,318 14,577 13,894 Residential Average Annual Revenue Per Customer $962.57 $945.87 $894.18 $918.56 $933.99 Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,188 2,188 2,188 2,188 2,174 Maximum Peak-Hour Demand (megawatts): Winter 2,106 2,154 2,085 2,040 1,844 Summer 2,223 2,285 2,161 2,146 2,032 Annual Load Factor (percent) 57.5 55.4 55.2 55.3 55.5 Plant Availability Fossil-Steam (percent): 90.1 85.2 87.2 87.6 91.0 - -------------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 81.2 87.8 89.8 89.2 87.1 Oil and gas 1.0 1.6 2.5 2.0 0.4 Purchased power - From non-affiliates 6.5 7.6 5.9 5.5 3.5 From affiliates 11.3 3.0 1.8 3.3 9.0 - -------------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 100.0 ================================================================================================================================
II-146 MISSISSIPPI POWER COMPANY FINANCIAL SECTION II-147 MANAGEMENT'S REPORT Mississippi Power Company 2001 Annual Report The management of Mississippi Power Company has prepared -- and is responsible for -- the financial statements and related information included in this report. These statements were prepared in accordance with accounting principles generally accepted in the United States and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that the accounting records reflect only authorized transactions of the Company. Limitations exist in any system of internal controls, however, based on a recognition that the cost of the system should not exceed its benefits. The Company believes its system of internal accounting controls maintains an appropriate cost/benefit relationship. The Company's system of internal accounting controls is evaluated on an ongoing basis by the Company's internal audit staff. The Company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, composed of four independent directors, provides a broad overview of management's financial reporting and control functions. Periodically, this committee meets with management, the internal auditors, and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal controls, and financial reporting matters. The internal auditors and independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the Company's operations are conducted according to a high standard of business ethics. In management's opinion, the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of Mississippi Power Company in conformity with accounting principles generally accepted in the United States. /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 February 13, 2002 II-148 REPORT OF INDEPENDENT PUBLIC ACCOUNTANT To Mississippi Power Company: We have audited the accompanying balance sheets and statements of capitalization of Mississippi Power Company (a Mississippi corporation and a wholly owned subsidiary of Southern Company) as of December 31, 2001 and 2000, and the related statements of income, common stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements (pages II-160 through II-176) referred to above present fairly, in all material respects, the financial position of Mississippi Power Company as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. As explained in Note 1 to the financial statements, effective January 1, 2001, Mississippi Power Company changed its method of accounting for derivative instruments and hedging activities. /s/Arthur Andersen LLP Atlanta, Georgia February 13, 2002 II-149 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Mississippi Power Company 2001 Annual Report RESULTS OF OPERATIONS Earnings Mississippi Power Company's 2001 net income after dividends on preferred stock of $63.9 million increased $8.9 million over 2000 earnings of $55.0 million, which were $0.2 million more than 1999 earnings of $54.8 million. Net income for 2001 was higher due to additional sales for resale primarily attributable to the commercial operation of the new Plant Daniel Combined Cycle Units 3 and 4 and lower interest expense. Revenues Operating revenues for the Company in 2001 and the changes from the prior year are as follows: Increase (Decrease) Amount From Prior Year ------ ---------------- 2001 2001 2000 --------------------------------------- (in thousands) Retail -- Base Revenues $284,255 $ (3,000) $ (4,343) Fuel cost recovery and other 204,898 (6,398) 33,460 ----------------------------------------------------------------- Total retail 489,153 (9,398) 29,117 ----------------------------------------------------------------- Sales for resale -- Non-affiliates 204,623 58,692 14,927 Affiliates 85,652 57,737 8,469 ----------------------------------------------------------------- Total sales for resale 290,275 116,429 23,396 Other operating revenues 16,637 1,432 2,085 ----------------------------------------------------------------- Operating revenues $796,065 $108,463 $ 54,598 ================================================================= Percent change 15.8% 8.6% ----------------------------------------------------------------- Total retail revenues for 2001 decreased approximately 1.9 percent when compared to 2000. The decrease resulted primarily from lower energy sales to residential, commercial, and industrial customers as a result of mild weather and a slowdown in manufacturing activity in the Company's service territory. Retail revenues for 2000 reflected a 6.2 percent increase over the prior year due to the continued growth in the service area, increased fuel revenues, and a positive weather impact. Fuel revenues generally represent the direct recovery of fuel expense including purchased power. Therefore, changes in recoverable fuel expenses are offset with corresponding changes in fuel revenues and have no effect on net income. Sales for resale to non-affiliates are influenced by those utilities' own customer demand, plant availability, and the cost of their predominant fuels. Included in sales for resale to non-affiliates are revenues from rural electric cooperative associations and municipalities located in southeastern Mississippi. Energy sales to these customers decreased 3.7 percent in 2001 and increased 10.9 percent in 2000, with the related revenues decreasing 2.4 percent and rising 10.8 percent, respectively. The customer demand experienced by these utilities is determined by factors very similar to those of the Company. Revenues from other sales outside the service area increased in 2001 when compared to 2000 as a result of a new long term contract made possible by the commercial operation of Plant Daniel Units 3 and 4. Energy sales to affiliated companies within the Southern Company electric system, as well as purchases, will vary from year to year depending on demand and the availability and cost of generating resources at each company. These sales do not have a significant impact on earnings. Below is a breakdown of kilowatt-hour sales for 2001 and the percent change for the last two years: 2001 Percent Change ------------- --------------------------- KWH 2001 2000 (in millions) --------------------------- Residential 2,163 (5.4)% 1.7% Commercial 2,841 (1.5) 1.3 Industrial 4,276 (2.3) (0.7) Other 40 (0.3) 2.5 ------------- Total retail 9,320 (2.8) 0.5 Sales for Resale -- Non-affiliates 5,011 36.4 12.9 Affiliates 2,953 552.3 (16.2) ------------- Total 17,284 26.0 2.8 ================================================================== Residential sales decreased 5.4 percent due to unusually mild weather in the Company's service area. Commercial sales decreased 1.5 percent and industrial sales fell 2.3 percent due to an economic slowdown. Total retail kilowatt-hour sales increased slightly in 2000. This increase primarily resulted from the continued growth in the service area, increased tourism, and the positive impact of weather. Kilowatt-hour sales from outside the service area increased in 2001 when compared to 2000 as a result of a new contract made possible by the II-150 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 2001 Annual Report commercial operation of Plant Daniel Combined Cycle Units 3 and 4. Again, sales to affiliates will vary year to year depending on demand and cost of generating resources at each company. Expenses Total operating expenses were $663 million in 2001, reflecting an increase of $98 million or 17.4 percent over the prior year. The increase was due primarily to the commercial operation of Plant Daniel Combined Cycle Units 3 and 4. In 2000, total operating expenses increased by 10.1 percent over the prior year due primarily to higher fuel and purchased power expenses. Fuel costs are the single largest expense for the Company. Fuel expenses for 2001 and 2000 increased 45.4 percent and 10.7 percent, respectively. The increase for 2001 was due to increased generation especially from Plant Daniel Combined Cycle Units 3 and 4 and a higher average cost of fuel. The 2000 increase was due to increased generation and a higher average cost of fuel. In 2001, expenses related to purchased power from non-affiliates decreased 26.4 percent, while expenses related to purchased power from affiliates increased 5.7 percent which, in total, resulted in a 11.1 percent decrease when compared to 2000. This decrease in purchased power is primarily due to the commercial operation of Plant Daniel Combined Cycle Units 3 and 4 and the expiration of non-affiliated purchase power contracts in 2000. Sales and purchases among the Company and its affiliates will vary from period to period depending on demand and the availability and variable production cost of each generating unit in the Southern Company electric system. The amount and sources of generation and the average cost of fuel per net kilowatt-hour generated were as follows: 2001 2000 1999 ---------------------------- Total generation (millions of kilowatt hours) 15,770 11,688 11,599 Sources of generation (percent) -- Coal 59 83 81 Gas 41 17 19 Average cost of fuel per net kilowatt-hour generated (cents) -- 1.89 1.80 1.65 - ---------------------------------------------------------------- Other operation expenses increased 17.2 percent in 2001 primarily due to an increase in other production expenses due to the commercial operation of Plant Daniel Combined Cycle Units 3 and 4. In 2000, other operation expense decreased 8.2 percent primarily due to a decrease in administrative and general expenses. Maintenance expense in 2001 increased primarily due to the commercial operation of Plant Daniel Combined Cycle Units 3 and 4, while maintenance expense in 2000 increased primarily due to additional scheduled maintenance. Depreciation and amortization expense increased 7.6 percent in 2001 due to a growth in plant investment and the amortization of the Company's regulatory asset related to its Environmental Compliance Overview Plan (ECO Plan). In 2000, depreciation expense increased slightly due to growth in plant investment and new depreciation rates, which became effective January 2000. Taxes other than income taxes decreased 7.6 percent in 2001 due to reduced ad valorem taxes related to a change in the tax rate. These taxes increased 1.7 percent in 2000 due to higher municipal franchise taxes resulting from higher retail revenues. Interest on long-term debt decreased in 2001 as a result of lower interest rates on debt outstanding. Effects of Inflation The Company is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the Company is recovering its costs of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on the Company because of the large investment in utility plant with long economic lives. Conventional accounting for historical costs does not recognize this economic loss nor the partially offsetting gain that arises through financing facilities with fixed-money obligations, such as long-term debt and preferred securities. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. Future Earnings Potential General The results of continuing operations for the past three years are not necessarily indicative of future earnings potential. The level of the Company's II-151 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 2001 Annual Report future earnings depends on numerous factors ranging from weather to energy sales growth to a less regulated and more competitive environment. Expenses are subject to constant review and cost control programs. The Company is also maximizing the utility of invested capital and minimizing the need for additional capital by refinancing outstanding obligations, managing the size of its fuel stockpile, raising generating plant availability and efficiency, and aggressively controlling its construction budget. The Company currently operates as a vertically integrated utility providing electricity to customers within its traditional service area located in southeastern Mississippi. Prices for electricity provided by the Company to retail customers are set by the Mississippi Public Service Commission (MPSC) under cost-based regulatory principles. The Federal Energy Regulatory Commission (FERC) regulates the Company's wholesale rate schedules, power sales contracts, and transmission facilities. Operating revenues will be affected by any changes in rates under the Performance Evaluation Plan (PEP) -- the Company's performance based ratemaking plan -- and the ECO Plan. PEP has proven to be a stabilizing force on electric rates, with only moderate changes in rates taking place. The ECO Plan provides for recovery of costs (including costs of capital) associated with environmental projects approved by the MPSC, most of which are required to comply with Clean Air Act Amendments of 1990 (Clean Air Act) and the regulations thereunder. The ECO Plan is operated independently of PEP. Compliance costs related to the Clean Air Act could affect earnings if such costs cannot be recovered. The Company filed its 2001 ECO Plan in January 2001 which was approved, as filed, by the Mississippi PSC on March 7, 2001, and resulted in a slight increase in customer prices. The Company filed its 2002 ECO Plan in January 2002, which, if approved as filed, will result in a slight increase in rates. See Note 3 to the financial statements under "Litigation and Regulatory Matters" for additional information. The Clean Air Act and other important environmental items are discussed later under "Environmental Matters." In August 2001, the Company filed a request with the MPSC for a retail rate increase of approximately $46 million. In order to consider the Company's request, the MPSC suspended the semi-annual evaluations under PEP. In December 2001, after a full investigation and hearing on the Company's request, the MPSC approved an increase of approximately $39 million, which took effect in January 2002. Additionally, the MPSC ordered the Company to reactivate the semi-annual evaluations under PEP, beginning in February 2003 for the year 2002. PEP will remain in effect until the MPSC modifies, suspends, or terminates the plan. The MPSC also set for hearing in 2002 a review of the return on equity models used in PEP in setting the Company's authorized return on equity. This proceeding will conclude in 2002, so that changes to the PEP return on equity models, if any, may be incorporated into the February 2003 PEP evaluation filing for the period ending December 31, 2002. The outcome of this matter and any future impact to the Company cannot now be determined. In February 2002, the Company reached an agreement with certain of its wholesale customers to increase its wholesale tariff rates effective June 2002. The agreement results in an annual increase of approximately $10.5 million and the adoption of an Energy Cost Management clause similar to the one approved by the Company's retail jurisdiction (see Note 1 to the financials). In addition, the Company and its customers agreed that neither party would seek a unilateral change to the new rates prior to December 31, 2003, except for changes due to the operation of the fuel adjustment and energy cost management clauses. The Company and its customers will file the agreement with the FERC for its approval. Though the FERC has accepted settlement agreements as filed in the past, the ultimate outcome of this matter before the FERC cannot now be determined. In accordance with Financial Accounting Standards Board (FASB) Statement No. 87, Employers' Accounting for Pensions, the Company recorded non-cash pension income of approximately $3.2 million in 2001. Future pension income is dependent on several factors including trust earnings and changes to the plan. For the Company, pension income is a component of the regulated rates and does not have a significant effect on net income. For more information, see Note 2 to the financial statements. The Company is involved in various matters being litigated. See Note 3 to the financial statements for information regarding material issues that could possibly affect future earnings. II-152 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 2001 Annual Report Compliance costs related to current and future environmental laws, regulations, and litigation could affect earnings if such costs are not fully recovered. The Clean Air Act and other important environmental items are discussed later under "Environmental Matters." Future earnings in the near term will depend upon growth in energy sales, which is subject to a number of factors. These factors include weather, competition, changes in contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, and the rate of economic growth in the Company's service area. The Company anticipates somewhat slower growth in energy sales as the tourism industry stabilizes within its service area. In addition to tourism, the healthcare and retail trade sectors will provide most of the anticipated energy growth for the commercial class of customers, while shipbuilding, chemicals, and the U.S. government will provide much of the basis for anticipated growth in the industrial sector. Industry Restructuring The electric utility industry in the United States is continuing to evolve as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). The Energy Act allows independent power producers (IPPs) to access a utility's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for a utility's large industrial and commercial customers and sell energy generation to other utilities. Also, electricity sales for resale rates are affected by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. Although the Energy Act does not permit retail customer access, it was a major catalyst for the current restructuring and consolidation taking place within the utility industry. Numerous federal and state initiatives are in various stages to promote wholesale and retail competition. Among other things, these initiatives allow customers to choose their electricity provider. As these initiatives materialize, the structure of the utility industry could radically change. In May 2000, the MPSC ordered that its docket reviewing restructuring of the electric industry in the State of Mississippi be suspended. The MPSC found that retail competition may not be in the public interest at this time, and ordered that no further formal hearings would be held on this subject. It found that the current regulatory structure produced reliable low cost power and "should not be changed without clear and convincing demonstration that change would be in the public interest." The MPSC will continue to monitor retail and wholesale restructuring activities throughout the United States and reserves its right to order further formal hearings on the matter should new evidence demonstrate that retail competition would be in the public interest and all customers could receive a reduction in the total cost of their electric service. If the MPSC decides to hold future restructuring hearings on this matter, enactment would require numerous issues to be resolved, including significant ones relating to recovery of any stranded investments, full cost recovery of energy produced, and other issues related to the energy crisis that occurred in California. As a result of that crisis, many states have either discontinued or delayed implementation of initiatives involving retail deregulation. Continuing to be a low-cost producer could provide significant opportunities to increase market share and profitability in markets that evolve with changing regulation. Conversely, unless the Company remains a low-cost producer and provides quality service, the Company's energy sales growth could be limited, and this could significantly erode earnings. In December 1999, the FERC issued its final ruling on Regional Transmission Organizations (RTOs). The order encourages utilities owning transmission systems to form RTOs on a voluntary basis. Southern Company and its operating companies, including the Company, have submitted a series of status reports informing the FERC of progress toward the development of a Southeastern RTO. In these status reports, Southern Company explained that it is developing a for-profit RTO known as SeTrans with a number of non-jurisdictional cooperative and public power entities. Recently, Entergy Corporation and Cleco Power joined the SeTrans development process. In January 2002, the sponsors of SeTrans held a public meeting to form a Stakeholder Advisory Committee, which will participate in the development of the RTO. Southern Company continues to work with the other sponsors to develop the SeTrans RTO. While the creation of SeTrans is not expected to have a material impact on the Company's financial statements, the outcome of this matter cannot now be determined. II-153 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 2001 Annual Report Accounting Policies Critical Policies The Company's significant accounting policies are described in Note 1 to the financial statements. The Company's most critical accounting policy involves rate regulation. The Company is subject to the provisions of FASB Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of the Company's operation is no longer subject to these provisions, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable and determine if any other assets have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. Additionally, the Company accounts for its lease agreement with Escatawpa Funding, Limited Partnership (Escatawpa) as an operating lease. Under this agreement, Escatawpa, a special purpose entity, is owner-lessor of the combined-cycle generating units at the Company's Plant Daniel. The Company does not consolidate this entity since parties unrelated to the Company have made substantive residual equity capital investments in excess of 3 percent. The FASB has recently issued a draft interpretation that addresses issues related to identifying and accounting for certain special purpose entities. One proposed change would increase the 3 percent outside equity requirement to 10 percent. This interpretation is in draft form; therefore, final conclusions may differ from the draft. However, a change to a ten percent equity requirement could result in the Company having to change its accounting for this lease agreement, including having to consolidate the leased asset and related debt. See Note 4 to the financial statements where the lease agreement and the Company's related obligations are discussed. New Accounting Standards Effective January 2001, the Company adopted FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Statement No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. This statement requires that certain derivative instruments be recorded in the balance sheet as either an asset or liability measured at fair value, and that changes in the fair value be recognized currently in earnings unless specific hedge accounting criteria are met. See Note 1 to the financial statements under "Financial Instruments" for additional information. The impact on the Company's net income in 2001 was not material. An additional interpretation of Statement No. 133 will result in a change - effective April 1, 2002 - in accounting for certain contracts related to fuel supplies that contain quantity options. These contracts will be accounted for as derivatives and marked to market. However, due to the existence of the Company's cost-based fuel recovery clause, this change is not expected to have a material impact on net income. In June 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible Assets, which establishes new accounting and reporting standards for acquired goodwill and other intangible assets and supersedes Accounting Principles Board Opinion No. 17. Statement No. 142 addresses how intangible assets that are acquired individually or with a group of other assets -- but not those acquired in a business combination -- should be accounted for upon acquisition and on an ongoing basis. Goodwill and intangible assets that have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. Intangible assets that have finite useful lives will continue to be amortized over their useful lives, which are no longer limited to 40 years. The Company adopted Statement No.142 in January 2002 with no material impact on the financial statements. Also in June 2001, the FASB issued Statement No. 143, Asset Retirement Obligations, which establishes new accounting and reporting standards for legal obligations associated with retiring assets, including decommissioning of nuclear plants. The liability 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. Changes in the liability resulting from the passage of time will be recognized as operating expenses. Statement No. 143 must be adopted by January 1, 2003. The Company has not yet quantified the impact of adopting Statement No. 143 on its financial statements. FINANCIAL CONDITION Overview The principal change in the Company's financial condition during 2001 was the addition of approximately $61 million to utility plant. Funding for these II-154 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 2001 Annual Report additions and other capital requirements were derived primarily from operations. The Statements of Cash Flows provide additional details. Credit Rating Risk The Company 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 December 31, 2001, this exposure was immaterial. Exposure to Market Risks Due to cost-based rate regulations, the Company has limited exposure to market volatility in interest rates, commodity fuel prices, and prices of electricity. To mitigate residual risks relative to movements in electricity prices, the Company enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market. Realized gains and losses are recognized in the income statements as incurred. At December 31, 2001, exposure from these activities was not material to the Company's financial statements. Also, based on the Company's overall variable rate long-term debt exposure at December 31, 2001, a near-term 100 basis point change in interest rates would not materially affect the Company's financial statements. Fair value of changes in energy trading contracts and year-end valuations are as follows: Changes During the Year ---------------------- Fair Value ---------------------------------------------------------------- (in thousands) Contracts beginning of year $ 112 Contracts realized or settled (101) New contracts at inception - Changes in valuation techniques - Current period changes (3,841) - ----------------------------------------------------------------- Contracts end of year $ (3,830) ================================================================= Source of Year-End Valuation Prices ----------------------------------- Maturity Total -------------------- Fair Value Year 1 1-3 Years - ----------------------------------------------------------------- (in thousands) - ----------------------------------------------------------------- Actively quoted $(3,830) $(3,517) $ (313) External sources - - - Models and other methods - - - - ----------------------------------------------------------------- Contracts end of year $(3,830) $(3,517) $ (313) ================================================================= For additional information, see Note 1 to the financial statements under "Financial Instruments." In June 2001, the MPSC approved the Company's request to implement an Energy Cost Management Clause (ECM). ECM, among other things, allows the Company to utilize financial instruments to hedge its fuel commitments. Amounts paid or received as a result of the use of these instruments are recognized as fuel related expense and are recovered or credited through the ECM factor calculated annually and applied to customer billings. The Company records the fair value of these financial instruments (cash flow hedges) in its financial statements in accordance with FASB Statement No. 133 with a related regulatory asset or liability recorded under the provisions of FASB Statement No. 71. As of December 31, 2001, the Company had financial instruments related to natural gas commodity contracts that had a contract value of approximately $31 million and $30 million expiring in 2002 and 2003, respectively. The market values as of December 31, 2001 for these contracts were approximately $27 million and $30 million, respectively. The amounts settled and recognized in the financial statements for 2001 were not material. Currently, the Company does not have any fixed price natural gas commitments, either physical or financial, beyond 2003. Sources of Capital To meet short-term cash needs and contingencies, the Company had at December 31, 2001 approximately $18.9 million of cash and cash equivalents and approximately $114.5 million of unused committed credit agreements. The Company may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper at the request and for the benefit of the Company and the other Southern Company operating companies. II-155 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 2001 Annual Report At December 31, 2001, the Company had outstanding $16 million of commercial paper. It is anticipated that the funds required for construction and other purposes, including compliance with environmental regulations, will be derived from sources similar to those used in the past. These sources were primarily the issuance of first mortgage bonds and preferred securities, in addition to pollution control revenue bonds issued for the Company's benefit by public authorities. The Company also utilized unsecured debt and lease arrangements in the past as well. The Company has no restrictions on the amounts of unsecured indebtedness it may incur. However, the Company is required to meet certain coverage requirements specified in its mortgage indenture and corporate charter to issue new first mortgage bonds and preferred stock. The Company's coverage ratios are high enough to permit, at present interest rate levels, any foreseeable security sales. The amount of securities which the Company will be permitted to issue in the future will depend upon market conditions and other factors prevailing at that time. Financing Activity In May 2001, the Company received a $70 million capital contribution which was used to retire $35 million of 6.60 percent first mortgage bonds, $20 million of series C variable-rate senior notes, and $15 million in short term debt. The Company plans to continue, to the extent possible, a program to retire higher-cost debt and replace these securities with lower-cost capital. See the Statements of Cash Flows for further details. Composite financing rates decreased for the year 2001 when compared to 2000 and 1999. As of year-end, the composite rates were as follows: 2001 2000 1999 ------------------------------- Composite interest rate on long-term debt 4.60% 6.41% 6.19% Composite preferred stock dividend rate 6.33% 6.33% 6.33% Composite interest rate on preferred securities 7.75% 7.75% 7.75% -------------------------------------------------------------- Off-Balance Sheet Financing Arrangements In 1999, the Company signed an Agreement for Lease and a Lease Agreement with Escatawpa. These agreements called for the Company to design and construct, as agent for Escatawpa, a 1,064 megawatt natural gas combined cycle facility at the Company's Plant Victor J. Daniel Facility (Facility). In May 2001, the Facility was completed and placed into commercial operation. Effective with commercial operation of the Facility, the initial 10-year lease term under its lease arrangement for the Facility with Escatawpa began. The completion cost was approximately $370 million. The lease provides for a residual value guarantee (approximately 71% of the completion cost) by the Company that is due upon termination of the lease in certain circumstances. The lease also includes purchase and renewal options. Upon termination of the lease, at the Company's option, the Company may either exercise its purchase option or the Facility can be sold to a third party. The Company expects that the fair market value of the leased Facility would substantially reduce or eliminate the Company's payment under the residual value guarantee. In 2001, the Company recognized approximately $18 million in lease expense. See Note 4 to the financial statements for additional information. Capital Structure At year-end 2001, the Company's ratio of common equity to total capitalization, excluding long-term debt due within one year, increased from 48.1 percent in 2000 to 62.1 percent. The Company plans to replace the long-term debt due within one year with new issues. Capital Requirements for Construction The Company's projected construction expenditures for the next three years total $241 million ($84 million in 2002, $72 million in 2003, and $85 million in 2004). The major emphasis within the construction program will be on the upgrade of existing facilities. Revisions to projected construction expenditures may be necessary because of factors such as changes in business conditions, revised load projections, the availability and cost of capital, changes in environmental regulations, and alternatives such as leasing. II-156 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 2001 Annual Report Other Capital Requirements In addition to the funds required for the Company's construction program, approximately $115 million will be required by the end of 2003 for present sinking fund requirements and maturities of long-term debt. The Company plans to continue, when economically feasible, to retire higher cost debt and preferred stock and replace these obligations with lower-cost capital if market conditions permit. These capital requirements, lease obligations, and purchase commitments - discussed in notes 4 and 8 to the financial statements - are as follows: 2002 2003 2004 ---------------------------------------------------------- (in thousands) Bonds - First mortgage $ - $ - $ - Pollution control 20 25 25 Notes 80,000 35,000 - Lease obligations 27,000 27,000 27,000 Purchase commitments Fuel 225,000 188,000 7,000 Purchased power - - - - ----------------------------------------------------------- At the beginning of 2002, the Company had not used any of its available credit arrangements. Credit arrangements are as follows: Expires ----------------------------- Total Unused 2002 2003 & Beyond - ------------------------------------------------------------ (in millions) $114.5 $114.5 $109.5 5.0 - ------------------------------------------------------------ Environmental Matters On November 3, 1999, the Environmental Protection Agency (EPA), brought a civil action in the U.S. District Court against Alabama Power Company, Georgia Power Company, and the system service company. The complaint alleges violations of the New Source Review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The EPA concurrently issued to the operating companies a notice of violation related to 10 generating facilities, which includes the five facilities mentioned previously, and the Company's plants Watson and Greene County. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation, and to add Gulf Power, Savannah Electric, and the Company as defendants. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution control equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. The U.S. District Court in Georgia granted Alabama Power's motion to dismiss for lack of jurisdiction in Georgia and granted the system service company's motion to dismiss on the grounds that it neither owned nor operated the generating units involved in the proceedings. The court granted the EPA's motion to add Savannah Electric as a defendant, but it denied the motion to add Gulf Power and the Company based on lack of jurisdiction over those companies. The court directed the EPA to re-file its amended complaint limiting claims to those brought against Georgia Power and Savannah Electric. The EPA re-filed those claims as directed by the court. Also, the EPA re-filed its claims against Alabama Power in U.S. District Court in Alabama. It has not re-filed against Gulf Power, the system service company, or the Company. The Alabama Power, Georgia Power, and Savannah Electric cases have been stayed since the spring of 2001, pending a ruling by the U.S. Court of Appeals for the Eleventh Circuit in the appeal of a very similar New Source Review enforcement action against the Tennessee Valley Authority (TVA). The TVA case involves many of the same legal issues raised by the actions against Alabama Power, Georgia Power, and Savannah Electric. Because the outcome of the TVA case could have a significant adverse impact on Alabama Power and Georgia Power, both companies are parties to that case as well. The U.S. District Court in Alabama has indicated that it will revisit the issue of a continued stay in April 2002. The U.S. District Court in Georgia is currently considering a motion by the EPA to reopen the Georgia case. Georgia Power and Savannah Electric have opposed that motion. The Company believes that it complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was II-157 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 2001 Annual Report $25,000 per day. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows and possibly financial condition unless such costs can be recovered through regulated rates. In November 1990, the Clean Air Act Amendments of 1990 (Clean Air Act) were signed into law. Title IV of the Clean Air Act -- the acid rain compliance provision of the law -- significantly affected Southern Company. Reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants were required in two phases. Phase I compliance began in 1995. Southern Company achieved Phase I compliance at its affected plants by primarily switching to low-sulfur coal and with some equipment upgrades. Construction expenditures for Phase I nitrogen oxide and sulfur dioxide emissions compliance totaled approximately $65 million for the Company. Phase II sulfur dioxide compliance was required in 2000. Southern Company used emission allowances and fuel switching to comply with Phase II requirements. Also, equipment to control nitrogen oxide emissions was installed on additional system fossil-fired units as necessary to meet Phase II limits and ozone non-attainment requirements for metropolitan Atlanta through 2000. Phase II compliance did not have a material impact on the Company. The Company's ECO Plan is designed to allow recovery of costs of compliance with the Clean Air Act, as well as other environmental statutes and regulations. The MPSC reviews environmental projects and the Company's environmental policy through the ECO Plan. Under the ECO Plan, any increase in the annual revenue requirement is limited to 2 percent of retail revenues. The Company's management believes that the ECO Plan provides for recovery of the Clean Air Act costs. See Note 3 to the financial statements under "Environmental Compliance Overview Plan" for additional information. A significant portion of costs related to the acid rain and ozone non-attainment provisions of the Clean Air Act is expected to be recovered through existing ratemaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. In July 1997, the EPA revised the national ambient air quality standards for ozone and fine particulate matter. This revision made the standards significantly more stringent. In the subsequent litigation of these standards, the U.S. Supreme Court found the EPA's implementation program for the new ozone standard unlawful and remanded it to the EPA. In addition, the Federal District of Columbia Circuit Court of Appeals is considering other legal challenges to these standards. A court decision is expected in the spring of 2002. If the standards are eventually upheld, implementation could be required by 2007 to 2010. In September 1998, the EPA issued regional nitrogen oxide reduction rules to the states for implementation. Compliance is required by May 31, 2004 for most states including Alabama. For Georgia, further rulemaking was required, and proposed compliance was delayed until May 1, 2005. The final rules affect 21 states that do not include Mississippi. The EPA is presently evaluating whether or not to bring an additional 15 states including Mississippi, under this regional nitrogen oxide rule. In December 2000, having completed its utility studies for mercury and other hazardous air pollutants (HAPS), the EPA issued a determination that an emission control program for mercury and, perhaps, other HAPS is warranted. The program is being developed under the Maximum Achievable Control Technology provisions of the Clean Air Act, and the regulations are scheduled to be finalized by the end of 2004 with implementation to take place around 2007. In January 2001, the EPA proposed guidance for the determination of Best Available Retrofit Technology (BART) emission controls under the Regional Haze Regulations. Installation of BART controls is expected to take place in 2010. Litigation of the Regional Haze Regulations, including the BART provisions, is ongoing in the Federal District of Columbia Circuit Court of Appeals. A court decision is expected in mid-2002. Implementation of the final state rules for these initiatives could require substantial further reductions in nitrogen oxide and sulfur dioxide and reductions in mercury and other HAPS emissions from fossil-fired generating facilities and other industries in these states. Additional compliance costs and capital expenditures resulting from the implementation of these rules and II-158 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 2001 Annual Report standards cannot be determined until the results of legal challenges are known, and the states have adopted their final rules. In October 1997, the EPA issued regulations setting forth requirements for Compliance Assurance Monitoring (CAM) in its state and federal operating permit programs. These regulations were amended by the EPA in March 2001 in response to a court order resolving challenges to the rules brought by environmental groups and industry. Generally, this rule affects the operation and maintenance of electrostatic precipitators and could involve significant additional ongoing expense. The EPA and state environmental regulatory agencies are reviewing and evaluating various other matters including: control strategies to reduce regional haze; limits on pollutant discharges to impaired waters; cooling water intake restrictions; and hazardous waste disposal requirements. The impact of any new standards will depend on the development and implementation of applicable regulations. The Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the Company could incur costs to clean up properties currently or previously owned. Upon identifying potential sites, the Company conducts studies, when possible, to determine the extent of any required cleanup. Should remediation be determined to be probable, reasonable estimates of costs to clean up such sites are developed and recognized in the financial statements. Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; and the Endangered Species Act. Changes to these laws could affect many areas of the Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electromagnetic fields, and other environmental and health concerns could significantly affect the Company. The impact of new legislation -- if any - -- will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electromagnetic fields. Cautionary Statement Regarding Forward-Looking Information This Annual Report includes forward-looking statements in addition to historical information. Forward-looking information includes, among other things, statements concerning projected sales growth and scheduled completion of new generation. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "could," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "projects," "potential," or "continue" or the negative of these terms or other comparable terminology. The Company cautions 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 the Company is subject, as well as changes in application of existing laws and regulations; current and future litigation, including the pending EPA civil action against the Company; the effects, extent and timing of the entry of additional competition in the markets of the Company; 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; 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 the Company; the effects of, and changes in, economic conditions in the areas in which the Company operates; the direct or indirect effects on the 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 the Company's new product and service offerings; the ability of the Company to obtain additional generating capacity at competitive prices; weather and other natural phenomena; and other factors discussed elsewhere herein and in other reports (including Form 10-K) filed from time to time by the Company with the Securities and Exchange Commission. II-159
STATEMENTS OF INCOME For the Years Ended December 31, 2001, 2000, and 1999 Mississippi Power Company 2001 Annual Report - -------------------------------------------------------------------------------------------------------------- 2001 2000 1999 - -------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues: Retail sales $489,153 $498,551 $469,434 Sales for resale -- Non-affiliates 204,623 145,931 131,004 Affiliates 85,652 27,915 19,446 Other revenues 16,637 15,205 13,120 - -------------------------------------------------------------------------------------------------------------- Total operating revenues 796,065 687,602 633,004 - -------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 277,946 191,127 172,686 Purchased power -- Non-affiliates 41,254 56,082 40,080 Affiliates 53,990 51,057 31,007 Other 134,845 115,055 125,291 Maintenance 56,153 52,750 47,085 Depreciation and amortization 54,077 50,275 49,206 Taxes other than income taxes 44,966 48,686 47,893 - -------------------------------------------------------------------------------------------------------------- Total operating expenses 663,231 565,032 513,248 - -------------------------------------------------------------------------------------------------------------- Operating Income 132,834 122,570 119,756 Other Income (Expense): Interest income 369 347 189 Other, net (532) (647) 1,675 - -------------------------------------------------------------------------------------------------------------- Earnings Before Interest and Income Taxes 132,671 122,270 121,620 - -------------------------------------------------------------------------------------------------------------- Interest Expense and Other: Interest expense, net 23,568 28,101 27,969 Distributions on preferred securities of subsidiary 2,712 2,712 2,712 - -------------------------------------------------------------------------------------------------------------- Total interest charges and other, net 26,280 30,813 30,681 - -------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes 106,391 91,457 90,939 Income taxes 40,533 34,356 34,117 - -------------------------------------------------------------------------------------------------------------- Earnings Before Cumulative Effect of 65,858 57,101 56,822 Accounting Change Cumulative effect of accounting change-- less income taxes of $43 thousand 70 - - - -------------------------------------------------------------------------------------------------------------- Net Income 65,928 57,101 56,822 Dividends on Preferred Stock 2,041 2,129 2,013 - -------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 63,887 $ 54,972 $ 54,809 ============================================================================================================== The accompanying notes are an integral part of these statements.
II-160
STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2001, 2000, and 1999 Mississippi Power Company 2001 Annual Report - ----------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $ 65,928 $ 57,101 $ 56,822 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 58,105 54,638 53,427 Deferred income taxes and investment tax credits, net (9,718) 752 (4,143) Other, net 2,441 (1,747) 5,531 Changes in certain current assets and liabilities -- Receivables, net (7,796) (3,231) (39,304) Fossil fuel stock (20,269) 14,577 (9,379) Materials and supplies (1,529) (1,056) (1,903) Accounts payable 53,462 1,309 1,391 Other 11,251 2,952 14,206 - ----------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 151,875 125,295 76,648 - ----------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (61,193) (81,211) (75,888) Other (2,988) (9,153) 1,009 - ----------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (64,181) (90,364) (74,879) - ----------------------------------------------------------------------------------------------------------------------- Financing Activities: Increase (decrease) in notes payable, net (40,027) (1,500) 44,500 Proceeds -- Other long-term debt - 100,000 59,400 Capital contributions from parent company 73,095 12,659 2,028 Retirements -- First mortgage bonds (36,000) - - Other long-term debt (21,021) (81,405) (50,456) Preferred stock - - - Payment of preferred stock dividends (2,041) (2,129) (2,013) Payment of common stock dividends (50,200) (54,700) (56,100) Other (81) (498) (282) - ----------------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (76,275) (27,573) (2,923) - ----------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents 11,419 7,358 (1,154) Cash and Cash Equivalents at Beginning of Period 7,531 173 1,327 - ----------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 18,950 $ 7,531 $173 ======================================================================================================================= Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of amount capitalized) $28,126 $30,570 $25,486 Income taxes (net of refunds) 45,761 33,276 39,729 - ----------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
II-161
BALANCE SHEETS At December 31, 2001 and 2000 Mississippi Power Company 2001 Annual Report - ------------------------------------------------------------------------------------------------------------------------- Assets 2001 2000 - ------------------------------------------------------------------------------------------------------------------------- (in thousands) Current Assets: Cash and cash equivalents $ 18,950 $ 7,531 Receivables -- Customer accounts receivable 63,286 72,064 Other accounts and notes receivable 26,068 21,843 Affiliated companies 22,569 10,071 Accumulated provision for uncollectible accounts (856) (571) Fossil fuel stock, at average cost 31,489 11,220 Materials and supplies, at average cost 23,223 21,694 Other 16,002 8,320 - ------------------------------------------------------------------------------------------------------------------------- Total current assets 200,731 152,172 - ------------------------------------------------------------------------------------------------------------------------- Property, Plant, and Equipment: In service 1,741,499 1,665,879 Less accumulated provision for depreciation 698,681 652,891 - ------------------------------------------------------------------------------------------------------------------------- 1,042,818 1,012,988 Construction work in progress 38,253 60,951 - ------------------------------------------------------------------------------------------------------------------------- Total property, plant, and equipment 1,081,071 1,073,939 - ------------------------------------------------------------------------------------------------------------------------- Other Property and Investments 1,900 2,268 - ------------------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes 13,394 13,860 Prepaid pension costs 4,501 434 Debt expense, being amortized 4,396 4,628 Premium on reacquired debt, being amortized 6,719 7,168 Other 20,821 14,312 - ------------------------------------------------------------------------------------------------------------------------- Total deferred charges and other assets 49,831 40,402 - ------------------------------------------------------------------------------------------------------------------------- Total Assets $1,333,533 $1,268,781 ========================================================================================================================= The accompanying notes are an integral part of these balance sheets.
II-162
BALANCE SHEETS At December 31, 2001 and 2000 Mississippi Power Company 2001 Annual Report - ----------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholder's Equity 2001 2000 - ----------------------------------------------------------------------------------------------------------------------- (in thousands) Current Liabilities: Securities due within one year $ 80,020 $ 20 Notes payable 15,973 56,000 Accounts payable -- Affiliated 6,175 10,715 Other 105,834 48,146 Customer deposits 6,540 5,274 Taxes accrued -- Income taxes 14,981 8,769 Other 35,282 36,799 Interest accrued 5,079 4,482 Vacation pay accrued 5,810 5,701 Other 11,483 6,473 - ----------------------------------------------------------------------------------------------------------------------- Total current liabilities 287,177 182,379 - ----------------------------------------------------------------------------------------------------------------------- Long-term debt (See accompanying statements) 233,753 370,511 - ----------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 138,913 139,909 Deferred credits related to income taxes 23,626 25,603 Accumulated deferred investment tax credits 22,268 23,481 Employee benefits provisions 31,041 28,911 Workforce reduction plan 8,263 9,734 Other 30,003 16,546 - ----------------------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 254,114 244,184 - ----------------------------------------------------------------------------------------------------------------------- Company obligated mandatorily redeemable preferred securities of subsidiary trust holding company junior subordinated notes (See accompanying statements) 35,000 35,000 - ----------------------------------------------------------------------------------------------------------------------- Preferred stock (See accompanying statements) 31,809 31,809 - ----------------------------------------------------------------------------------------------------------------------- Common stockholder's equity (See accompanying statements) 491,680 404,898 - ----------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholder's Equity $1,333,533 $1,268,781 ======================================================================================================================= The accompanying notes are an integral part of these balance sheets.
II-163
STATEMENTS OF CAPITALIZATION At December 31, 2001 and 2000 Mississippi Power Company 2001 Annual Report - ----------------------------------------------------------------------------------------------------------------------------- 2001 2000 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Long-Term Debt: First mortgage bonds -- Maturity Interest Rates -------- ------------- June 1, 2023 7.45% $ 34,000 $ 35,000 March 1, 2004 6.60% - 35,000 December 1, 2025 6.875% 30,000 30,000 - ----------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 64,000 100,000 - ----------------------------------------------------------------------------------------------------------------------------- Long-term notes payable -- 6.05% due May 1, 2003 35,000 35,000 6.75% due June 30, 2038 52,178 53,179 Adjustable rates (2.0056% at 1/1/02) due 2000-2002 80,000 100,000 - ----------------------------------------------------------------------------------------------------------------------------- Total long-term notes payable 167,178 188,179 - ----------------------------------------------------------------------------------------------------------------------------- Other long-term debt -- Pollution control revenue bonds -- Collateralized: 5.65% to 5.80% due 2007-2023 26,745 26,765 Non-collateralized: Variable rates (1.90% to 2.00% at 1/1/02) due 2020-2028 56,820 56,820 - ----------------------------------------------------------------------------------------------------------------------------- Total other long-term debt 83,565 83,585 - ----------------------------------------------------------------------------------------------------------------------------- Unamortized debt premium (discount), net (970) (1,233) - ----------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $14.5 million) 313,773 370,531 Less amount due within one year 80,020 20 - ----------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year $233,753 $370,511 29.5% 43.9% - -----------------------------------------------------------------------------------------------------------------------------
II-164
STATEMENTS OF CAPITALIZATION (continued) At December 31, 2001 and 2000 Mississippi Power Company 2001 Annual Report - ----------------------------------------------------------------------------------------------------------------------------- 2001 2000 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Company Obligated Mandatorily Redeemable Preferred Securities:(Note 8) $25 liquidation value -- 7.75% $ 35,000 $ 35,000 - ----------------------------------------------------------------------------------------------------------------------------- Total (annual distribution requirement -- $2.7 million) 35,000 35,000 4.4 4.2 - ----------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock: $100 par value 4.40% to 7.00% 31,809 31,809 - ----------------------------------------------------------------------------------------------------------------------------- Total (annual dividend requirement -- $2.0 million) 31,809 31,809 4.0 3.8 - ----------------------------------------------------------------------------------------------------------------------------- Common Stockholder's Equity: Common stock, without par value -- Authorized - 1,130,000 shares Outstanding - 1,121,000 shares in 2001 and 2000 37,691 37,691 Paid-in capital 267,256 194,161 Premium on preferred stock 326 326 Retained earnings 186,407 172,720 - ----------------------------------------------------------------------------------------------------------------------------- Total common stockholder's equity 491,680 404,898 62.1 48.1 - ----------------------------------------------------------------------------------------------------------------------------- Total Capitalization $792,242 $842,218 100.0% 100.0% ============================================================================================================================= The accompanying notes are an integral part of these statements.
II-165
STATEMENTS OF COMMON STOCKHOLDER'S EQUITY For the Years Ended December 31, 2001, 2000, and 1999 Mississippi Power Company 2001 Annual Report - --------------------------------------------------------------------------------------------------------------------------- Premium on Common Paid-In Preferred Retained Stock Capital Stock Earnings Total - --------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at January 1, 1999 $37,691 $179,474 $326 $173,740 $391,231 Net income after dividends on preferred stock - - - 54,809 54,809 Capital contributions from parent company - 2,028 - - 2,028 Cash dividends on common stock - - - (56,100) (56,100) - --------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 37,691 181,502 326 172,449 391,968 Net income after dividends on preferred stock - - - 54,972 54,972 Capital contributions from parent company - 12,659 - - 12,659 Cash dividends on common stock - - - (54,700) (54,700) Other - - - (1) (1) - --------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 37,691 194,161 326 172,720 404,898 Net income after dividends on preferred stock - - - 63,887 63,887 Capital contributions from parent company - 73,095 - - 73,095 Cash dividends on common stock - - - (50,200) (50,200) - --------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2001 $37,691 $267,256 $326 $186,407 $491,680 =========================================================================================================================== The accompanying notes are an integral part of these statements.
II-166 NOTES TO FINANCIAL STATEMENTS Mississippi Power Company 2001 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Mississippi Power Company is a wholly owned subsidiary of Southern Company, which is the parent company of five operating companies, a system service company, Southern Communications Services (Southern LINC), Southern Nuclear Operating Company (Southern Nuclear), Southern Power Company (Southern Power), and other direct and indirect subsidiaries. The operating companies -- Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Savannah Electric and Power Company -- provide electric service in four southeastern states. Contracts among the operating companies -- related to jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power -- are regulated by the Federal Energy Regulatory Commission (FERC) and/or the Securities and Exchange Commission. The system service company provides, at cost, specialized services to Southern Company and subsidiary companies. Southern LINC provides digital wireless communications services to the operating companies and also markets these services to the public within the Southeast. Southern Nuclear provides services to Southern Company's nuclear power plants. Southern Power was established in 2001 to construct, own, and manage Southern Company's competitive generation assets and sell electricity at market-based rates in the wholesale market. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both the Company and its subsidiaries are subject to the regulatory provisions of the PUHCA. The Company is also subject to regulation by the FERC and the Mississippi Public Service Commission (MPSC). The Company follows accounting principles generally accepted in the United States and complies with the accounting policies and practices prescribed by the respective commissions. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates, and the actual results may differ from those estimates. Prior years' data presented in the financial statements have been reclassified to conform with the current year presentation. Affiliate Transactions The Company has an agreement with the system service company under which the following services are rendered to the Company at cost: general and design engineering, purchasing, accounting and statistical, finance and treasury, tax, information resources, marketing, auditing, insurance and pension administration, human resources, systems and procedures, and other services with respect to business and operations and power pool operations. Costs for these services amounted to $44.1 million, $46.2 million, and $45.5 million during 2001, 2000, and 1999, respectively. Regulatory Assets and Liabilities The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues to the Company associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are expected to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Balance Sheets at December 31 relate to the following: 2001 2000 ------------------------- (in thousands) Deferred income tax charges $ 13,394 $ 13,860 Vacation pay 5,810 5,701 Premium on reacquired debt 6,719 7,168 Fuel commitments 4,328 - Property damage reserve (4,044) (3,519) Deferred income tax credits (23,626) (25,603) Other, net (1,066) (505) - ---------------------------------------------------------------- Total $ 1,515 $ (2,898) ================================================================ II-167 NOTES (continued) Mississippi Power Company 2001 Annual Report In the event that a portion of the Company's operations is no longer subject to the provisions of FASB Statement No. 71, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the Company would be required to determine if any impairment to other assets exists, including plant, and write down the assets, if impaired, to their fair value. Revenues and Fuel Costs The Company currently operates as a vertically integrated utility providing electricity to retail customers within its traditional service area located within the state of Mississippi and to wholesale customers in the Southeast. Revenues are recognized as services are rendered. Unbilled revenues are accrued at the end of each fiscal period. The Company's retail and wholesale rates include provisions to adjust billings for fluctuations in fuel costs, the energy component of purchased power costs, and certain other costs. Retail rates also include provisions to adjust billings for fluctuations in costs for ad valorem taxes, certain qualifying environmental costs, and energy cost management activities. Revenues are adjusted for differences between actual allowable amounts and the amounts included in rates. The Company has a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. For all periods presented, uncollectible accounts continued to average less than 1 percent of revenues. Depreciation Depreciation of the original cost of plant in service is provided primarily by using composite straight-line rates, which approximated 3.5 percent in 2001, 3.5 percent in 2000, and 3.3 percent in 1999. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its original cost -- together with the cost of removal, less salvage -- is charged to accumulated depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Depreciation expense includes an amount for the expected cost of removal of facilities. Income Taxes The Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. Property, Plant, and Equipment Property, plant, and equipment is stated at original cost. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and the estimated cost of funds used during construction, if applicable. The cost of maintenance, repairs, and replacement of minor items of property is charged to maintenance expense except for the maintenance of coal cars and a portion of the railway track maintenance, which are charged to fuel stock. The cost of replacements of property -- exclusive of minor items of property -- is capitalized. Cash and Cash Equivalents For purposes of the Statements of Cash Flows, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. Financial Instruments Effective January 2001, the Company adopted FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. The 2001 impact on net income was immaterial. The Company uses derivative financial instruments to hedge exposure to fluctuations in interest rates and certain commodity prices. Gains and losses on qualifying hedges are deferred and recognized either as income or as an adjustment to the carrying amount of the hedged item when the transaction occurs. The Company is exposed to losses related to financial instruments in the event of counterparties' nonperformance. The Company has established controls to determine and monitor the creditworthiness of counterparties in order to mitigate the Company's exposure to counterparty credit risk. The Company and its affiliates, through the system service company acting as their agent, enters into commodity related forward and option contracts to limit II-168 NOTES (continued) Mississippi Power Company 2001 Annual Report exposure to changing prices on certain fuel purchases and electricity purchases and sales. Substantially all of these bulk energy purchases and sales contracts meet the definition of a derivative under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. In many cases, these fuel and electricity contracts qualify for normal purchase and sale exceptions under Statement No. 133 and are accounted for under the accrual method. Other contracts qualify as cash flow hedges of anticipated transactions, resulting in the deferral of related gains and losses, and are recorded in other comprehensive income until the hedged transactions occur. Any ineffectiveness is recognized currently in net income. Contracts that do not qualify for the normal purchase and sale exception and that do not meet the hedge requirements are marked to market through current period income. In June 2001, the MPSC approved the Company's request to implement an Energy Cost Management Clause (ECM). ECM, among other things, allows the Company to utilize financial instruments that are used to hedge its fuel commitments. Amounts paid or received as a result of financial settlement of these instruments are classified as fuel expense and are included in the ECM factor applied to customer billings. The Company records the fair value of these financial instruments (cash flow hedges) in its financial statements in accordance with FASB Statement No. 133 with a related regulatory asset or liability recorded under the provisions of FASB Statement No. 71. As of December 31, 2001, the Company had financial instruments related to natural gas commodity contracts that had a contract value of approximately $31 million and $30 million expiring in 2002 and 2003, respectively. The market values as of December 31, 2001 for these contracts were approximately $27 million and $30 million, respectively. The amounts settled and recognized in the financial statements for 2001 were not material. Currently, the Company does not have any fixed price natural gas commitments, either physical or financial, beyond 2003. The Company's other financial instruments for which the carrying amount did not equal fair value at December 31 were as follows: Carrying Fair Amount Value ------------------------ (in millions) Long-term debt: At December 31, 2001 $314 $309 At December 31, 2000 $371 $362 Capital trust preferred securities: At December 31, 2001 $ 35 $ 35 At December 31, 2000 $ 35 $ 34 - ----------------------------------------------------------- The fair values for long-term debt and preferred securities were based on either closing market price or closing price of comparable instruments. Materials and Supplies Generally, materials and supplies include the cost of transmission, distribution, and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when used or installed. Provision for Property Damage The Company is self-insured for the cost of storm, fire, and other uninsured casualty damage to its property, including transmission and distribution facilities. As permitted by regulatory authorities, the Company accrues for the cost of such damage by charging expense and crediting an accumulated provision. The cost of repairing damage resulting from such events that individually exceed $50 thousand is charged to the accumulated provision. In 1999, an order from the MPSC increased the maximum Property Damage Reserve from $18 million to $23 million and allows an annual accrual of up to $4.6 million. In 2001, the Company provided for such costs by charges to income of $2.5 million. In 2000 and 1999, the Company provided for such costs by charges to income of $3.5 million and $4.4 million, respectively. As of December 31, 2001, the accumulated provision amounted to $4.0 million. 2. RETIREMENT BENEFITS The Company has a defined benefit, trusteed, pension plan that covers substantially all employees. The Company provides certain medical care and life insurance benefits for retired employees. Substantially all these employees may become eligible for such benefits when they retire. The Company funds trusts to II-169 NOTES (continued) Mississippi Power Company 2001 Annual Report the extent deductible under federal income tax regulations or the extent required by regulatory authorities. In late 2000, the Company adopted several pension and postretirement benefits plan changes that had the effect of increasing benefits to both current and future retirees. The measurement date for plan assets and obligations is September 30 for each year. Pension Plan Changes during the year in the projected benefit obligations and in the fair value of plan assets were as follows: Projected Benefit Obligations -------------------------- 2001 2000 - --------------------------------------------------------------------- (in thousands) Balance at beginning of year $154,411 $148,657 Service cost 4,797 4,357 Interest cost 11,817 10,912 Benefits paid (8,456) (8,169) Actuarial gain and employee transfers 1,268 (1,646) Amendments 8,406 300 Other (76) - - --------------------------------------------------------------------- Balance at end of year $172,167 $154,411 ===================================================================== Plan Assets -------------------------- 2001 2000 - --------------------------------------------------------------------- (in thousands) Balance at beginning of year $256,648 $221,487 Actual return on plan assets (37,214) 39,737 Benefits paid (7,850) (7,593) Employee transfers (38) 3,017 - --------------------------------------------------------------------- Balance at end of year $211,546 $256,648 ===================================================================== The accrued pension costs recognized in the Balance Sheets were as follows: 2001 2000 - --------------------------------------------------------------------- (in thousands) Funded status $ 39,379 $ 102,238 Unrecognized transition obligation (2,716) (3,253) Unrecognized prior service cost 13,656 6,298 Unrecognized net gain (45,818) (104,849) - --------------------------------------------------------------------- Prepaid asset recognized in the Balance Sheets $ 4,501 $ 434 ===================================================================== Components of the pension plans' net periodic cost were as follows: 2001 2000 1999 - --------------------------------------------------------------- (in thousands) Service Cost $ 4,797 $ 4,357 $ 4,501 Interest cost 11,818 10,912 10,025 Expected return on plan assets (17,328) (15,910) (14,681) Recognized net gain (3,012) (2,577) (1,670) Net amortization 511 76 76 - --------------------------------------------------------------- Net pension income $ (3,214) $ (3,142) $ (1,749) =============================================================== Postretirement Benefits Changes during the year in the accumulated benefit obligations and in the fair value of plan assets were as follows: Accumulated Benefit Obligations --------------------------- 2001 2000 - ---------------------------------------------------------------- (in thousands) Balance at beginning of year $44,952 $45,390 Service cost 922 830 Interest cost 3,411 3,309 Benefits paid (2,918) (2,628) Actuarial gain and employee transfers 3,256 (1,949) Amendments 1,900 - ---------------------------------------------------------------- Balance at end of year $51,523 $44,952 ================================================================ Plan Assets --------------------------- 2001 2000 - ---------------------------------------------------------------- (in thousands) Balance at beginning of year $17,843 $14,998 Actual return on plan assets (1,888) 2,511 Employer contributions 3,232 2,961 Benefits paid (2,918) (2,627) - ---------------------------------------------------------------- Balance at end of year $16,269 $17,843 ================================================================ II-170 NOTES (continued) Mississippi Power Company 2001 Annual Report The accrued postretirement costs recognized in the Balance Sheets were as follows: 2001 2000 - ------------------------------------------------------------------ (in thousands) Funded status $(35,254) $(27,109) Unrecognized transition obligation 3,928 4,275 Unrecognized prior service cost 1,821 - Unrecognized net gain (40) (6,632) Fourth quarter contributions 1,268 1,065 - ------------------------------------------------------------------ Accrued liability recognized in the Balance Sheets $(28,277) $(28,401) ================================================================== Components of the postretirement plans' net periodic cost were as follows: 2001 2000 1999 - ------------------------------------------------------------------ (in thousands) Service cost $ 922 $ 830 $ 981 Interest cost 3,411 3,309 3,105 Expected return on plan assets (1,409) (1,235) $(1,100) Transition obligation 346 346 346 Prior service cost 80 - - Recognized net loss (38) - - - ------------------------------------------------------------------ Net postretirement cost $ 3,312 $ 3,250 $ 3,332 ================================================================== The weighted average rates assumed in the actuarial calculations for both the pension plans and postretirement benefits plan were: 2001 2000 --------------------------------------------------------------- Discount 7.50% 7.50% Annual salary increase 5.00 5.00 Long-term return on plan assets 8.50 8.50 --------------------------------------------------------------- An additional assumption used in measuring the accumulated postretirement benefit obligation was a weighted average medical care cost trend rate of 9.25 percent for 2001, decreasing gradually to 5.25 percent through the year 2010 and remaining at that level thereafter. An annual increase or decrease in the assumed medical care cost trend rate of 1 percent would affect the accumulated benefit obligation and the service and interest cost components at December 31, 2001 as follows: 1 Percent 1 Percent Increase Decrease - ----------------------------------------------------------------- (in thousands) Benefit obligation $4,037 $3,551 Service and interest costs 314 273 - ----------------------------------------------------------------- Employee Savings Plan The Company also sponsors a 401(k) defined contribution plan covering substantially all employees. The Company provides a 75 percent matching contribution up to 6 percent of an employee's base salary. Total matching contributions made to the plan for the years 2001, 2000, and 1999 were $2.5 million, $2.3 million, and $2.2 million, respectively. 3. LITIGATION AND REGULATORY MATTERS General The Company is subject to certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the Company's financial condition. Environmental Litigation On November 3, 1999, the Environmental Protection Agency (EPA) brought a civil action in the U.S. District Court in Georgia against Alabama Power, Georgia Power and the system service company. The complaint alleges violations of the New Source Review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. The EPA concurrently issued to the operating companies a notice of violation related to 10 generating facilities, which includes the five facilities mentioned previously, and the Company's plants Watson and Greene County. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation and to add Gulf Power, Savannah II-171 NOTES (continued) Mississippi Power Company 2001 Annual Report Electric and the Company as defendants. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution control equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. The U.S. District Court in Georgia granted Alabama Power's motion to dismiss for lack of jurisdiction and granted the system service company's motion to dismiss on the grounds that it neither owned nor operated the generating units involved in the proceedings. The court granted the EPA's motion to add Savannah Electric as a defendant, but it denied the motion to add Gulf Power and the Company based on lack of jurisdiction over those companies. The court directed the EPA to re-file its amended complaint limiting claims to those brought against Georgia Power and Savannah Electric. The EPA re-filed those claims as directed by the court. Also, the EPA re-filed its claims against Alabama Power in U.S. District Court in Alabama. It has not re-filed against Gulf Power, the system service company, or the Company. The Alabama Power, Georgia Power, and Savannah Electric cases have been stayed since the spring of 2001, pending a ruling by the U.S. Court of Appeals for the Eleventh Circuit in the appeal of a very similar New Source Review enforcement action against the Tennessee Valley Authority (TVA). The TVA case involves many of the same legal issues raised by the actions against Alabama Power, Georgia Power, and Savannah Electric. Because the outcome of the TVA case could have a significant adverse impact on Alabama Power and Georgia Power, both companies are parties to that case as well. The U.S. District Court in Alabama has indicated that it will revisit the issue of a continued stay in April 2002. The U.S. District Court in Georgia is currently considering a motion by the EPA to reopen the Georgia case. Georgia Power and Savannah Electric have opposed that motion. The Company believes that it complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and could possibly require payment of substantial penalties. This could affect future results of operations, cash flows and possibly financial condition unless such costs can be recovered through regulated rates. Retail Rate Adjustment Plans The Company's retail base rates are set under a Performance Evaluation Plan (PEP) approved by the MPSC in 1994. PEP was designed with the objective that the plan would reduce the impact of rate changes on the customer and provide incentives for the Company to keep customer prices low. PEP includes a mechanism for rate adjustments based on the Company's ability to maintain low rates for customers and on the Company's performance as measured by three indicators that emphasize price and service to the customer. PEP provides for semiannual evaluations of the Company's performance-based return on investment. Any change in rates is limited to 2 percent of retail revenues per evaluation period. In August 2001, the Company filed a request with the MPSC for a retail rate increase of approximately $46 million. In order to consider the Company's request, the MPSC suspended the semi-annual evaluations under PEP. In December 2001, after a full investigation and hearing on the Company's request, the MPSC approved an increase of approximately $39 million, which took effect in January 2002. Additionally, the MPSC ordered the Company to reactivate the semi-annual evaluations under PEP, beginning in February 2003 for the year 2002. PEP will remain in effect until the MPSC modifies, suspends, or terminates the plan. The MPSC also set for hearing in 2002 a review of the return on equity models used in PEP in setting the Company's authorized return on equity. This proceeding will conclude in 2002, so that changes to the PEP return on equity models, if any, may be incorporated into the February 2003 PEP evaluation filing for the period ending December 31, 2002. The outcome of this matter and any future impact to the Company cannot now be determined. Environmental Compliance Overview Plan The MPSC approved the Company's Environmental Compliance Overview Plan (ECO Plan) in 1992. The ECO Plan establishes procedures to facilitate the MPSC's overview of the Company's environmental strategy and provides for recovery of costs (including costs of capital) associated with environmental projects approved by the MPSC. Under the ECO Plan, any increase in the annual revenue II-172 NOTES (continued) Mississippi Power Company 2001 Annual Report requirement is limited to 2 percent of retail revenues. However, the ECO Plan also provides for carryover of any amount over the 2 percent limit into the next year's revenue requirement. The Company conducts studies, when possible, to determine the extent of any required environmental remediation. Should such remediation be determined to be probable, reasonable estimates of costs to clean up such sites are developed and recognized in the financial statements. The Company recovers such costs under the ECO Plan as they are incurred, as provided for in the Company's 1995 ECO Plan Order. The Company filed its 2002 ECO Plan in January, which, if approved as filed, will result in a slight increase in customer prices. Approval for New Capacity In January 1998, the Company was granted a Certificate of Public Convenience and Necessity by the MPSC to build approximately 1,064 megawatts of combined cycle generation at the Company's Plant Daniel site, to be placed in service by June 2001. In December 1998, the Company requested approval to transfer the ownership rights under the certificate to Escatawpa Funding, Limited Partnership (Escatawpa), which will lease the facility to the Company (see Note 4, Commitments). In September 2000, the Company and the Mississippi Public Utilities Staff entered, and the MPSC in October 2000 approved, a new stipulation that modifies a January 1999 stipulation and order covering cost allocation. The 1999 stipulation and MPSC order would have excluded the new capacity from retail rate base and would have assigned the Company's existing generating facilities entirely to the retail jurisdiction. The new stipulation and MPSC order allocates a pro-rata share of the new capacity along with the Company's existing generating capacity to the retail jurisdiction. The Company's 2001 retail rate case reflected this methodology and the MPSC's December 2001 order on the retail rate case filing approved the Company's cost allocations. 4. COMMITMENTS Construction Program The Company is engaged in continuous construction programs, the costs of which are currently estimated to total $84 million in 2002, $72 million in 2003, and $85 million in 2004. The construction program is subject to periodic review and revision, and actual construction costs may vary from the above estimates because of numerous factors. These factors include changes in business conditions; revised load growth estimates; changes in environmental regulations; increasing costs of labor, equipment and materials; and cost of capital. Significant construction will continue related to transmission and distribution facilities, and the upgrading of generating plants. Lease Agreements In 1989, the Company entered into a twenty-two year operating lease agreement for the use of 495 aluminum railcars. In 1994, a second lease agreement for the use of 250 additional aluminum railcars was also entered into for twenty-two years. The Company has the option to purchase the 745 railcars at the greater of lease termination value or fair market value, or to renew the leases at the end of the lease term. Both of these leases were for the transport of coal to Plant Daniel. Gulf Power, as joint owner of Plant Daniel Units 1 and 2, is responsible for one half of the lease cost. The Company's share (50%) of the leases, charged to fuel stock, was $1.9 million in 2001, $2.1 million in 2000, and $2.8 million in 1999. The Company's annual lease payments for 2002 through 2006 will average approximately $2.0 million and after 2006, lease payments total in aggregate approximately $12 million. In 1999, the Company signed an Agreement for Lease and a Lease Agreement with Escatawpa Funding, Limited Partnership (Escatawpa). These agreements called for the Company to design and construct, as agent for Escatawpa, a 1,064 megawatt natural gas combined cycle facility at the Company's Plant Victor J. Daniel Facility (Facility). In May 2001, the Facility was completed and placed into commercial operation. Effective with commercial operation of the Facility at Plant Daniel, the initial 10-year lease term under its lease arrangement for the Facility with Escatawpa began. The completion cost was approximately $370 million. The lease provides for a residual value guarantee (approximately 71% of the completion cost) by the Company that is due upon termination of the lease in certain circumstances. The lease also includes a purchase and renewal option. Upon termination of the lease, at the Company's option, the Company may either exercise its purchase option or the Facility can be sold to a third party. The Company expects that the fair market value of the leased Facility would II-173 NOTES (continued) Mississippi Power Company 2001 Annual Report substantially reduce or eliminate the Company's payment under the residual value guarantee. In 2001, the Company recognized approximately $18 million in lease expense. The Company estimates that its annual amount of future minimum operating lease payments, exclusive of any payment related to the residual value guarantee, as of December 31, 2001, were as follows: Year Lease Payments - ---- -------------- (in millions) 2002 $26.4 2003 25.5 2004 25.2 2005 25.0 2006 24.7 2007 and thereafter 143.0 - ---------------------------------------------------------- Total commitments $269.8 ========================================================== Fuel To supply a portion of the fuel requirements of its generating plants, the Company has entered into various long-term commitments for the procurement of fuel. In most cases, these contracts contain provisions for price escalations, minimum production levels, and other financial commitments. In addition, the Company utilizes financial instruments to eliminated price volatility. Total estimated fixed-price obligations at December 31, 2001, were as follows: Year Fuel - ---- ---- (in millions) 2002 $225 2003 188 2004 7 2005 7 2006 7 2007 and thereafter 86 - ---------------------------------------------------------- Total commitments $520 ========================================================== In addition, the system service company acts as agent for the five operating companies and Southern Power with regard to natural gas purchases. Natural gas purchases (in dollars) are based on various indices at the actual time of delivery; therefore, only the volume commitments are firm. The Company's committed volumes allocated based on usage projections, as of December 31, 2001 are as follows: Year Natural Gas - ---- ----------- (MMBtu) 2002 40,345,416 2003 39,723,953 2004 22,521,216 2005 11,161,628 2006 8,044,570 2007 and thereafter 2,981,474 - ------------------------------------------------------------ Total commitments 124,778,257 ============================================================ Additional commitments for fuel will be required in the future to supply the Company's fuel needs. 5. JOINT OWNERSHIP AGREEMENTS The Company and Alabama Power own as tenants in common Units 1 and 2 at Plant Greene County located in Alabama. Additionally, the Company and Gulf Power own as tenants in common Units 1 and 2 at Plant Daniel located in Mississippi. At December 31, 2001, the Company's percentage ownership and investment in these jointly owned facilities were as follows: Company's Generating Total Percent Gross Accumulated Plant Capacity Ownership Investment Depreciation ----- -------- --------- ---------- ------------ (Megawatts) (in thousands) Greene County Units 1 and 2 500 40% $ 65,486 $ 35,116 Daniel Units 1 and 2 1,000 50% $236,979 $116,766 -------------------------------------------------------------- The Company's share of plant operating expenses is included in the corresponding operating expenses in the Statements of Income. 6. LONG-TERM CAPACITY SALES AND LEASE AGREEMENTS The Company and the other operating companies of Southern Company have long-term contractual agreements for the sale of capacity and energy to certain non-affiliated utilities located outside the system's service area. Because the energy is generally sold at cost under these agreements, profitability is primarily affected by revenues from capacity sales. The Company's capacity revenues under these agreements were not material during the periods reported. II-174 NOTES (continued) Mississippi Power Company 2001 Annual Report In 1984, the Company and Entergy Corp. (formerly Gulf States Utilities) entered into a 40-year transmission facilities agreement whereby Entergy began paying a use fee to the Company covering all expenses relative to ownership and operation and maintenance of a 500 kV line, including amortization of its original $57 million cost. For the three years ended 2001, use fees collected under this agreement, net of related expenses, amounted to approximately $2.7 million each year and are included within Other Income in the Statements of Income. During 2000, the Company entered into a 10-year capacity lease that began in mid 2001. The minimum capacity lease revenue that the Company will receive will average approximately $21 million per year over the 10-year period. Capacity revenues for 2001 were approximately $12.3 million and were classified as sales for resale in the financial statements. 7. INCOME TAXES At December 31, 2001, the tax-related regulatory assets and liabilities were $13 million and $24 million, respectively. These assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized interest. These liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. Details of the federal and state income tax provisions are shown below: 2001 2000 1999 ---------------------------------- (in thousands) Total provision for income taxes Federal -- Current $43,596 $28,934 $33,379 Deferred (8,661) 622 (3,973) ----------------------------------------------------------------- 34,935 29,556 29,406 ----------------------------------------------------------------- State -- Current 6,698 4,670 4,881 Deferred (1,057) 130 (170) ----------------------------------------------------------------- 5,641 4,800 4,711 ----------------------------------------------------------------- Total $40,576 $34,356 $34,117 ================================================================= The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities are as follows: 2001 2000 ------------------------------- (in thousands) Deferred tax liabilities: Accelerated depreciation $147,147 $151,278 Basis differences 8,271 8,559 Other 34,544 24,136 --------------------------------------------------------------- Total 189,962 183,973 --------------------------------------------------------------- Deferred tax assets: Other property basis differences 15,983 17,147 Pension and other benefits 9,474 9,528 Property insurance 1,547 3,558 Unbilled fuel 5,596 5,727 Other 27,269 9,669 --------------------------------------------------------------- Total 59,869 45,629 --------------------------------------------------------------- Total deferred tax liabilities, net 130,093 138,344 Portion included in current assets, net 8,820 1,565 --------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $138,913 $139,909 =============================================================== Deferred investment tax credits are amortized over the lives of the related property with such amortization normally applied as a credit to reduce depreciation in the Statements of Income. Credits amortized in this manner amounted to $1.2 million in 2001, 2000, and 1999. At December 31, 2001, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: 2001 2000 1999 -------------------------------- Federal statutory rate 35.0% 35.0% 35.0% State income tax, net of federal deduction 3.4 3.4 3.4 Non-deductible book depreciation 0.5 0.6 0.7 Other (0.8) (1.5) (1.6) ---------------------------------------------------------------- Effective income tax rate 38.1% 37.5% 37.5% ================================================================ Southern Company files a consolidated federal income tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. In accordance with Internal Revenue Service regulations, each company is jointly and severally liable for the tax liability. II-175 NOTES (continued) Mississippi Power Company 2001 Annual Report 8. CAPITALIZATION Preferred Securities In February 1997, Mississippi Power Capital Trust I (Trust I), of which the Company owns all the common securities, issued $35 million of 7.75 percent mandatorily redeemable preferred securities. Substantially all of the assets of Trust I are $36 million aggregate principal amount of the Company's 7.75 percent junior subordinated notes due February 15, 2037. The Company considers that the mechanisms and obligations relating to the preferred securities, taken together, constitute a full and unconditional guarantee by the Company of the Trust's payment obligations with respect to the preferred securities. Trust I is a subsidiary of the Company, and accordingly is consolidated in the Company's financial statements. Long-Term Debt Due Within One Year A summary of the improvement fund requirements and scheduled maturities and redemptions of long-term debt due within one year is as follows: 2001 2000 --------------------- (in thousands) Bond improvement fund requirement $ 650 $1,000 Less: Portion to be satisfied by certifying property additions 650 1,000 -------------------------------------------------------------- Cash sinking fund requirement - - Current portion of other long-term debt 80,000 - Pollution control bond cash sinking fund requirements 20 20 -------------------------------------------------------------- Total $80,020 $ 20 ============================================================== The first mortgage bond improvement fund requirement is one percent of each outstanding series authenticated under the indenture of the Company prior to January 1 of each year, other than first mortgage bonds issued as collateral security for certain pollution control obligations. The requirement must be satisfied by June 1 of each year by depositing cash or reacquiring bonds, or by pledging additional property equal to 166-2/3 percent of such requirement. Bank Credit Arrangements At December 31, 2001, the Company had total committed credit agreements with banks for approximately $114.5 million. At year-end 2001, the unused portion of these committed credit agreements was approximately $114.5 million. These credit agreements expire at various dates in 2002 and 2003. Some of these agreements allow short-term borrowings to be converted into term loans, payable in 12 equal quarterly installments, with the first installment due at the end of the first calendar quarter after the applicable termination date or at an earlier date at the Company's option. In connection with these credit arrangements, the Company agrees to pay commitment fees based on the unused portions of the commitments or to maintain compensating balances with the banks. The amount of commercial paper outstanding at December 31, 2001 was $16 million. Assets Subject to Lien The Company's mortgage indenture dated as of September 1, 1941, as amended and supplemented, which secures the first mortgage bonds issued by the Company, constitutes a direct first lien on substantially all of the Company's fixed property and franchises. Dividend Restrictions The Company's first mortgage bond indenture and the corporate charter contain various common stock dividend restrictions. At December 31, 2001, approximately $118 million of retained earnings was restricted against the payment of cash dividends on common stock under the most restrictive terms of the mortgage indenture or corporate charter. II-176 NOTES (continued) Mississippi Power Company 2001 Annual Report 9. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for 2001 and 2000 are as follows: Net Income After Dividends Operating Operating On Preferred Quarter Ended Revenues Income Stock - ------------------------------------------------------------------- (in thousands) March 2001 $171,312 $23,615 $ 9,757 June 2001 203,949 32,640 16,571 September 2001 235,916 53,263 30,379 December 2001 184,888 23,315 7,180 March 2000 $134,705 $18,593 $ 6,722 June 2000 176,028 28,130 12,232 September 2000 220,119 53,943 28,762 December 2000 156,750 21,904 7,256 - ------------------------------------------------------------------- The Company's business is influenced by seasonal weather conditions and the timing of rate changes. II-177
SELECTED FINANCIAL AND OPERATING DATA 1997-2001 Mississippi Power Company 2001 Annual Report - -------------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands)* $796,065 $687,602 $633,004 $595,131 $543,588 Net Income after Dividends on Preferred Stock (in thousands) $63,887 $54,972 $54,809 $55,105 $54,010 Cash Dividends on Common Stock (in thousands) $50,200 $54,700 $56,100 $51,700 $49,400 Return on Average Common Equity (percent) 14.25 13.80 14.00 14.15 14.00 Total Assets (in thousands) $1,333,533 $1,268,781 $1,251,136 $1,189,605 $1,166,829 Gross Property Additions (in thousands) $61,193 $81,211 $75,888 $68,231 $55,375 - -------------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $491,680 $404,898 $391,968 $391,231 $387,824 Preferred stock 31,809 31,809 31,809 31,809 31,896 Company obligated mandatorily redeemable preferred securities 35,000 35,000 35,000 35,000 35,000 Long-term debt 233,753 370,511 321,802 292,744 291,665 - -------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $792,242 $842,218 $780,579 $750,784 $746,385 ================================================================================================================================ Capitalization Ratios (percent): Common stock equity 62.1 48.1 50.2 52.1 52.0 Preferred stock 4.0 3.8 4.1 4.2 4.3 Company obligated mandatorily redeemable preferred securities 4.4 4.2 4.5 4.7 4.7 Long-term debt 29.5 43.9 41.2 39.0 39.0 - -------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 100.0 ================================================================================================================================ Security Ratings: First Mortgage Bonds - Moody's Aa3 Aa3 Aa3 Aa3 Aa3 Standard and Poor's A+ A+ AA- AA- AA- Fitch AA- AA- AA- AA- AA- Preferred Stock - Moody's A3 a1 a1 a1 a1 Standard and Poor's BBB+ BBB+ A- A A Fitch A A A A+ A+ Unsecured Long-Term Debt - Moody's A1 - - - - Standard and Poor's A - - - - Fitch A+ - - - - ================================================================================================================================ Customers (year-end): Residential 158,852 158,253 157,592 156,530 156,650 Commercial 32,538 32,372 31,837 31,319 31,667 Industrial 498 517 546 587 642 Other 173 206 202 200 200 - -------------------------------------------------------------------------------------------------------------------------------- Total 192,061 191,348 190,177 188,636 189,159 ================================================================================================================================ Employees (year-end): 1,316 1,319 1,328 1,230 1,245 - -------------------------------------------------------------------------------------------------------------------------------- * 1999 data includes the true-up of the unbilled revenue estimates.
II-178
SELECTED FINANCIAL AND OPERATING DATA 1997-2001 (continued) Mississippi Power Company 2001 Annual Report - ------------------------------------------------------------------------------------------------------------------------------------ 2001 2000 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (in thousands)*: Residential $ 164,716 $170,729 $159,945 $157,642 $138,608 Commercial 163,253 163,552 153,936 145,677 134,208 Industrial 156,525 159,705 151,244 135,039 140,233 Other 4,659 4,565 4,309 4,209 4,193 - ------------------------------------------------------------------------------------------------------------------------------------ Total retail 489,153 498,551 469,434 442,567 417,242 Sales for resale - non-affiliates 204,623 145,931 131,004 121,225 105,141 Sales for resale - affiliates 85,652 27,915 19,446 18,285 10,143 - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues from sales of electricity 779,428 672,397 619,884 582,077 532,526 Other revenues 16,637 15,205 13,120 13,054 11,062 - ------------------------------------------------------------------------------------------------------------------------------------ Total $796,065 $687,602 $633,004 $595,131 $543,588 ==================================================================================================================================== Kilowatt-Hour Sales (in thousands)*: Residential 2,162,623 2,286,143 2,248,255 2,248,915 2,039,042 Commercial 2,840,840 2,883,197 2,847,342 2,623,276 2,407,520 Industrial 4,275,781 4,376,171 4,407,445 3,729,166 3,981,875 Other 41,009 41,153 40,091 39,772 40,508 - ------------------------------------------------------------------------------------------------------------------------------------ Total retail 9,320,253 9,586,664 9,543,133 8,641,129 8,468,945 Sales for resale - non-affiliates 5,011,212 3,674,621 3,256,175 3,157,837 2,895,182 Sales for resale - affiliates 2,952,455 452,611 539,939 552,142 478,884 - ------------------------------------------------------------------------------------------------------------------------------------ Total 17,283,920 13,713,896 13,339,247 12,351,108 11,843,011 ==================================================================================================================================== Average Revenue Per Kilowatt-Hour (cents)*: Residential 7.62 7.47 7.11 7.01 6.80 Commercial 5.75 5.67 5.41 5.55 5.57 Industrial 3.66 3.65 3.43 3.62 3.52 Total retail 5.25 5.20 4.92 5.12 4.93 Sales for resale 3.64 4.21 3.96 3.76 3.42 Total sales 4.51 4.90 4.65 4.71 4.50 Residential Average Annual Kilowatt-Hour Use Per Customer * 13,634 14,445 14,301 14,376 13,132 Residential Average Annual Revenue Per Customer * $1,038.41 $1,078.76 $1,017.42 $1,007.68 $892.68 Plant Nameplate Capacity Ratings (year-end) (megawatts) 3,156 2,086 2,086 2,086 2,086 Maximum Peak-Hour Demand (megawatts): Winter 2,249 2,305 2,125 1,740 1,922 Summer 2,466 2,593 2,439 2,339 2,209 Annual Load Factor (percent) 60.7 59.3 59.6 58.0 59.1 Plant Availability Fossil-Steam (percent): 92.8 92.6 91.0 90.0 92.4 - ------------------------------------------------------------------------------------------------------------------------------------ Source of Energy Supply (percent): Coal 52.0 67.8 69.4 66.5 70.5 Oil and gas 35.9 13.5 15.9 14.5 12.5 Purchased power - From non-affiliates 3.1 7.7 6.2 8.0 3.0 From affiliates 9.0 11.0 8.5 11.0 14.0 - ------------------------------------------------------------------------------------------------------------------------------------ Total 100.0 100.0 100.0 100.0 100.0 ==================================================================================================================================== * 1999 data includes the true-up of the unbilled revenue estimates.
II-179 SAVANNAH ELECTRIC AND POWER COMPANY FINANCIAL SECTION II-180 MANAGEMENT'S REPORT Savannah Electric and Power Company 2001 Annual Report The management of Savannah Electric and Power Company has prepared--and is responsible for--the financial statements and related information included in this report. These statements were prepared in accordance with accounting principles generally accepted in the United States and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that accounting records reflect only authorized transactions of the Company. Limitations exist in any system of internal controls, however, based on a recognition that the cost of the system should not exceed its benefits. The Company believes its system of internal accounting controls maintains an appropriate cost/benefit relationship. The Company's system of internal accounting controls is evaluated on an ongoing basis by the Company's internal audit staff. The Company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, composed of five independent directors who are not employees, provides a broad overview of management's financial reporting and control functions. Periodically, this committee meets with management, the internal auditors and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal controls and financial reporting matters. The internal auditors and the independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the Company's operations are conducted according to a high standard of business ethics. In management's opinion, the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of Savannah Electric and Power Company in conformity with accounting principles generally accepted in the United States. /s/Anthony R. James Anthony R. James President and Chief Executive Officer /s/K.R. Willis K. R. Willis Vice President, Treasurer, Chief Financial Officer and Assistant Secretary February 13, 2002 II-181 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Savannah Electric and Power Company: We have audited the accompanying balance sheets and statements of capitalization of Savannah Electric and Power Company (a Georgia corporation and a wholly owned subsidiary of Southern Company) as of December 31, 2001 and 2000, and the related statements of income, common stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements (pages II-192 through II-206) referred to above present fairly, in all material respects, the financial position of Savannah Electric and Power Company as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. As explained in Note 1 to the financial statements, effective January 1, 2001, Savannah Electric and Power Company changed its method of accounting for derivative instruments and hedging activities. /s/Arthur Andersen LLP Atlanta, Georgia February 13, 2002 II-182 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Savannah Electric and Power Company 2001 Annual Report RESULTS OF OPERATIONS - --------------------- Earnings Savannah Electric and Power Company's net income for 2001 totaled $22.1 million, representing a decrease of $0.9 million or 3.9 percent from the prior year. Earnings were down primarily due to lower retail revenues. In 2000, earnings were $23.0 million, representing no significant change from the prior year. Revenues Total operating revenues for 2001 were $283.9 million, reflecting a 4.0 percent decrease when compared to 2000. The following table summarizes the factors affecting operating revenues for the past two years: Increase (Decrease) Amount From Prior Year -------------------------------------- 2001 2001 2000 -------------------------------------- (in thousands) Retail -- Base Revenues $159,839 $ (1,968) $9,272 Fuel cost recovery and other 109,333 (11,482) 31,085 ----------------------------------------------------------------- Total retail 269,172 (13,450) 40,357 ----------------------------------------------------------------- Sales for resale -- Non-affiliates 8,884 4,136 1,353 Affiliates 3,205 (1,769) 823 ----------------------------------------------------------------- Total sales for resale 12,089 2,367 2,176 ----------------------------------------------------------------- Other operating revenues 2,591 (783) 1,591 ----------------------------------------------------------------- Total operating revenues $283,852 $(11,866) $44,124 ================================================================= Percent change (4.0)% 17.5% ----------------------------------------------------------------- Retail revenues decreased 4.8 percent or $13.5 million in 2001 as compared to 2000. The primary contributors to the decrease were the negative impact of mild weather on energy sales and a decrease in fuel revenues, partially due to a lower average cost of fuel consumed. Electric rates include provisions to adjust billings for fluctuations in fuel costs, the energy component of purchased power costs, and certain other costs. Under these fuel recovery provisions, fuel revenues generally equal fuel expenses--including the fuel component of purchased energy--and do not affect net income. However, cash flow is affected by the economic loss from untimely recovery of these receivables. In May 2001, the Company implemented a Fuel Cost Recovery (FCR) rate increase under a Georgia Public Service Commission (GPSC) rate order. The order established a new fuel rate to better reflect current fuel costs and to collect the under-recovered balance. The GPSC-approved FCR anticipated a three year recovery of the under-recovered fuel balance. Due to the current year decreases in fuel costs, the Company recovered approximately 70 percent of this balance by year-end 2001. Revenues from sales to utilities outside the service area under long-term contracts consist of capacity and energy components. These transactions do not have a significant impact on earnings. Sales to affiliated companies within the Southern electric system vary from year to year depending on demand and the availability and cost of generating resources at each company. These energy sales do not have a significant impact on earnings. Energy Sales Changes in revenues are influenced heavily by the amount of energy sold each year. Kilowatt-hour (KWH) sales for 2001 and the percent change by year were as follows: KWH Percent Change ------------- ------------------- 2001 2001 2000 ------------- ------------------- (in millions) Residential 1,659 (0.7)% 5.8% Commercial 1,388 1.4 6.3 Industrial 788 (1.6) 12.2 Other 134 (1.4) 2.5 ------------- Total retail 3,969 (0.2) 7.1 Sales for resale -- Non-affiliates 111 43.4 50.3 Affiliates 88 (1.0) 15.1 ------------- Total 4,168 0.6% 7.8% =========================================================== Total retail energy sales in 2001 decreased slightly from the prior year. Residential sales decreased reflecting mild weather, somewhat offset by continued growth in customers. Industrial sales decreased reflecting a slowing of the economy. Commercial energy sales increased 1.4 percent reflecting continued customer growth. II-183 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 2001 Annual Report In 2000, total retail energy sales were up by 7.1 percent from the prior year, reflecting increased energy sales of 12.2 percent to industrial customers due to the re-opening of an industrial facility under new ownership. Residential and commercial energy sales also increased reflecting weather related demand and customer growth. Expenses Total operating expenses for 2001 were $234.3 million, a decrease of $9.0 million from the prior year due primarily to decreases in fuel expense and purchased power from both affiliates and non-affiliates. The decrease in fuel expense is attributable to a decrease in generation and lower fuel costs. Purchased power decreased due principally to lower energy costs. Other operation expense was lower reflecting decreased costs associated with discontinuation of a marketing program and lower administrative and general expenses. Maintenance expense increased from 2000 reflecting higher power delivery costs to support improved customer reliability. In 2000, total operating expenses were $243.3 million, an increase of $41.8 million from the prior year. This increase was due primarily to increases in purchased power from both affiliates and non-affiliates and fuel expense. Purchased power increased due principally to higher energy costs. Other operation expense was higher reflecting increased benefit expenses. Maintenance expense increased from 1999 reflecting higher power delivery and power generation maintenance costs to support improved customer reliability and unit availability, respectively. Depreciation and amortization increased reflecting additional depreciation charges related to the GPSC accounting order. See Note 3 to the financial statements for additional information on the GPSC's 1998 accounting order. Fuel and purchased power costs constitute the single largest expense for the Company. The mix of energy supply is determined primarily by system load, the unit cost of fuel consumed, and the availability of units. The amount and sources of energy supply and the total average cost of energy supply were as follows: 2001 2000 1999 -------------------------- Total energy supply (millions of KWHs) 4,310 4,286 4,039 Sources of energy supply (percent) -- Coal 50 52 45 Oil 1 2 2 Gas 3 5 10 Purchased Power 46 41 43 Total average cost of energy supply (cents) 2.87 3.09 2.44 - ----------------------------------------------------------------- Effects of Inflation The Company is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the Company is recovering its costs of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on the Company because of the large investment in utility plant with long economic lives. Conventional accounting for historical cost does not recognize this economic loss nor the partially offsetting gain that arises through financing facilities with fixed-money obligations such as long-term debt and trust preferred securities. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. Future Earnings Potential General The results of operations for the past three years are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors ranging from energy sales growth to a less regulated, more competitive environment. Future earnings in the near term will depend upon growth in energy sales, which is subject to a number of factors. These factors include weather, competition, new short and long-term contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, and the rate of economic growth in the Company's service area. II-184 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 2001 Annual Report The Company currently operates as a vertically integrated utility providing electricity to customers within the traditional service area of southeastern Georgia. Prices for electricity provided by the Company to retail customers are set by the GPSC. Prices for electricity relating to jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power are set by the Federal Energy Regulatory Commission (FERC). As part of the Company's retail rate settlement in 1992, it was informally agreed that the Company's earned rate of return on common equity should be 12.95 percent. In 1998, the GPSC issued a four-year accounting order settling its review of the Company's earnings. See Note 3 to the financial statements for additional information. Southern Power Company, a new Southern Company affiliate formed in 2001 to construct, own, and manage wholesale generating assets in the Southeast, is currently constructing two 566 megawatt combined cycle units at Plant Wansley to begin operation in 2002. The GPSC has certified the Company's purchase of 200 megawatts of capacity from these units to serve its retail customers for approximately seven years. The Company filed a base rate case on November 30, 2001 for the first time since 1985. The primary reason for this base rate case is to recover significant new costs related to the Plant Wansley power purchase agreement beginning June 2002, as well as other operation and maintenance expense changes. The requested increase is 7.6 percent of total rates (base plus fuel). In the filing, the Company announced it would file for a fuel decrease in early 2002 to offset most, if not all, of the base rate increase. The Company is involved in various matters being litigated. See Note 3 to the financial statements for information regarding material issues that could possibly affect future earnings. Compliance costs related to current and future environmental laws and regulations could affect earnings if such costs are not fully recovered. The Clean Air Act and other important environmental items are discussed under "Environmental Matters." Industry Restructuring The electric utility industry in the United States is currently undergoing a period of dramatic change as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). The Energy Act allows independent power producers (IPPs) to access the Company's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for industrial and commercial customers and sell energy generation to other utilities. Also, electricity sales for resale rates are affected by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. Although the Energy Act does not permit retail customer access, it was a major catalyst for the current restructuring and consolidation taking place within the utility industry. Numerous federal and state initiatives are in varying stages to promote wholesale and retail competition. Among other things, these initiatives allow customers to choose their electricity provider. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While the GPSC has held workshops to discuss retail competition and industry restructuring, there has been no proposed or enacted legislation to date in Georgia. Enactment would require numerous issues to be resolved, including significant ones relating to recovery of any stranded investments, full cost recovery of energy produced, and other issues related to the energy crisis that occurred in California. As a result of that crisis, many states have either discontinued or delayed implementation of initiatives involving retail deregulation. The Company does compete with other electric suppliers within the state. In Georgia, most new retail customers with at least 900 kilowatts of connected load may choose their electricity supplier. In December 1999, the FERC issued its final rule on Regional Transmission Organizations (RTOs). The order encouraged utilities owning transmission systems to form RTOs on a voluntary basis. Southern Company and its operating companies, including the Company, have submitted a series of status reports informing the II-185 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 2001 Annual Report FERC of progress toward the development of a Southeastern RTO. In these status reports, Southern Company explained that it is developing a for-profit RTO known as SeTrans with a number of non-jurisdictional cooperative and public power entities. Recently, Entergy Corporation and Cleco Power joined the SeTrans development process. In January 2002, the sponsors of SeTrans held a public meeting to form a Stakeholder Advisory Committee, which will participate in the development of the RTO. Southern Company continues to work with the other sponsors to develop the SeTrans RTO. The creation of SeTrans is not expected to have a material impact on Southern Company's financial statements. The outcome of this matter cannot now be determined. Accounting Policies Critical Policy The Company's significant accounting policies are described in Note 1 to the financial statements. The Company's most critical accounting policy involves rate regulation. The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of the Company's operations is no longer subject to these provisions, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable and determine if any other assets have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. New Accounting Standards Effective January 2001, the Company adopted FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. Statement No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. This statement requires that certain derivative instruments be recorded in the balance sheet as either an asset or liability measured at fair value, and that changes in the fair value be recognized currently in earnings unless specific hedge accounting criteria are met. See Note 1 to the financial statements under "Financial Instruments" for additional information. The impact on net income in 2001 was not material. An additional interpretation of Statement No. 133 will result in a change -- effective April 1, 2002 -- in accounting for certain contracts related to fuel supplies that contain quantity options. These contracts will be accounted for as derivatives and marked to market. However, due to the existence of the Company's cost-based fuel recovery clause, this change is not expected to have a material impact on net income. On June 1, 2001, the Company implemented a natural gas/oil hedging program which was ordered by the GPSC as part of the fuel cost recovery increase filing. The maximum annual dollar amount of the hedges recoverable through the fuel cost recovery clause is 10 percent of the annual gas/oil budget or $1.5 million for 2001 and $2.4 million for 2002. In June 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible Assets, which establishes new accounting and reporting standards for acquired goodwill and other intangible assets and supersedes Accounting Principles Board Opinion No. 17. Statement No. 142 addresses how intangible assets that are acquired individually or with a group of other assets -- but not those acquired in a business combination -- should be accounted for upon acquisition and on an ongoing basis. Goodwill and intangible assets that have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. Intangible assets that have finite useful lives will continue to be amortized over their useful lives, which are no longer limited to 40 years. The Company adopted Statement No. 142 in January 2002 with no material impact on the financial statements. Also in June 2001, the FASB issued Statement No. 143, Asset Retirement Obligations, which establishes new accounting and reporting standards for legal obligations associated with retiring assets, including decommissioning of nuclear plants. The liability 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. Changes in the liability resulting from the passage of time will be recognized as operating expenses. Statement No. 143 must be adopted by January 1, 2003. The Company has not yet quantified the impact of adopting Statement No. 143 on its financial statements. II-186 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 2001 Annual Report FINANCIAL CONDITION - ------------------- Overview The principal change in the Company's financial condition in 2001 was the addition of $31.3 million to utility plant. The funds needed for gross property additions are currently provided from operating activities, principally from earnings, and non-cash charges to income such as depreciation and deferred income taxes and from financing activities. See Statements of Cash Flows for additional information. Credit Rating Risk The Company 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 Due to cost-based regulation, the Company has limited exposure to market volatility in interest rates, commodity fuel prices, and prices of electricity. To mitigate residual risks relative to movements in electricity prices, the Company enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market. At December 31, 2001, exposure from these activities was not material to the Company's financial statements. Also, if the Company sustained a 100 basis point change in interest rates for all variable rate long-term debt, the change would affect annualized interest expense by approximately $0.2 million at December 31, 2001. Fair values of changes in energy trading contracts and year-end valuations are as follows: Changes During the Year ------------------- Fair Value - -------------------------------------------------------------- (in thousands) Contracts beginning of year $ 36 Contracts realized or settled (32) New contracts at inception - Changes in valuation techniques - Current period changes (1,057) - -------------------------------------------------------------- Contracts end of year $(1,053) ============================================================== Source of Year-End Valuation Prices --------------------------------- Maturity Total -------------------- Fair Value Year 1 1-3 Years - --------------------------------------------------------------- (in thousands) - --------------------------------------------------------------- Actively quoted $(1,053) $(1,051) $(2) External sources - - - Models and other methods - - - - --------------------------------------------------------------- Contracts end of Year $(1,053) $(1,051) $(2) =============================================================== For additional information, see Note 1 to the financial statements under "Financial Instruments." Capital Structure As of December 31, 2001, the Company's capital structure consisted of 46.8 percent common stockholder's equity, 10.6 percent trust preferred securities, and 42.6 percent long-term debt, excluding amounts due within one year. Maturities and retirements of long-term debt were $50.7 million in 2001, $0.4 million in 2000, and $16.2 million in 1999. In May 2001, the Company issued $20 million of series B 5.12% senior notes maturing in 2003 and $45 million of series C 6.55% senior notes maturing in 2008. The Company used these proceeds to redeem its $20 million 6 3/8 Series First Mortgage Bonds due in 2003, to repay long-term bank loans in the amount of $30 million, and to repay a portion of its short-term indebtedness. The composite interest rates and dividend rates for the years 1999 through 2001 as of year-end were as follows: 2001 2000 1999 ------------------------------- Composite interest rates on long-term debt 5.9% 6.6% 6.4% Trust preferred securities dividend rate 6.9% 6.9% 6.9% - ----------------------------------------------------------------- Capital Requirements for Construction The Company's projected construction expenditures for the next three years total $115.7 million ($34.8 million in 2002, $37.6 million in 2003, and $43.3 million in 2004). Actual construction costs may vary from this estimate because of II-187 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 2001 Annual Report factors such as changes in: business conditions; environmental regulations; load projections; the cost and efficiency of construction labor, equipment and materials; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. Construction and upgrading of new and existing transmission and distribution facilities and upgrading of generating plants will be continuing. Other Capital Requirements In addition to the funds needed for the construction program, approximately $22.5 million will be needed by the end of 2004 for maturities of long-term debt and present sinking fund requirements. Capital requirements, lease obligations, and purchase commitments - discussed in Notes 4 and 6 to the financial statements -- are as follows: 2002 2003 2004 ------------------------------------------------------------ (in thousands) Notes $ - $20,000 $ - Bonds - First mortgage 436 - - Pollution control - - - Leases - Capital 742 688 627 Operating 429 429 429 Purchase commitments Fuel 34,000 300 300 Purchased power 9,944 13,640 13,656 - ------------------------------------------------------------- Credit arrangements at the beginning of 2002, are as follows: Expires --------------------------------- Total 2002 2003 --------------------------------------------------------- (in thousands) $65,500 $45,500 $20,000 - ---------------------------------------------------------- For additional information, see Note 6 to the financial statements under "Bank Credit Arrangements". Environmental Matters On November 3, 1999, the Environmental Protection Agency (EPA) brought a civil action in the U.S. District Court against Alabama Power, Georgia Power, and the system service company. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The EPA concurrently issued to Southern Company's operating companies a notice of violation related to 10 generating facilities, which includes the five facilities mentioned previously and the Company's Plant Kraft. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation, and to add Gulf Power, Mississippi Power, and the Company as defendants. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution control equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. The U.S. District Court in Georgia granted Alabama Power's motion to dismiss for lack of jurisdiction in Georgia and granted the system service company's motion to dismiss on the grounds that it neither owned nor operated the generating units involved in the proceedings. The court granted the EPA's motion to add the Company as a defendant, but it denied the motion to add Gulf Power and Mississippi Power based on lack of jurisdiction over those companies. The court directed the EPA to re-file its amended complaint limiting claims to those brought against Georgia Power and the Company. The EPA re-filed those claims as directed by the court. Also, the EPA re-filed its claims against Alabama Power in U.S. District Court in Alabama. It has not re-filed against Gulf Power, Mississippi Power, or the system service company. The Alabama Power, Georgia Power, and the Company's cases have been stayed since the spring of 2001, pending a ruling by the U.S. Court of Appeals for the Eleventh Circuit in the appeal of a very similar New Source Review enforcement action against the Tennessee Valley Authority (TVA). The TVA case involves many of the same legal issues raised by the actions against Alabama Power, Georgia Power, and the Company. Because the outcome of II-188 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 2001 Annual Report the TVA case could have a significant adverse impact on Alabama Power and Georgia Power, both companies are parties to that case as well. The U.S. District Court in Alabama has indicated that it will revisit the issue of a continued stay in April 2002. The U.S. District Court in Georgia is currently considering a motion by the EPA to reopen the Georgia case. Georgia Power and the Company have opposed that motion. The Company believes that it complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. The Clean Air Act authorizes civil penalties of up to $27,500 per day per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. In November 1990, the Clean Air Act Amendments of 1990 (Clean Air Act) were signed into law. Title IV of the Clean Air Act--the acid rain compliance provision of the law--significantly affected the Company and other subsidiaries of Southern Company. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants were required in two phases. Phase I compliance began in 1995. Southern Company's subsidiaries, including the Company, achieved Phase I compliance at the affected plants by primarily switching to low-sulfur coal and with some equipment upgrades. The construction expenditures for Phase I compliance totaled approximately $2 million for the Company. Phase II sulfur dioxide compliance was required in 2000. Southern Company used emission allowances and fuel switching to comply with Phase II requirements. Phase II compliance had no significant impact on the Company. A significant portion of costs related to the acid rain and ozone non-attainment provisions of the Clean Air Act is expected to be recovered through existing ratemaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. In July 1997, the EPA revised the national ambient air quality standards for ozone and particulate matter. This revision made the standards significantly more stringent. In the subsequent litigation of these standards, the U.S. Supreme Court found the EPA's implementation program for the new ozone standard unlawful and remanded it to the EPA. In addition, the Federal District of Columbia Circuit Court of Appeals is considering other legal challenges to these standards. If the standards are eventually upheld, implementation could be required by 2007 to 2010. In September 1998, the EPA issued regional nitrogen oxide reduction rules to the states for implementation. The final rule affects 21 states, including Georgia. Compliance is required by May 31, 2004 for most states. For Georgia, further rulemaking was required, and proposed compliance was delayed until May 1, 2005. In December 2000, having completed its utility studies for mercury and other hazardous air pollutants (HAPS), the EPA issued a determination that an emission control program for mercury and, perhaps, other HAPS is warranted. The program is being developed under the Maximum Achievable Control Technology provisions of the Clean Air Act, and the regulations are scheduled to be finalized by the end of 2004 with implementation to take place around 2007. In January 2001, the EPA proposed guidance for the determination of Best Available Retrofit Technology (BART) emission controls under the Regional Haze Regulations. Installation of BART controls is expected to take place around 2010. Litigation of the Regional Haze Regulations, including the BART provisions, is ongoing in the Federal District of Columbia Circuit Court of Appeals. A court decision is expected in mid-2002. Implementation of the final state rules for these initiatives could require substantial further reductions in nitrogen oxide and sulfur dioxide and reductions in mercury and other HAPS emissions from fossil-fired generating facilities and other industries in these states. Additional compliance costs and capital expenditures resulting from the implementation of these rules and standards cannot be determined until the results of legal challenges are known, and the states have adopted their final rules. II-189 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 2001 Annual Report In October 1997, the EPA issued regulations setting forth requirements for Compliance Assurance Monitoring (CAM) in its state and federal operating permit programs. These regulations were amended by the EPA in March 2001 in response to a court order resolving challenges to the rules brought by environmental groups and industry. Generally, this rule affects the operation and maintenance of electrostatic precipitators and could involve significant additional ongoing expense. The EPA and state environmental regulatory agencies are reviewing and evaluating various other matters including: control strategies to reduce regional haze; limits on pollutant discharges to impaired waters; cooling water intake restrictions; and hazardous waste disposal requirements. The impact of any new standards will depend on the development and implementation of applicable regulations. The Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the Company could incur substantial costs to clean up properties. The Company conducts studies to determine the extent of any required cleanup and will recognize in the financial statements costs to clean up known sites. Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of the Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electromagnetic fields, and other environmental and health concerns could significantly affect the Company. The impact of new legislation--if any--will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electromagnetic fields. Sources of Capital At December 31, 2001, the Company had $65.5 million of short-term and revolving credit arrangements with banks to meet its short-term cash needs and to provide additional interim funding for the Company's construction program. Revolving credit arrangements total $20 million, of which $10 million expires April 30, 2003 and $10 million expires December 31, 2003. The Company may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper at the request and for the benefit of the Company and the other Southern Company operating companies. At December 31, 2001, the Company had outstanding $32.2 million of commercial paper. The Company's committed credit arrangements provide liquidity support to the Company's variable rate obligations and to its commercial paper program. The amount of variable rate obligations outstanding at December 31, 2001 was $22.6 million. It is anticipated that the funds required for construction and other purposes, including compliance with environmental regulations, will be derived from sources similar to those used in the past. These sources were primarily from the issuances of first mortgage bonds, other long-term debt, and preferred stock, in addition to pollution control revenue bonds issued for the Company's benefit by public authorities, to meet long-term external financing requirements. Recently, the Company's financings have consisted of unsecured debt and trust preferred securities. The Company is required to meet certain earnings coverage requirements specified in its mortgage indenture and corporate charter to issue new first mortgage bonds and preferred stock. The Company's coverage ratios are sufficiently high to permit, at present interest rate levels, any foreseeable security sales. There are no restrictions on the amount of unsecured indebtedness allowed. The amount of securities which the Company will be permitted to issue in the future will depend upon market conditions and other factors prevailing at that time. II-190 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 2001 Annual Report Cautionary Statement Regarding Forward-Looking Information This Annual Report includes forward-looking statements in addition to historical information. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "could," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "projects," "potential" or "continue" or the negative of these terms or other comparable terminology. The Company cautions 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 the Company is subject, as well as changes in application of existing laws and regulations; current and future litigation, including the pending EPA civil action against the Company; the effects, extent, and timing of the entry of additional competition in the markets of the Company; 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; 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; the effects of, and changes in, economic conditions in the United States; the direct or indirect effects on the 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 ability of the Company 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 by the Company with the Securities and Exchange Commission. II-191
STATEMENTS OF INCOME For the Years Ended December 31, 2001, 2000, and 1999 Savannah Electric and Power Company 2001 Annual Report - --------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues: Retail sales $269,172 $282,622 $242,265 Sales for resale -- Non-affiliates 8,884 4,748 3,395 Affiliates 3,205 4,974 4,151 Other revenues 2,591 3,374 1,783 - --------------------------------------------------------------------------------------------------------------------- Total operating revenues 283,852 295,718 251,594 - --------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 50,796 57,177 50,530 Purchased power -- Non-affiliates 23,147 25,229 14,398 Affiliates 49,939 50,111 33,398 Other 50,607 53,086 50,341 Maintenance 19,886 19,334 16,333 Depreciation and amortization (Note 3) 25,951 25,240 23,841 Taxes other than income taxes 13,984 13,116 12,690 - --------------------------------------------------------------------------------------------------------------------- Total operating expenses 234,310 243,293 201,531 - --------------------------------------------------------------------------------------------------------------------- Operating Income 49,542 52,425 50,063 Other Income (Expense): Interest income 173 252 169 Other, net (686) (657) (663) - --------------------------------------------------------------------------------------------------------------------- Earnings Before Interest and Income Taxes 49,029 52,020 49,569 - --------------------------------------------------------------------------------------------------------------------- Interest and Other: Interest expense, net 12,517 12,737 11,938 Distributions on preferred securities of subsidiary 2,740 2,740 2,740 - --------------------------------------------------------------------------------------------------------------------- Total interest and other, net 15,257 15,477 14,678 - --------------------------------------------------------------------------------------------------------------------- Earnings Before Income Taxes 33,772 36,543 34,891 Income taxes (Note 5) 11,731 13,574 11,808 - --------------------------------------------------------------------------------------------------------------------- Earnings Before Cumulative Effect of 22,041 22,969 23,083 Accounting Change Cumulative effect of accounting change-- less income taxes of $14 thousand 22 - - - --------------------------------------------------------------------------------------------------------------------- Net Income $ 22,063 $ 22,969 $ 23,083 ===================================================================================================================== The accompanying notes are an integral part of these statements.
II-192
STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2001, 2000, and 1999 Savannah Electric and Power Company 2001 Annual Report - --------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $22,063 $22,969 $23,083 Adjustments to reconcile net income to net cash provided from operating activities -- Depreciation and amortization 27,895 26,639 25,454 Deferred income taxes and investment tax credits, net (20,528) 728 (3,353) Other, net 4,084 3,835 (47) Changes in certain current assets and liabilities -- Receivables, net 24,079 (23,260) (5,999) Fossil fuel stock (2,711) (31) (2,125) Materials and supplies (4,025) (542) (1,906) Accounts payable (8,439) 8,881 1,133 Other 12,631 (4,674) 1,731 - --------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 55,049 34,545 37,971 - --------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (31,296) (27,290) (29,833) Other (1,875) (1,835) (1,715) - --------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (33,171) (29,125) (31,548) - --------------------------------------------------------------------------------------------------------------------------- Financing Activities: Increase (decrease) in notes payable, net (13,241) 11,100 34,300 Proceeds -- Other long-term debt 65,000 - - Capital contributions from parent company 1,561 1,478 1,099 Retirements -- First mortgage bonds (20,642) - (15,800) Other long-term debt (30,071) (251) (481) Payment of common stock dividends (21,700) (24,300) (25,200) Other (394) - 250 - --------------------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (19,487) (11,973) (5,832) - --------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents 2,391 (6,553) 591 Cash and Cash Equivalents at Beginning of Period - 6,553 5,962 - --------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Period $ 2,391 $ - $ 6,553 =========================================================================================================================== Supplemental Cash Flow Information: Cash paid during the period for -- Interest (net of amount capitalized) $15,340 $13,329 $14,212 Income taxes (net of refunds) $21,034 $19,939 $12,647 - --------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
II-193
BALANCE SHEETS At December 31, 2001 and 2000 Savannah Electric and Power Company 2001 Annual Report - ----------------------------------------------------------------------------------------------------------------------- Assets 2001 2000 - ----------------------------------------------------------------------------------------------------------------------- (in thousands) Current Assets: Cash and cash equivalents $ 2,391 $ - Receivables -- Customer accounts receivable 29,959 28,189 Under-recovered retail fuel clause revenue 11,974 39,632 Other accounts and notes receivable 2,882 1,412 Affiliated companies 1,170 738 Accumulated provision for uncollectible accounts (500) (407) Fossil fuel stock, at average cost 9,851 7,140 Materials and supplies, at average cost 12,969 8,944 Prepaid taxes 12,511 8,651 Other 586 377 - ----------------------------------------------------------------------------------------------------------------------- Total current assets 83,793 94,676 - ----------------------------------------------------------------------------------------------------------------------- Property, Plant, and Equipment: In service (Note 6) 855,290 829,270 Less accumulated provision for depreciation 402,492 382,030 - ----------------------------------------------------------------------------------------------------------------------- 452,798 447,240 Construction work in progress 8,540 6,782 - ----------------------------------------------------------------------------------------------------------------------- Total property, plant, and equipment 461,338 454,022 - ----------------------------------------------------------------------------------------------------------------------- Other Property and Investments 2,742 2,066 - ----------------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes (Note 5) 12,283 12,404 Cash surrender value of life insurance for deferred compensation plans 20,002 17,954 Debt expense, being amortized 3,197 3,003 Premium on reacquired debt, being amortized 6,890 7,575 Other 4,498 2,527 - ----------------------------------------------------------------------------------------------------------------------- Total deferred charges and other assets 46,870 43,463 - ----------------------------------------------------------------------------------------------------------------------- Total Assets $594,743 $594,227 ======================================================================================================================= The accompanying notes are an integral part of these balance sheets.
II-194
BALANCE SHEETS At December 31, 2001 and 2000 Savannah Electric and Power Company 2001 Annual Report - -------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholder's Equity 2001 2000 - -------------------------------------------------------------------------------------------------------------------- (in thousands) Current Liabilities: Securities due within one year (Note 6) $ 1,178 $ 30,698 Notes payable 32,159 45,400 Accounts payable -- Affiliated 5,087 16,153 Other 10,160 7,738 Customer deposits 6,237 5,696 Taxes accrued -- Income taxes 2,587 3,450 Other 1,668 1,435 Interest accrued 4,014 4,541 Vacation pay accrued 2,361 2,276 Other 9,097 7,973 - -------------------------------------------------------------------------------------------------------------------- Total current liabilities 74,548 125,360 - -------------------------------------------------------------------------------------------------------------------- Long-term debt (See accompanying statements) 160,709 116,902 - -------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 5) 77,331 79,756 Deferred credits related to income taxes (Note 5) 13,776 16,038 Accumulated deferred investment tax credits (Note 5) 9,952 10,616 Deferred compensation plans 8,550 7,695 Employee benefits provisions (Note 2) 18,936 13,509 Other 14,023 9,357 - -------------------------------------------------------------------------------------------------------------------- Total deferred credits and other liabilities 142,568 136,971 - -------------------------------------------------------------------------------------------------------------------- Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding company junior subordinated notes (See accompanying statements) (Note 6) 40,000 40,000 - -------------------------------------------------------------------------------------------------------------------- Common stockholder's equity (See accompanying statements) 176,918 174,994 - -------------------------------------------------------------------------------------------------------------------- Total Liabilities and Stockholder's Equity $594,743 $594,227 ==================================================================================================================== The accompanying notes are an integral part of these balance sheets.
II-195
STATEMENTS OF CAPITALIZATION At December 31, 2001 and 2000 Savannah Electric and Power Company 2001 Annual Report - --------------------------------------------------------------------------------------------------------------------------- 2001 2000 2001 2000 - --------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Long-Term Debt (Note 6): First mortgage bonds -- Maturity Interest Rates -------- -------------- July 1, 2003 6.375% $ - $ 20,000 May 1, 2006 6.90% 20,000 20,000 July 1, 2023 7.40% 23,558 24,200 - --------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 43,558 64,200 - --------------------------------------------------------------------------------------------------------------------------- Long-term notes payable -- 6.88% due June 1, 2001 - 10,000 5.12% due May 15, 2003 20,000 - 6.55% due May 15, 2008 45,000 - 6.625% due March 17, 2015 30,000 30,000 Adjustable rates (6.71% to 6.86% at 1/1/01) due 2001 - 20,000 - --------------------------------------------------------------------------------------------------------------------------- Total long-term notes payable 95,000 60,000 - --------------------------------------------------------------------------------------------------------------------------- Other long-term debt -- Pollution control revenue bonds -- Non-collateralized: Variable rates (1.90% at 1/1/02) due 2016-2037 17,955 17,955 - --------------------------------------------------------------------------------------------------------------------------- Total other long-term debt 17,955 17,955 - --------------------------------------------------------------------------------------------------------------------------- Capitalized lease obligations 5,374 5,445 - --------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $9.6 million) 161,887 147,600 Less amount due within one year (Note 6) 1,178 30,698 - --------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year 160,709 116,902 42.6% 35.2% - --------------------------------------------------------------------------------------------------------------------------- Company Obligated Mandatorily Redeemable Preferred Securities (Note 6): $25 liquidation value -- 6.85% 40,000 40,000 - --------------------------------------------------------------------------------------------------------------------------- Total (annual distribution requirement -- $2.7 million) 40,000 40,000 10.6 12.1 - --------------------------------------------------------------------------------------------------------------------------- Common Stockholder's Equity (Note 6): Common stock, par value $5 per share -- Authorized - 16,000,000 shares Outstanding - 10,844,635 shares in 2001 and 2000 Par value 54,223 54,223 Paid-in capital 12,826 11,265 Retained earnings 109,869 109,506 - --------------------------------------------------------------------------------------------------------------------------- Total common stockholder's equity 176,918 174,994 46.8 52.7 - --------------------------------------------------------------------------------------------------------------------------- Total Capitalization $377,627 $331,896 100.0% 100.0% =========================================================================================================================== The accompanying notes are an integral part of these statements.
II-196
STATEMENTS OF COMMON STOCKHOLDER'S EQUITY For the Years Ended December 31, 2001, 2000, and 1999 Savannah Electric and Power Company 2001 Annual Report - ---------------------------------------------------------------------------------------------------------------------- Common Paid-In Retained Stock Capital Earnings Total - ---------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at January 1, 1999 $54,223 $ 8,688 $112,954 $175,865 Net income - - 23,083 23,083 Capital contributions from parent company - 1,099 - 1,099 Cash dividends on common stock - - (25,200) (25,200) - ---------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 54,223 9,787 110,837 174,847 Net income - - 22,969 22,969 Capital contributions from parent company - 1,478 - 1,478 Cash dividends on common stock - - (24,300) (24,300) - ---------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 54,223 11,265 109,506 174,994 Net income - - 22,063 22,063 Capital contributions from parent company - 1,561 - 1,561 Cash dividends on common stock - - (21,700) (21,700) - ---------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2001 (Note 6) $54,223 $12,826 $109,869 $176,918 ====================================================================================================================== The accompanying notes are an integral part of these statements.
II-197 NOTES TO FINANCIAL STATEMENTS Savannah Electric and Power Company 2001 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Savannah Electric and Power Company (the Company) is a wholly owned subsidiary of Southern Company, which is the parent company of five operating companies, a system service company, Southern Communications Services (Southern LINC), Southern Nuclear Operating Company (Southern Nuclear), Southern Power Company (Southern Power), and other direct and indirect subsidiaries. The operating companies provide electric service in four states. Contracts among the operating companies--related to jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power--are regulated by the Federal Energy Regulatory Commission (FERC) and/or the Securities and Exchange Commission. The system service company provides, at cost, specialized services to Southern Company and subsidiary companies. Southern LINC provides digital wireless communications services to the operating companies and also markets these services to the public within the Southeast. Southern Nuclear provides services to Southern Company's nuclear power plants. Southern Power was established in 2001 to construct, own, and manage Southern Company's competitive generation assets and sell electricity at market-based rates in the wholesale market. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries are subject to the regulatory provisions of the PUHCA. The Company also is subject to regulation by the FERC and the Georgia Public Service Commission (GPSC). The Company follows accounting principles generally accepted in the United States and complies with the accounting policies and practices prescribed by the GPSC. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates, and the actual results may differ from those estimates. Certain prior years' data presented in the financial statements has been reclassified to conform with the current year presentation. Affiliate Transactions The Company has an agreement with the system service company under which the following services are rendered to the Company at cost: general and design engineering, purchasing, accounting and statistical, finance and treasury, tax, information resources, marketing, auditing, insurance and employee benefits, human resources, systems and procedures, and other administrative services with respect to business and operations and power pool operations. Costs for these services amounted to $15.0 million, $15.1 million, and $16.0 million during 2001, 2000, and 1999, respectively. Regulatory Assets and Liabilities The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues to the Company associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are expected to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Balance Sheets at December 31 relate to: 2001 2000 -------------------------- (in thousands) Deferred income tax charges $ 12,283 $ 12,404 Premium on reacquired debt 6,890 7,575 Gas by-pass facility 209 299 Deferred income tax credits (13,776) (16,038) Storm damage reserves (4,228) (2,733) Accelerated depreciation (8,000) (5,500) - --------------------------------------------------------------- Total $ (6,622) $ (3,993) =============================================================== In the event that a portion of the Company's operations is no longer subject to the provisions of FASB Statement No. 71, the Company would be required to write off related regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the Company would be required to determine if any impairment to other assets exists, including plant, and write down the assets, if impaired, to their fair value. Revenues and Fuel Costs The Company currently operates as a vertically integrated utility providing electricity to retail customers within its traditional service area of southeastern Georgia and to wholesale customers in the Southeast. II-198 NOTES (continued) Savannah Electric and Power Company 2001 Annual Report Revenues are recognized as services are rendered. Unbilled revenues are accrued at the end of each fiscal period. Fuel costs are expensed as the fuel is used. Electric rates for the Company include provisions to adjust billings for fluctuations in fuel costs, the energy component of purchased power costs, and certain other costs. Revenues are adjusted for differences between recoverable fuel costs and amounts actually recovered in current regulated rates. The Company has a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. For all periods presented, uncollectible accounts averaged less than 1 percent of revenues. In 2001, the GPSC approved an increase in the Company's fuel cost recovery rate amounting to a total average annual rate increase of 18 percent for all customer classes. An increase of slightly over one-third of a cent per kilowatt-hour was approved in 2000. Depreciation and Amortization Depreciation of the original cost of plant in service is provided primarily by using composite straight-line rates, which approximated 3.0 percent in 2001, 2000, and 1999. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its cost--together with the cost of removal, less salvage--is charged to the accumulated provision for depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Depreciation expense includes an amount for the expected cost of removal of certain facilities. In 2001, 2000, and 1999, the Company recorded accelerated depreciation of $2.5 million, $2.5 million, and $2.0 million, respectively, in accordance with the GPSC's 1998 rate order. See Note 3 to the financial statements for more information. Income Taxes The Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. Allowance for Funds Used During Construction (AFUDC) AFUDC represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new facilities. While cash is not realized currently from such allowance, it increases the revenue requirement over the service life of the plant through a higher rate base and higher depreciation expense. The composite rates used by the Company to calculate AFUDC were 5.13 percent in 2001, 6.87 percent in 2000, and 6.26 percent in 1999. Property, Plant, and Equipment Property, plant, and equipment is stated at original cost less regulatory disallowances and impairments. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits, and AFUDC. The cost of maintenance, repairs, and replacement of minor items of property is charged to maintenance expense. The cost of replacements of property exclusive of minor items of property is capitalized. Cash and Cash Equivalents For purposes of the financial statements, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. Materials and Supplies Generally, materials and supplies include the costs of transmission, distribution, and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when installed. Financial Instruments Effective January 2001, the Company adopted FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. The impact on net income was immaterial. The Company uses derivative financial instruments to hedge exposure to fluctuations in certain commodity prices. Gains and losses on qualifying hedges are deferred and recognized either as income or as an adjustment to the carrying amount of the hedged item when the transaction occurs. II-199 NOTES (continued) Savannah Electric and Power Company 2001 Annual Report The Company is exposed to losses related to financial instruments in the event of counterparties' nonperformance. The Company has established controls to determine and monitor the creditworthiness of counterparties in order to mitigate the Company's exposure to counterparty credit risk. The five operating companies and Southern Power enter into commodity related forward and option contracts to limit exposure to changing prices on certain fuel purchases and electricity purchases and sales. Substantially all of Southern Company's bulk energy purchases and sales contracts meet the definition of a derivative under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. In many cases, these fuel and electricity contracts qualify for normal purchase and sale exceptions under Statement No. 133 and are accounted for under the accrual method. Other contracts qualify as cash flow hedges of anticipated transactions, resulting in the deferral of related gains and losses, and are recorded in other comprehensive income until the hedged transactions occur. Any ineffectiveness is recognized currently in net income. Contracts that do not qualify for the normal purchase and sale exception and that do not meet the hedge requirements are marked to market through current period income. On June 1, 2001, the Company implemented a natural gas/oil hedging program which was ordered by the GPSC as part of the fuel cost recovery increase filing. The maximum annual dollar amount of the hedges recoverable through the fuel cost recovery clause is 10 percent of the annual gas/oil budget or $1.5 million for 2001 and $2.4 million for 2002. The Company's other financial instruments for which the carrying amounts did not equal fair value at December 31 were as follows: Carrying Fair Amount Value -------------------------- (in millions) Long-term debt: At December 31, 2001 $157 $157 At December 31, 2000 $142 $140 Trust preferred securities: At December 31, 2001 $40 $38 At December 31, 2000 $40 $36 The fair values for long-term debt and trust preferred securities were based on either closing market prices or closing prices of comparable instruments. 2. RETIREMENT BENEFITS The Company has defined benefit, trusteed, non-contributory pension plans that cover substantially all employees. The Company provides certain medical care and life insurance benefits for retired employees. The Company funds trusts to the extent required by the GPSC and the FERC. The measurement date for plan assets and obligations is September 30 of each year. In late 2000, the Company adopted several pension and postretirement benefit plan changes that had the effect of increasing benefits to both current and future retirees. Pension Plans Changes during the year in the projected benefit obligations and in the fair value of plan assets were as follows: Projected Benefit Obligations --------------------------- 2001 2000 - --------------------------------------------------------------- (in thousands) Balance at beginning of year $71,521 $66,509 Service cost 2,074 1,844 Interest cost 5,426 4,854 Benefits paid (3,986) (3,469) Actuarial loss and employee transfers 894 1,564 Amendments 3,621 219 - --------------------------------------------------------------- Balance at end of year $79,550 $71,521 =============================================================== Plan Assets --------------------------- 2001 2000 - --------------------------------========================------- (in thousands) Balance at beginning of year $61,880 $54,480 Actual return on plan assets (8,911) 10,493 Benefits paid (3,570) (3,210) Employee transfers 1,459 117 - ---------------------------------====================---------- Balance at end of year $50,858 $61,880 =============================================================== II-200 NOTES (continued) Savannah Electric and Power Company 2001 Annual Report The accrued pension costs recognized in the Balance Sheets were as follows: 2001 2000 - --------------------------------------------------------------- (in thousands) Funded status $(28,692) $(9,641) Unrecognized transition obligation - 89 Unrecognized prior service cost 7,401 4,391 Unrecognized net loss (gain) 12,336 (235) - --------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $ (8,955) $(5,396) =============================================================== Components of the pension plan's net periodic cost were as follows: 2001 2000 1999 - ----------------------------------------------------------------- (in thousands) Service cost $ 2,074 $ 1,844 $ 1,838 Interest cost 5,426 4,854 4,327 Expected return on plan assets (4,215) (4,174) (4,063) Recognized net loss 16 - 171 Net amortization 700 503 478 - ----------------------------------------------------------------- Net pension cost $ 4,001 $ 3,027 $ 2,751 ================================================================= Postretirement Benefits Changes during the year in the accumulated benefit obligations and in the fair value of plan assets were as follows: Accumulated Benefit Obligations --------------------------- 2001 2000 - --------------------------------------------------------------- (in thousands) Balance at beginning of year $26,124 $22,904 Service cost 433 376 Interest cost 2,022 1,865 Benefits paid (987) (963) Actuarial gain and employee transfers (1,214) (1,367) Amendments 1,743 3,309 - --------------------------------------------------------------- Balance at end of year $28,121 $26,124 =============================================================== Plan Assets --------------------------- 2001 2000 - --------------------------------------------------------------- (in thousands) Balance at beginning of year $6,910 $5,254 Actual return on plan assets (789) 606 Employer contributions 2,267 2,013 Benefits paid (987) (963) - --------------------------------------------------------------- Balance at end of year $7,401 $6,910 =============================================================== The accrued postretirement costs recognized in the Balance Sheets were as follows: 2001 2000 - --------------------------------------------------------------- (in thousands) Funded status $(20,720) $(19,214) Unrecognized transition obligation 5,431 5,925 Unamortized prior service cost 4,691 3,185 Unrecognized net loss 1,831 1,701 Fourth quarter contributions 1,577 1,493 - --------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $ (7,190) $ (6,910) =============================================================== Components of the postretirement plan's net periodic cost were as follows: 2001 2000 1999 - ---------------------------------------------------------------- (in thousands) Service cost $ 433 $ 376 $ 404 Interest cost 2,022 1,865 1,549 Expected return on plan assets (555) (429) (345) Recognized net loss - 66 152 Net amortization 731 618 494 - ---------------------------------------------------------------- Net postretirement cost $2,631 $2,496 $2,254 ================================================================ The weighted average rates assumed in the actuarial calculations for both the pension plan and postretirement benefits plan were: 2001 2000 - ------------------------------------------------------------- Discount 7.50% 7.50% Annual salary increase 5.00 5.00 Long-term return on plan assets 8.50 8.50 - ------------------------------------------------------------- An additional assumption used in measuring the accumulated postretirement benefit obligations was a weighted average medical care cost trend rate of 9.25 percent for 2001, decreasing gradually to 5.25 percent through the year 2010, and remaining at that level thereafter. An annual increase or decrease in the II-201 NOTES (continued) Savannah Electric and Power Company 2001 Annual Report assumed medical care cost trend rate of 1 percent would affect the accumulated benefit obligation and the service and interest cost components at December 31, 2001 as follows: 1 Percent 1 Percent Increase Decrease - --------------------------------------------------------------- (in thousands) Benefit obligation $2,070 $2,051 Service and interest costs 181 179 =============================================================== The Company has a supplemental retirement plan for certain executive employees. The plan is unfunded and payable from the general funds of the Company. The Company has purchased life insurance on participating executives and plans to use these policies to satisfy this obligation. Employee Savings Plan The Company also sponsors a 401(k) defined contribution plan covering substantially all employees. The Company provides a 75 percent matching contribution up to 6 percent of an employee's base salary. Total matching contributions made to the plan for the years 2001, 2000, and 1999 were $1.0 million, $0.9 million, and $0.9 million, respectively. 3. CONTINGENCIES AND REGULATORY MATTERS General The Company is subject to certain claims and legal actions arising in the ordinary course of business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters is not expected to have a material adverse effect on the Company's financial condition. Environmental Litigation On November 3, 1999, the Environmental Protection Agency (EPA) brought a civil action in the U.S. District Court against Alabama Power, Georgia Power, and the system service company. The complaint alleges violations of the prevention of significant deterioration and new source review provisions of the Clean Air Act with respect to five coal-fired generating facilities in Alabama and Georgia. The civil action requests penalties and injunctive relief, including an order requiring the installation of the best available control technology at the affected units. The Clean Air Act authorizes civil penalties of up to $27,500 per day, per violation at each generating unit. Prior to January 30, 1997, the penalty was $25,000 per day. The EPA concurrently issued to the operating companies a notice of violation related to 10 generating facilities, which includes the five facilities mentioned previously and the Company's Plant Kraft. In early 2000, the EPA filed a motion to amend its complaint to add the violations alleged in its notice of violation, and to add Gulf Power, Mississippi Power, and the Company as defendants. The complaint and notice of violation are similar to those brought against and issued to several other electric utilities. These complaints and notices of violation allege that the utilities had failed to secure necessary permits or install additional pollution control equipment when performing maintenance and construction at coal burning plants constructed or under construction prior to 1978. The U.S. District Court in Georgia granted Alabama Power's motion to dismiss for lack of jurisdiction in Georgia and granted the system service company's motion to dismiss on the grounds that it neither owned nor operated the generating units involved in the proceedings. The court granted the EPA's motion to add the Company as a defendant, but it denied the motion to add Gulf Power and Mississippi Power based on lack of jurisdiction over those companies. The court directed the EPA to re-file its amended complaint limiting claims to those brought against Georgia Power and the Company. The EPA re-filed those claims as directed by the court. Also, the EPA re-filed its claims against Alabama Power in U.S. District Court in Alabama. It has not re-filed against Gulf Power, Mississippi Power, or the system service company. The Alabama Power, Georgia Power, and the Company's cases have been stayed since the spring of 2001, pending a ruling by the U.S. Court of Appeals for the Eleventh Circuit in the appeal of a very similar New Source Review enforcement action against the Tennessee Valley Authority (TVA). The TVA case involves many of the same legal issues raised by the actions against Alabama Power, Georgia Power, and the Company. Because the outcome of the TVA case could have a II-202 NOTES (continued) Savannah Electric and Power Company 2001 Annual Report significant adverse impact on Alabama Power and Georgia Power, both companies are parties to that case as well. The U.S. District Court in Alabama has indicated that it will revisit the issue of a continued stay in April 2002. The U.S. District Court in Georgia is currently considering a motion by the EPA to reopen the Georgia case. Georgia Power and the Company have opposed that motion. The Company believes that it complied with applicable laws and the EPA's regulations and interpretations in effect at the time the work in question took place. An adverse outcome of this matter could require substantial capital expenditures that cannot be determined at this time and possibly require payment of substantial penalties. This could affect future results of operations, cash flows, and possibly financial condition if such costs are not recovered through regulated rates. Retail Regulatory Matters Rates to retail customers served by the Company are regulated by the GPSC. As part of the Company's rate settlement in 1992, it was informally agreed that the Company's earned rate of return on common equity should be 12.95 percent. In 1998, the GPSC approved a four-year accounting order for the Company. Under this order, the Company will reduce the electric rates of its small business customers by approximately $11 million over four years. The Company will also expense an additional $1.95 million in storm damage accruals and accrue an additional $8 million in depreciation on generating assets over the term of the order. The additional depreciation will be accumulated in a regulatory liability account to be available to mitigate any potential stranded costs. In addition, the Company has discretionary authority to provide up to an additional $0.3 million per year in storm damage accruals and up to an additional $4.0 million in depreciation expense over the four years. Total storm damages accrued under the order were $1.5 million per year in 2001, 2000, and 1999 which included discretionary expense of $0.3 million in each year. No discretionary depreciation was recorded in the last three years. Over the term of the order, the Company is precluded from asking for a rate increase except upon significant changes in economic conditions, new laws, or regulations. There is a quarterly monitoring of the Company's earnings performance. The Company filed a base rate case November 30, 2001 for the first time since 1985. The primary reason for this base rate case is to recover significant new costs related to the 200 megawatt Plant Wansley power purchase agreement beginning June 2002, as well as other operation and maintenance expense changes. The requested increase is 7.6 percent of total rates (base plus fuel). In the filing, the Company announced it would file in early 2002 for a fuel decrease which would offset most, if not all, of the base rate increase. 4. COMMITMENTS Construction Program The Company is engaged in a continuous construction program, currently estimated to total $34.8 million in 2002, $37.6 million in 2003, and $43.3 million in 2004. The construction program is subject to periodic review and revision, and actual construction costs may vary from the above estimates because of numerous factors. These factors include: changes in business conditions; revised load growth estimates; changes in environmental regulations; increasing costs of labor, equipment, and materials; and changes in cost of capital. The Company does not have any traditional baseload generating plants under construction. However, construction related to new and upgrading of existing transmission and distribution facilities and the upgrading of generating plants will continue. Fuel and Purchased Power Commitments To supply a portion of the fuel requirements of its generating plants, the Company has entered into long-term commitments for the procurement of fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels, and other financial commitments. The Company has fuel commitments of $34 million for 2002, $0.3 million for each of the four years 2003 through 2006, and $6 million for 2007 and beyond. In addition, the system service company acts as agent for the Company and the other operating companies and Southern Power with regard to natural gas purchases. Natural gas purchases (in dollars) are based on various indices at the actual time of delivery; therefore, only the volume commitments are firm. The Company's committed volumes allocated based on usage projections as of II-203 NOTES (continued) Savannah Electric and Power Company 2001 Annual Report December 31, 2001 are as follows: Year Natural Gas - ---- ------------- (MMBtu) 2002 4,765,152 2003 4,356,394 2004 3,049,457 2005 2,115,548 2006 1,804,674 2007 and beyond 612,901 - --------------------------------------------------------------- Total commitments 16,704,126 =============================================================== The Company has entered into various long-term commitments for the purchase of electricity, substantially all from affiliated companies, including the Plant Wansley purchased power agreement. Estimated total long-term obligations at December 31, 2001 were as follows: Year Commitments - ---- -------------- (in thousands) 2002 $ 9,944 2003 13,640 2004 13,656 2005 13,670 2006 13,686 2007 and beyond 41,152 - --------------------------------------------------------------- Total commitments $105,748 =============================================================== Operating Leases The Company has rental agreements with various terms and expiration dates. Rental expenses totaled $0.4 million for 2001, $0.4 million for 2000, and $0.5 million for 1999. At December 31, 2001, estimated future minimum lease payments for noncancelable operating leases were as follows: Rental Commitments --------------- (in thousands) 2002 $429 2003 429 2004 429 2005 429 2006 429 2007 and thereafter 4,894 - -------------------------------------------------------------- Total commitments $7,039 ============================================================== 5. INCOME TAXES At December 31, 2001, tax-related regulatory assets and liabilities were $12.3 million and $13.8 million, respectively. The assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized interest. The liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. Details of income tax provisions are as follows: 2001 2000 1999 --------------------------- (in thousands) Total provision for income taxes Federal -- Currently payable $ 27,991 $11,102 $12,968 Deferred (17,951) 75 (3,329) - ------------------------------------------------------------------ 10,040 11,177 9,639 - ------------------------------------------------------------------ State -- Currently payable 4,282 1,744 2,193 Deferred (2,577) 653 (24) - ------------------------------------------------------------------ 1,705 2,397 2,169 - ------------------------------------------------------------------ Total $ 11,745 $13,574 $11,808 ================================================================== The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows: 2001 2000 --------------------- (in thousands) Deferred tax liabilities: Accelerated depreciation $81,654 $76,901 Property basis differences (1,437) 5,904 Other 6,566 17,807 - ------------------------------------------------------------------ Total 86,783 100,612 - ------------------------------------------------------------------ Deferred tax assets: Pension and other benefits 11,403 9,744 Other 10,560 7,662 - ------------------------------------------------------------------ Total 21,963 17,406 - ------------------------------------------------------------------ Total deferred tax liabilities, net 64,820 83,206 Portion included in current assets (liabilities), net 12,511 (3,450) - ------------------------------------------------------------------ Accumulated deferred income taxes in the Balance Sheets $77,331 $79,756 ================================================================== In accordance with regulatory requirements, deferred investment tax credits are amortized over the lives of the related property with such amortization normally applied as a credit to reduce depreciation in the Statements of Income. II-204 NOTES (continued) Savannah Electric and Power Company 2001 Annual Report Credits amortized in this manner amounted to $0.7 million per year in 2001, 2000, and 1999. At December 31, 2001, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: 2001 2000 1999 ----------------------------- Federal statutory tax rate 35% 35% 35% State income tax, net of Federal income tax benefit 3 4 4 Other (3) (2) (5) ---------------------------------------------------------------- Effective income tax rate 35% 37% 34% ================================================================ Southern Company files a consolidated federal income tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. In accordance with Internal Revenue Service regulations, each company is jointly and severally liable for the tax liability. 6. CAPITALIZATION Trust Preferred Securities In December 1998, Savannah Electric Capital Trust I, of which the Company owns all of the common securities, issued $40 million of 6.85% mandatorily redeemable preferred securities. Substantially all of the assets of the Trust are $40 million aggregate principal amount of the Company's 6.85% junior subordinated notes due December 31, 2028. The Company considers that the mechanisms and obligations relating to the trust preferred securities, taken together, constitute a full and unconditional guarantee by the Company of payment obligations with respect to the preferred securities of Savannah Electric Capital Trust I. Savannah Electric Capital Trust I is a subsidiary of the Company, and accordingly is consolidated in the Company's financial statements. Long-Term Debt and Capital Leases The Company's Indenture related to its First Mortgage Bonds is unlimited as to the authorized amount of bonds which may be issued, provided that required property additions, earnings, and other provisions of such Indenture are met. Maturities and retirements of long-term debt were $50.7 million in 2001, $0.4 million in 2000, and $16.2 million in 1999. In May 2001, the Company issued $20 million of series B 5.12% senior notes maturing May 15, 2003 and $45 million of series C 6.55% senior notes maturing May 15, 2008. The Company used these proceeds to redeem its $20 million 6 3/8 Series First Mortgage Bonds due July 1, 2003, to repay long-term bank loans in the amount of $30 million, and to repay a portion of its short-term indebtedness. Assets acquired under capital leases are recorded as utility plant in service, and the related obligation is classified as other long-term debt. Leases are capitalized at the net present value of the future lease payments. However, for ratemaking purposes, these obligations are treated as operating leases, and as such, lease payments are charged to expense as incurred. Securities Due Within One Year A summary of the sinking fund requirements and scheduled maturities and redemptions of long-term debt due within one year at December 31 is as follows: 2001 2000 --------------------- (in thousands) Bond sinking fund requirement $436 $ 642 Less: Portion to be satisfied by certifying property additions - 642 - -------------------------------------------------------- ---------- Cash sinking fund requirement 436 - Other long-term debt maturities 742 30,698 - ------------------------------------------------------------------- Total $1,178 $30,698 =================================================================== The first mortgage bond improvement (sinking) fund requirements amount to 1 percent of each outstanding series of bonds authenticated under the Indenture prior to January 1 of each year, other than those issued to collateralize pollution control and other obligations. The requirements may be satisfied by depositing cash or reacquiring bonds, or by pledging additional property equal to 1 2/3 times the requirements. The sinking fund requirements of first mortgage bonds were satisfied by cash redemption in 2001 and by certifying property additions in 2000. It is anticipated that the 2002 requirement will be satisfied by cash redemption. II-205 NOTES (continued) Savannah Electric and Power Company 2001 Annual Report Sinking fund requirements and/or maturities through 2006 applicable to long-term debt are as follows: $1.2 million in 2002; $20.7 million in 2003; $0.6 million in 2004; $0.6 million in 2005; and $20.6 million in 2006. Bank Credit Arrangements At the end of 2001, unused credit arrangements with five banks totaled $65.5 million and expire at various times during 2002 and 2003. The Company has revolving credit arrangements of $20 million, of which $10 million expires April 30, 2003 and $10 million expires December 31, 2003. One of these agreements allows short-term borrowings to be converted into term loans, payable in 12 equal quarterly installments, with the first installment due at the end of the first calendar quarter after the applicable termination date or at an earlier date at the Company's option. In connection with these credit arrangements, the Company agrees to pay commitment fees based on the unused portions of the commitments. The Company may also meet short-term cash needs through a Southern Company subsidiary organized to issue and sell commercial paper at the request and for the benefit of the Company and the other Southern Company operating companies. At December 31, 2001, the Company had outstanding $32.2 million of commercial paper. The Company's committed credit arrangements provide liquidity support to the Company's variable rate obligations and to its commercial paper program. The amount of variable rate obligations outstanding at December 31, 2001 was $22.6 million. Assets Subject to Lien As amended and supplemented, the Company's Indenture of Mortgage, which secures the first mortgage bonds issued by the Company, constitutes a direct first lien on substantially all of the Company's fixed property and franchises. A second lien for $14 million in pollution control obligations is secured by a portion of the Plant McIntosh property. Common Stock Dividend Restrictions The Company's Indenture contains certain limitations on the payment of cash dividends on common stock. At December 31, 2001, approximately $68 million of retained earnings was restricted against the payment of cash dividends on common stock under the terms of the Indenture. 7. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Summarized quarterly financial data for 2001 and 2000 are as follows (in thousands): Net Income After Operating Operating Dividends on Quarter Ended Revenues Income Preferred Stock - ------------------------------------------------------------------ March 2001 $61,691 $ 6,799 $ 1,476 June 2001 73,970 14,620 6,246 September 2001 93,583 22,332 11,309 December 2001 54,608 5,791 3,032 March 2000 $52,390 $ 6,583 $ 1,643 June 2000 72,780 14,904 6,287 September 2000 98,849 24,461 12,351 December 2000 71,699 6,477 2,688 - --------------------------------------------------------------- The Company's business is influenced by seasonal weather conditions and a seasonal rate structure, among other factors. II-206
SELECTED FINANCIAL AND OPERATING DATA 1997-2001 Savannah Electric and Power Company 2001 Annual Report - ---------------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $283,852 $295,718 $251,594 $254,455 $226,277 Net Income after Dividends on Preferred Stock (in thousands) $22,063 $22,969 $23,083 $23,644 $23,847 Cash Dividends on Common Stock (in thousands) $21,700 $24,300 $25,200 $23,500 $20,500 Return on Average Common Equity (percent) 12.54 13.13 13.16 13.44 13.71 Total Assets (in thousands) $594,743 $594,227 $570,218 $555,799 $547,352 Gross Property Additions (in thousands) $31,296 $27,290 $29,833 $18,071 $18,846 - ---------------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $176,918 $174,994 $174,847 $175,865 $175,631 Preferred stock - - - - 35,000 Company obligated mandatorily redeemable preferred securities 40,000 40,000 40,000 40,000 - Long-term debt 160,709 116,902 147,147 163,443 142,846 - ---------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $377,627 $331,896 $361,994 $379,308 $353,477 ================================================================================================================================== Capitalization Ratios (percent): Common stock equity 46.8 52.7 48.3 46.4 49.7 Preferred stock - - - - 9.9 Company obligated mandatorily redeemable preferred securities 10.6 12.1 11.0 10.5 - Long-term debt 42.6 35.2 40.7 43.1 40.4 - ---------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 100.0 ================================================================================================================================== Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 A1 A1 Standard and Poor's A+ A+ AA- AA- AA- Preferred Stock - Moody's Baa1 a2 a2 a2 a2 Standard and Poor's BBB+ BBB+ A- A A Unsecured Long-Term Debt - Moody's A2 - - - - Standard and Poor's A - - - - ================================================================================================================================== Customers (year-end): Residential 117,199 115,646 112,891 110,437 109,092 Commercial 16,121 15,727 15,433 15,328 14,233 Industrial 76 75 67 63 64 Other 474 444 417 377 1,129 - ---------------------------------------------------------------------------------------------------------------------------------- Total 133,870 131,892 128,808 126,205 124,518 ================================================================================================================================== Employees (year-end): 550 554 533 542 535 - ----------------------------------------------------------------------------------------------------------------------------------
II-207
SELECTED FINANCIAL AND OPERATING DATA 1997-2001 (continued) Savannah Electric and Power Company 2001 Annual Report - ----------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $123,819 $129,520 $112,371 $109,393 $96,587 Commercial 100,835 102,116 88,449 86,231 78,949 Industrial 34,971 40,839 32,233 37,865 35,301 Other 9,547 10,147 9,212 8,838 8,621 - ----------------------------------------------------------------------------------------------------------------------------- Total retail 269,172 282,622 242,265 242,327 219,458 Sales for resale - non-affiliates 8,884 4,748 3,395 4,548 3,467 Sales for resale - affiliates 3,205 4,974 4,151 3,016 2,052 - ----------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 281,261 292,344 249,811 249,891 224,977 Other revenues 2,591 3,374 1,783 4,564 1,300 - ----------------------------------------------------------------------------------------------------------------------------- Total $283,852 $295,718 $251,594 $254,455 $226,277 ============================================================================================================================= Kilowatt-Hour Sales (in thousands): Residential 1,658,735 1,671,089 1,579,068 1,539,792 1,428,337 Commercial 1,388,357 1,369,448 1,287,832 1,236,337 1,156,078 Industrial 787,674 800,150 713,448 900,012 881,261 Other 133,967 135,824 132,555 131,142 124,490 - ----------------------------------------------------------------------------------------------------------------------------- Total retail 3,968,733 3,976,511 3,712,903 3,807,283 3,590,166 Sales for resale - non-affiliates 111,145 77,481 51,548 53,294 94,280 Sales for resale - affiliates 87,799 88,646 76,988 58,415 54,509 - ----------------------------------------------------------------------------------------------------------------------------- Total 4,167,677 4,142,638 3,841,439 3,918,992 3,738,955 ============================================================================================================================= Average Revenue Per Kilowatt-Hour (cents): Residential 7.46 7.75 7.12 7.10 6.76 Commercial 7.26 7.46 6.87 6.97 6.83 Industrial 4.44 5.10 4.52 4.21 4.01 Total retail 6.78 7.11 6.52 6.36 6.11 Sales for resale 6.08 5.85 5.87 6.77 3.71 Total sales 6.75 7.06 6.50 6.38 6.02 Residential Average Annual Kilowatt-Hour Use Per Customer 14,241 14,593 14,100 14,061 13,231 Residential Average Annual Revenue Per Customer $1,063.07 $1,131.08 $1,003.39 $998.94 $894.73 Plant Nameplate Capacity Ratings (year-end) (megawatts) 788 788 788 788 788 Maximum Peak-Hour Demand (megawatts): Winter 758 724 719 582 625 Summer 846 878 875 846 802 Annual Load Factor (percent) 55.9 53.4 51.2 54.9 54.3 Plant Availability Fossil-Steam (percent): 81.2 78.5 72.8 72.9 93.7 - ----------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 50.5 51.6 44.6 41.6 34.4 Oil and gas 4.0 6.9 12.3 12.9 5.2 Purchased power - From non-affiliates 5.3 7.7 5.3 3.4 1.4 From affiliates 40.2 33.8 37.8 42.1 59.0 - ----------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 100.0 =============================================================================================================================
II-208 PART III Items 10, 11, 12 and 13 for SOUTHERN are incorporated by reference to ELECTION OF DIRECTORS in SOUTHERN's definitive Proxy Statement relating to the 2002 Annual Meeting of Stockholders. Additionally, Items 10, 11, 12 and 13 for ALABAMA, GEORGIA, GULF and MISSISSIPPI are incorporated by reference to the Information Statements of ALABAMA, GEORGIA, GULF and MISSISSIPPI relating to each of their respective 2002 Annual Meetings of Shareholders. The ages of directors and executive officers in Item 10 set forth below are as of December 31, 2001. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Identification of directors of SAVANNAH. Anthony R. James President and Chief Executive Officer Age 51 Served as Director since 5-3-01 Gus H. Bell (1) Age 64 Served as Director since 7-20-99 Archie H. Davis (1) Age 60 Served as Director since 2-18-97 Walter D. Gnann (1) Age 66 Served as Director since 5-17-83 Robert B. Miller, III (1) Age 56 Served as Director since 5-17-83 Arnold M. Tenenbaum (1) Age 65 Served as Director since 5-17-77 (1) No position other than Director. Each of the above is currently a director of SAVANNAH, serving a term running from the last annual meeting of SAVANNAH's stockholder (May 3, 2001) for one year until the next annual meeting or until a successor is elected and qualified, except for Mr. James, whose election was effective on the date indicated. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he was or is to be selected as a director or nominee, other than any arrangements or understandings with directors or officers of SAVANNAH acting solely in their capacities as such. Identification of executive officers of SAVANNAH. Anthony R. James President, Chief Executive Officer and Director Age 51 Served as Executive Officer since 7-27-00 W. Miles Greer Vice President - Customer Operations and External Affairs Age 58 Served as Executive Officer since 11-20-85 Sandra R. Miller Vice President - Power Generation Age 49 Served as Executive Officer since 7-26-01 Kirby R. Willis Vice President, Treasurer and Chief Financial Officer Age 50 Served as Executive Officer since 1-1-94 Each of the above is currently an executive officer of SAVANNAH, serving a term running from the meeting of the directors held on July 26, 2001 for the ensuing year. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he or she was or is to be selected as an officer, other than any arrangements or understandings with officers of SAVANNAH acting solely in their capacities as such. Identification of certain significant employees. None. Family relationships. None. III-1 Business experience. Anthony R. James - President and Chief Executive Officer since 2001. He previously served as Vice President of Power Generation and Senior Production Officer from 2000 to 2001 and also as Central Cluster Manager at GEORGIA's Plant Scherer from 2000 to 2001. He served as Plant Manager at GEORGIA's Plant Scherer from 1996 to 2000. Director of SunTrust Bank of Savannah. Gus H. Bell, III - President and Chief Executive Officer of Hussey, Gay, Bell and DeYoung, Inc., (specializing in environmental, industrial, structural, architectural and civil engineering), Savannah, Georgia. Director of SunTrust Bank of Savannah. Archie H. Davis - President and Chief Executive Officer of The Savannah Bancorp and Chief Executive Officer of The Savannah Bank, N.A., Savannah, Georgia. Member of the Board of Directors of Thomaston Mills, Thomaston, Georgia. Walter D. Gnann - President of Walt's TV, Appliance and Furniture Co., Inc., Springfield, Georgia. Robert B. Miller, III - President of American Building Systems, Inc., Savannah, Georgia. Arnold M. Tenenbaum - President and Director of Chatham Steel Corporation. Director of First Union Bank of Georgia, First Union Bank of Savannah and Cerulean Corporation. W. Miles Greer - Vice President of Customer Operations and External Affairs since 1998. He previously served as Vice President of Marketing and Customer Service from 1994 to 1998. Responsible for customer services, transmission and distribution, engineering, system operation and external affairs. Sandra R. Miller - Vice President of Power Generation since 2001. She previously served as Manager of Technical Training at SCS from 1998 to 2001 and Team Leader at GEORGIA's Plant Bowen from June 1996 to June 1998. Responsible for operations and maintenance of Plants Kraft, Riverside and McIntosh. Kirby R. Willis - Vice President, Treasurer and Chief Financial Officer since 1994 and Assistant Corporate Secretary since 1998. Responsible primarily for accounting, financial, labor relations, corporate services, corporate compliance, environmental and safety activities. Involvement in certain legal proceedings. None Section 16(a) Beneficial Ownership Reporting Compliance. No late filers. III-2 Item 11. EXECUTIVE COMPENSATION Summary Compensation Table. The following table sets forth information concerning any Chief Executive Officer and the three most highly compensated executive officers of SAVANNAH serving during 2001.
ANNUAL COMPENSATION LONG-TERM COMPENSATION Number of Securities Long- Name Underlying Term and Other Annual Stock Incentive All Other Principal Compensation Options Payouts Compensation Position Year Salary($) Bonus($) ($)1 (Shares) ($)2 ($)3 - ------------------------------------------------------------------------------------------------------------------------ G. Edison Holland, Jr.4 President, 2001 333,539 324,022 3,692 68,071 - 49,827 Chief Executive 2000 295,812 243,263 24,438 25,667 - 15,453 Officer, Director 1999 254,914 42,626 21,588 8,375 166,052 13,392 Anthony R. James5 President, Chief 2001 210,856 177,858 1,328 31,363 - 30,195 Executive Officer, 2000 175,048 161,442 - 12,752 - 7,582 Director 1999 - - - - - - W. Miles Greer 2001 184,066 104,286 666 32,505 - 8,567 Vice President 2000 177,013 100,923 601 13,416 - 16,982 1999 168,713 21,322 1,874 6,130 79,476 15,150 Kirby R. Willis Vice President, 2001 168,747 100,480 490 29,993 - 8,495 Chief Financial 2000 162,279 97,394 4,908 8,785 - 12,159 Officer, Treasurer 1999 156,068 19,546 259 5,028 79,476 11,767 Sandra R. Miller6 2001 112,802 83,015 8,123 1,896 - 20,749 Vice President 2000 - - - - - - 1999 - - - - - - - ----------------------------------- 1 Tax reimbursement by SAVANNAH on certain personal benefits. 2 Payouts made in 2000 for the four-year performance period ending December 31, 1999. 3 SAVANNAH contributions in 2001 to the Employee Savings Plan (ESP), Employee Stock Ownership Plan (ESOP), Supplemental Benefit Plan (SBP) or Above-Market Earnings on deferred compensation (AME) and tax sharing benefits paid to participants who elected receipt of dividends on SOUTHERN's common stock held in the ESP are as follows: Name ESP ESOP SBP or AME ESP Tax Sharing Benefits - ---- --- ---- ---------- ------------------------ G. Edison Holland, Jr. $6,853 $764 $9,861 $721 Anthony R. James 6,853 764 3,181 - W. Miles Greer 7,650 764 153 - Kirby R. Willis 5,923 764 1,808 - Sandra R. Miller 5,051 698 - - In 2001, this amount for Mr. Holland, Mr. James and Ms. Miller includes $31,628, $19,397 and $15,000, respectively, of additional incentive compensation. 4 Mr. Holland transferred to SOUTHERN on May 1, 2001. 5 Mr. James became President and Chief Executive Officer effective May 1, 2001. 6 Ms. Miller became an executive officer of SAVANNAH on July 26, 2001.
III-3 STOCK OPTION GRANTS IN 2001 Stock Option Grants. The following table sets forth all stock option grants to the named executive officers of SAVANNAH during the year ending December 31, 2001.
Individual Grants Grant Date Value # of % of Total Securities Options Exercise Underlying Granted to or Options Employees in Base Price Expiration Grant Date Name Granted7 Fiscal Year8 ($/Sh)7 Date7 Present Value($)9 ----------------------------------------------------------------------------------------------------------------- SAVANNAH G. Edison Holland, Jr. 33,159 17 19.0762 2/16/2011 146,894 34,912 17 22.4250 4/16/2011 166,530 Anthony R. James 17,794 9 19.0762 2/16/2011 78,827 13,569 7 22.4250 4/16/2011 64,724 W. Miles Greer 17,007 8 19.0762 2/16/2011 75,341 15,498 8 22.4250 4/16/2011 73,925 Kirby R. Willis 15,591 8 19.0762 2/16/2011 69,068 14,402 7 22.4250 4/16/2001 68,698 Sandra R. Miller 1,337 1 19.0762 2/16/2011 5,923 559 0 22.4250 4/16/2011 2,666 - -------------------------------
7 Under the terms of the Omnibus Incentive Compensation Plan, stock option grants were made on February 16, 2001 and April 16, 2001, and vest annually at a rate of one-third on the anniversary date of the grant. Grants fully vest upon termination as a result of death, total disability or retirement and expire five years after retirement, three years after death or total disability or their normal expiration date if earlier. The exercise price is the average of the high and low price of SOUTHERN's common stock on the date granted. Options may be transferred to certain family members, family trusts and family limited partnerships. The number of options granted on February 16, 2001 and the exercise price thereof were adjusted after the spin-off of Mirant under the antidilution provisions of the plan such that the options had the same aggregate intrinsic value on the day of the spin-off as the day before. 8 A total of 200,946 stock options were granted in 2001. 9 Value was calculated using the Black-Scholes option valuation model. The actual value, if any, ultimately realized depends on the market value of SOUTHERN's common stock at a future date. Significant assumptions are shown below:
Risk-free Dividend Discount for forfeiture risk: Grant Volatility rate of return opportunity Term before after Date vesting vesting - ------------------------------------------------------------------------------------------------------------------- 2/16/01 25.63% 4.83% 50% 10 7.79% 12.45% 4/16/01 26.50% 4.65% 50% 10 7.79% 11.77% - ------------------------------------------------------------------------------------------------------------------- These assumptions reflect the effects of cash dividend equivalents paid to participants under SOUTHERN's Performance Dividend Plan assuming targets are met.
III-4 AGGREGATED STOCK OPTION EXERCISES IN 2001 AND YEAR-END OPTION VALUES Aggregated Stock Option Exercises. The following table sets forth information concerning options exercised during the year ending December 31, 2001 by the named executive officers and the value of unexercised options held by them as of December 31, 2001.
Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options at Options at Fiscal Fiscal Year-End (#) Year-End($)10 Shares Acquired Value Exercisable/ Exercisable/ Name on Exercise (#) Realized($)11 Unexercisable Unexercisable - -------------------------------------------------------------------------------------------------------------- SAVANNAH G. Edison Holland, Jr. 38,297 419,217 35,004/99,611 325,235/637,703 Anthony R. James 6,757 67,947 17,972/47,384 166,611/317,077 W. Miles Greer - - 29,132/49,916 288,866/331,185 Kirby R. Willis 6,218 55,902 25,096/41,929 248,549/261,847 Sandra R. Miller - - 560/3,015 5,980/21,972 - ---------------------------- 10 This column represents the excess of the fair market value of SOUTHERN's common stock of $25.35 per share, as of December 31, 2001, above the exercise price of the options. The Exercisable column reports the "value" of options that are vested and therefore could be exercised. The Unexercisable column reports the "value" of options that are not vested and therefore could not be exercised as of December 31, 2001. 11 The "Value Realized" is ordinary income, before taxes, and represents the amount equal to the excess of the fair market value of the shares at the time of exercise above the exercise price.
III-5 DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE Pension Plan Table. The following table sets forth the estimated annual pension benefits payable at normal retirement age under SOUTHERN's qualified Pension Plan, as well as non-qualified supplemental benefits, based on the stated compensation and years of service with the SOUTHERN system for Ms. Miller and Messrs. Holland and James. Compensation for pension purposes is limited to the average of the highest three of the final 10 years' compensation. Compensation is base salary plus the excess of annual incentive compensation over 15 percent of base salary. These compensation components are reported under columns titled "Salary" and "Bonus" in the Summary Compensation Table on page III-3.
Years of Accredited Service Remuneration 15 20 25 30 35 40 - ------------ ----------------------------------------------------------------- $ 100,000 $ 25,500 $ 34,000 $ 42,500 $ 51,000 $ 59,500 $ 68,000 300,000 76,500 102,000 127,500 153,000 178,500 204,000 500,000 127,500 170,000 212,500 255,000 297,500 340,000 700,000 178,500 238,000 297,500 357,000 416,500 476,000 900,000 229,500 306,000 382,500 459,000 535,500 612,000 1,100,000 280,500 374,000 467,500 561,000 654,500 748,000 1,300,000 331,500 442,000 552,500 663,000 773,500 884,000
As of December 31, 2001, the applicable compensation levels and years of accredited service for SAVANNAH's named executive officers are presented in the following table: Compensation Accredited Name Level Years of Service G. Edison Holland, Jr.12 $522,288 18 Anthony R. James 299,112 22 W. Miles Greer13 250,600 25 Kirby R. Willis 235,192 27 Sandra R. Miller 156,036 21 The amounts shown in the table were calculated according to the final average pay formula and are based on a single life annuity without reduction for joint and survivor annuities or computation of Social Security offset that would apply in most cases. - ----------------------- 12 The number of accredited years of service includes 9 years and 3 months credited to Mr. Holland pursuant to a supplemental pension agreement. 13 The number of accredited years of service includes 7 years and 6 months credited to Mr. Greer pursuant to a supplemental pension agreement. III-6 Effective January 1, 1998, SAVANNAH merged its pension plan into the SOUTHERN Pension Plan. SAVANNAH also has in effect a supplemental executive retirement plan for certain of its executive employees. The plan is designed to provide participants with a supplemental retirement benefit, which, in conjunction with Social Security and benefits under SOUTHERN's qualified pension plan, will equal 70 percent of the highest three of the final 10 years' average annual earnings (excluding incentive compensation). The following table sets forth the estimated combined annual pension benefits under SOUTHERN's pension and SAVANNAH's supplemental executive retirement plans in effect during 2001 which are payable to Messrs. Greer and Willis, upon retirement at the normal retirement age after designated periods of accredited service and at a specified compensation level. Years of Accredited Service Remuneration 15 25 35 - -------------------------- -- -- -- $150,000 105,000 105,000 105,000 180,000 126,000 126,000 126,000 210,000 147,000 147,000 147,000 260,000 182,000 182,000 182,000 280,000 196,000 196,000 196,000 300,000 210,000 210,000 210,000 350,000 245,000 245,000 245,000 400,000 280,000 280,000 280,000 430,000 301,000 301,000 301,000 460,000 322,000 322,000 322,000 Compensation of Directors. Standard Arrangements. The following table presents compensation paid to the directors during 2001 for service as a member of the board of directors and any board committee(s), except that employee directors received no fees or compensation for service as a member of the board of directors or any board committee. At the election of the director, all or a portion of the cash retainer may be payable in SOUTHERN's common stock, and all or a portion of the total fees may be deferred under the Deferred Compensation Plan until membership on the board is terminated. Cash Retainer Fee $10,000 Stock Retainer Fee 50 shares in the first quarter 2001 and 85 shares per quarter thereafter Meeting Fees: $750 for each Board or Committee meeting attended Effective January 1, 1997, the Outside Directors Pension Plan (the "Plan") was terminated and benefits payable under the Plan were frozen. Non-employee directors serving as of January 1, 1997 were given a one-time election to receive a Plan benefit buy-out equal to the actuarial present value of future Plan benefits or receive benefits under the terms of the Plan at the annual retainer rate in effect on December 31, 1996. Directors who elected to receive the benefit buy-out were required to defer receipt of that amount under the Deferred Compensation Plan until termination from board membership. Directors who elected to continue to participate under the terms of the Plan are entitled to benefits upon retirement from the board on the retirement date designated in SAVANNAH's by-laws. The annual benefit payable is based upon length of service and varies from 75 percent of the annual retainer in effect on December 31, 1996 if the participant has at least 60 months of service on the board of one or more system companies, to 100 percent if the participant has at least 120 months of such service. Payments will continue for the greater of the lifetime of the participant or 10 years. III-7 Other Arrangements. No director received other compensation for services as a director during the year ending December 31, 2001 in addition to or in lieu of that specified by the standard arrangements specified above. Employment Contracts and Termination of Employment and Change in Control Arrangements. - ------------------------------------------------------------------------ SAVANNAH has adopted SOUTHERN's Change in Control Plan, which is applicable to certain of its officers, and has entered into individual change in control agreements with its most highly compensated executive officers. If an executive is involuntarily terminated, other than for cause, within two years following a change in control of SAVANNAH or SOUTHERN, the agreements provide for: o lump sum payment of two or three times annual compensation, o up to five years' coverage under group health and life insurance plans, o immediate vesting of all stock options, stock appreciation rights and restricted stock previously granted, o payment of any accrued long-term and short-term bonuses and dividend equivalents and o payment of any excise tax liability incurred as a result of payments made under any individual agreements. A SOUTHERN change in control is defined under the agreements as: o acquisition of at least 20 percent of the SOUTHERN's stock, o a change in the majority of the members of the SOUTHERN's board of directors, o a merger or other business combination that results in SOUTHERN's shareholders immediately before the merger owning less than 65 percent of the voting power after the merger or o a sale of substantially all the assets of SOUTHERN. A change in control of SAVANNAH is defined under the agreements as: o acquisition of at least 50 percent of SAVANNAH's stock, o a merger or other business combination unless SOUTHERN controls the surviving entity or o a sale of substantially all the assets of SAVANNAH. SOUTHERN also has amended its short- and long-term incentive plans to provide for pro-rata payments at not less than target-level performance if a change in control occurs and the plans are not continued or replaced with comparable plans. Report on Repricing of Options. None. Compensation Committee Interlocks and Insider Participation. None. III-8 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Certain Beneficial Owners. SOUTHERN is the beneficial owner of 100% of the outstanding common stock of SAVANNAH. - ------------------------------------------------------------------------------- Amount and Name and Address Nature of Percent of Beneficial Beneficial of Title of Class Owner Ownership Class - ------------------------------------------------------------------------------- Common Stock The Southern Company 100% 270 Peachtree Street, N.W. Atlanta, Georgia 30303 Registrant: SAVANNAH 10,844,635 Security Ownership of Management. The following table shows the number of shares of SOUTHERN common stock owned by the SAVANNAH's directors, nominees and executive officers as of December 31, 2001. It is based on information furnished by the directors, nominees and executive officers. The shares owned by all directors, nominees and executive officers as a group constitute less than one percent of the total number of shares outstanding on December 31, 2001. Name of Directors, Nominees and Number of Shares Executive Officers Title of Class Beneficially Owned (1) (2) - ------------------ -------------- -------------------------- Gus H. Bell, III SOUTHERN Common 259 Archie H. Davis SOUTHERN Common 522 Walter D. Gnann SOUTHERN Common 3,433 Anthony R. James SOUTHERN Common 43,854 Robert B. Miller, III SOUTHERN Common 1,128 Arnold M. Tenenbaum SOUTHERN Common 1,167 W. Miles Greer SOUTHERN Common 46,348 Sandra R. Miller SOUTHERN Common 3,365 Kirby R. Willis SOUTHERN Common 40,712 The directors, nominees and executive officers as a group SOUTHERN Common 140,788 (1) As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security and/or investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). (2) The shares shown include shares of SOUTHERN common stock of which certain directors and executive officers have the right to acquire beneficial ownership within 60 days pursuant to the Executive Stock Plan and/or Performance Stock Plan, as follows: Mr. Greer, 41,887 shares; Mr. James, 30,640 shares, Ms. Miller, 1,565 shares and Mr. Willis, 34,933 shares. III-9 Changes in control. SOUTHERN and SAVANNAH know of no arrangements which may at a subsequent date result in any change in control. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Transactions with management and others. Mr. Archie Davis is currently Chief Executive Officer of The Savannah Bank, N.A., Savannah, Georgia and was also President prior to February 2002. During 2001, this bank furnished a number of regular banking services in the ordinary course of business to SAVANNAH. SAVANNAH intends to maintain normal banking relations with the aforesaid bank in the future. Certain business relationships. None. Indebtedness of management. None. Transactions with promoters. None. III-10 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report on this Form 10-K: (1) Financial Statements: Reports of Independent Public Accountants on the financial statements for SOUTHERN and Subsidiary Companies, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH are listed under Item 8 herein. The financial statements filed as a part of this report for SOUTHERN and Subsidiary Companies, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH are listed under Item 8 herein. (2) Financial Statement Schedules: Reports of Independent Public Accountants as to Schedules for SOUTHERN and Subsidiary Companies, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH are included herein on pages IV-12 through IV-17. Financial Statement Schedules for SOUTHERN and Subsidiary Companies, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH are listed in the Index to the Financial Statement Schedules at page S-1. (3) Exhibits: Exhibits for SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH are listed in the Exhibit Index at page E-1. (b) Reports on Form 8-K during the fourth quarter of 2001 were as follows: SOUTHERN filed a Current Report on Form 8-K: Date of event: December 20, 2001 Items reported: Item 5 GEORGIA filed a Current Report on Form 8-K: Date of event: December 20, 2001 Items reported: Item 5 GULF filed Current Reports on Form 8-K: Date of event: October 5, 2001 Items reported: Items 5 and 7 Date of event: November 8, 2001 Items reported: Items 5 and 7 IV-1 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. THE SOUTHERN COMPANY By: H. Allen Franklin, Chairman, President and Chief Executive Officer /s/Wayne Boston By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 22, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. H. Allen Franklin Chairman, President and Chief Executive Officer (Principal Executive Officer) Gale E. Klappa Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) W. Dean Hudson Comptroller and Chief Accounting Officer (Principal Accounting Officer) Directors: Daniel P. Amos L. G. Hardman III Dorrit J. Bern Donald M. James Thomas F. Chapman Zack T. Pate Bruce S. Gordon Gerald J. St. Pe' /s/Wayne Boston By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 22, 2002 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. ALABAMA POWER COMPANY By: Charles D. McCrary, President and Chief Executive Officer /s/Wayne Boston By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 22, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. Charles D. McCrary President, Chief Executive Officer and Director (Principal Executive Officer) William B. Hutchins, III Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) Art P. Beattie Vice President and Comptroller (Principal Accounting Officer) Directors: Whit Armstrong Mayer Mitchell David J. Cooper William V. Muse H. Allen Franklin Robert D. Powers R. Kent Henslee C. Dowd Ritter Patricia M. King James H. Sanford James K. Lowder John Cox Webb, IV Wallace D. Malone, Jr. James W. Wright Thomas C. Meredith /s/Wayne Boston By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 22, 2002 IV-2 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. GEORGIA POWER COMPANY By: David M. Ratcliffe, President and Chief Executive Officer By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 22, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. David M. Ratcliffe President, Chief Executive Officer and Director (Principal Executive Officer) Thomas A. Fanning Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) Cliff S. Thrasher Vice President, Comptroller and Chief Accounting Officer (Principal Accounting Officer) Directors: Juanita P. Baranco James R. Lientz, Jr. Anna R. Cablik Richard W. Ussery William A. Fickling, Jr. William Jerry Vereen H. Allen Franklin Carl Ware L. G. Hardman III E. Jenner Wood, III /s/Wayne Boston By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 22, 2002 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. GULF POWER COMPANY By: Travis J. Bowden, President and Chief Executive Officer /s/Wayne Boston By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 22, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. Travis J. Bowden President, Chief Executive Officer and Director (Principal Executive Officer) Ronnie R. Labrato Vice President, Chief Financial Officer and Comptroller (Principal Financial and Accounting Officer) Directors: C. LeDon Anchors W. Deck Hull, Jr. Fred C. Donovan, Sr. William A. Pullum H. Allen Franklin Joseph K. Tannehill By: /s/ Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 22, 2002 IV-3 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. MISSISSIPPI POWER COMPANY By: Michael D. Garrett, President and Chief Executive Officer /s/Wayne Boston By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 22, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. Michael D. Garrett President, Chief Executive Officer and Director (Principal Executive Officer) Michael W. Southern Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) Directors: Tommy E. Dulaney George A. Schloegel Aubrey K. Lucas Gene Warr Malcolm Portera /s/Wayne Boston By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 22, 2002 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. SAVANNAH ELECTRIC AND POWER COMPANY By: Anthony R. James, President and Chief Executive Officer /s/Wayne Boston By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 22, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. Anthony R. James President, Chief Executive Officer and Director (Principal Executive Officer) Kirby R. Willis Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) Directors: Gus H. Bell, III Robert B. Miller, III Archie H. Davis Arnold M. Tenenbaum Walter D. Gnann /s/Wayne Boston By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 22, 2002 IV-4 Exhibit 21. Subsidiaries of the Registrants.* Jurisdiction of Name of Company Organization - ------------------------------------------------------------------------------- The Southern Company Delaware Southern Company Capital Trust I Delaware Southern Company Capital Trust II Delaware Southern Company Capital Trust III Delaware Southern Company Capital Trust IV Delaware Southern Company Capital Trust V Delaware Southern Company Capital Trust VI Delaware Southern Company Capital Trust VII Delaware Southern Company Capital Trust VIII Delaware Southern Company Capital Trust IX Delaware Alabama Power Company Alabama Alabama Power Capital Trust I Delaware Alabama Power Capital Trust II Delaware Alabama Power Capital Trust III Delaware Alabama Power Capital Trust IV Delaware Alabama Power Capital Trust V Delaware Alabama Property Company Alabama Southern Electric Generating Company Alabama Georgia Power Company Georgia Georgia Power Capital Trust I Delaware Georgia Power Capital Trust II Delaware Georgia Power Capital Trust III Delaware Georgia Power Capital Trust IV Delaware Georgia Power Capital Trust V Delaware Georgia Power Capital Trust VI Delaware Georgia Power Capital Trust VII Delaware Georgia Power Capital Trust VIII Delaware Piedmont-Forrest Corporation Georgia Southern Electric Generating Company Alabama Gulf Power Company Maine Gulf Power Capital Trust I Delaware Gulf Power Capital Trust II Delaware Gulf Power Capital Trust III Delaware Gulf Power Capital Trust IV Delaware Mississippi Power Company Mississippi Mississippi Power Capital Trust I Delaware Mississippi Power Capital Trust II Delaware Mississippi Power Capital Trust III Delaware Savannah Electric and Power Company Georgia Savannah Electric Capital Trust I Delaware Savannah Electric Capital Trust II Delaware Southern Power Company Delaware - ------------------------------------------------------------------------------- *This information is as of December 31, 2001. In addition, this list omits certain subsidiaries pursuant to paragraph (b)(21)(ii) of Regulation S-K, Item 601. IV-5 Exhibit 23(a) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 13, 2002 on the financial statements of The Southern Company and its subsidiaries and the related financial statement schedule, included in this Form 10-K, into The Southern Company's previously filed Registration Statement File Nos. 2-78617, 33-3546, 33-54415, 33-57951, 33-58371, 33-60427, 333-09077, 333-31808, 333-44127, 333-44261, 333-64871, 333-65178 and 333-73462. /s/Arthur Andersen LLP Atlanta, Georgia March 19, 2002 IV-6 Exhibit 23(b) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 13, 2002 on the financial statements of Alabama Power Company and the related financial statement schedule, included in this Form 10-K, into Alabama Power Company's previously filed Registration Statement File No. 333-72784. /s/Arthur Andersen LLP Birmingham, Alabama March 19, 2002 IV-7 Exhibit 23(c) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 13, 2002 on the financial statements of Georgia Power Company and the related financial statement schedule, included in this Form 10-K, into Georgia Power Company's previously filed Registration Statement File Nos. 333-75193 and 333-57884. /s/Arthur Andersen LLP Atlanta, Georgia March 19, 2002 IV-8 Exhibit 23(d) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 13, 2002 on the financial statements of Gulf Power Company and the related financial statement schedule, included in this Form 10-K, into Gulf Power Company's previously filed Registration Statement File No. 333-59942. /s/Arthur Andersen LLP Atlanta, Georgia March 19, 2002 IV-9 Exhibit 23(e) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 13, 2002 on the financial statements of Mississippi Power Company and the related financial statement schedule, included in this Form 10-K, into Mississippi Power Company's previously filed Registration Statement File No. 333-45069. /s/Arthur Andersen LLP Atlanta, Georgia March 19, 2002 IV-10 Exhibit 23(f) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 13, 2002 on the financial statements of Savannah Electric and Power Company and the related financial statement schedule, included in this Form 10-K, into Savannah Electric and Power Company's previously filed Registration Statement File No. 333-57886. /s/Arthur Andersen LLP Atlanta, Georgia March 19, 2002 IV-11 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE To The Southern Company: We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of The Southern Company and its subsidiaries included in this Form 10-K, and have issued our report thereon dated February 13, 2002. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to The Southern Company and its subsidiaries (page S-2) is the responsibility of The Southern Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. /s/Arthur Andersen LLP Atlanta, Georgia February 13, 2002 IV-12 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE To Alabama Power Company: We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of Alabama Power Company included in this Form 10-K, and have issued our report thereon dated February 13, 2002. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to Alabama Power Company (page S-3) is the responsibility of Alabama Power Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/Arthur Andersen LLP Birmingham, Alabama February 13, 2002 IV-13 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE To Georgia Power Company: We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of Georgia Power Company included in this Form 10-K, and have issued our report thereon dated February 13, 2002. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to Georgia Power Company (page S-4) is the responsibility of Georgia Power Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/Arthur Andersen LLP Atlanta, Georgia February 13, 2002 IV-14 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE To Gulf Power Company: We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of Gulf Power Company included in this Form 10-K, and have issued our report thereon dated February 13, 2002. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to Gulf Power Company (page S-5) is the responsibility of Gulf Power Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/Arthur Andersen LLP Atlanta, Georgia February 13, 2002 IV-15 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE To Mississippi Power Company: We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of Mississippi Power Company included in this Form 10-K, and have issued our report thereon dated February 13, 2002. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to Mississippi Power Company (page S-6) is the responsibility of Mississippi Power Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/Arthur Andersen LLP Atlanta, Georgia February 13, 2002 IV-16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE To Savannah Electric and Power Company: We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of Savannah Electric and Power Company included in this Form 10-K, and have issued our report thereon dated February 13, 2002. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to Savannah Electric and Power Company (page S-7) is the responsibility of Savannah Electric and Power Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/Arthur Andersen LLP Atlanta, Georgia February 13, 2002 IV-17 INDEX TO FINANCIAL STATEMENT SCHEDULES Schedule II Valuation and Qualifying Accounts and Reserves 2001, 2000 and 1999 The Southern Company and Subsidiary Companies................... S-2 Alabama Power Company........................................... S-3 Georgia Power Company........................................... S-4 Gulf Power Company.............................................. S-5 Mississippi Power Company....................................... S-6 Savannah Electric and Power Company............................. S-7 Schedules I through V not listed above are omitted as not applicable or not required. Columns omitted from schedules filed have been omitted because the information is not applicable or not required. S-1
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Stated in Thousands of Dollars) Additions ---------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period -------------------------------- ------------------------ -------------- ------------------- ----------------- -------------- Provision for uncollectible accounts 2001..................... $21,799 $44,272 $269 $41,957 (Note) $24,383 2000..................... 21,834 31,329 39 31,403 (Note) 21,799 1999..................... 11,268 35,476 - 24,910 (Note) 21,834 - ------------------- Note: Represents write-off of accounts considered to be uncollectible, less recoveries of amounts previously written off.
S-2
ALABAMA POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Stated in Thousands of Dollars) Additions --------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period ------------------------------------ ----------------------- --------------- ------------------ ----------------- --------------- Provision for uncollectible accounts 2001.......................... $6,237 $7,419 $- $8,419 (Note) $5,237 2000.......................... 4,117 9,093 - 6,973 (Note) 6,237 1999.......................... 1,855 13,995 - 11,733 (Note) 4,117 - ------------------- Note: Represents write-off of accounts considered to be uncollectible, less recoveries of amounts previously written off.
S-3
GEORGIA POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Stated in Thousands of Dollars) Additions --------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period ----------------------------------- ----------------------- -------------- ------------------ ----------------- ---------------- Provision for uncollectible accounts 2001.......................... $5,100 $22,913 $- $19,118 (Note) $8,895 2000.......................... 7,000 10,794 - 12,694 (Note) 5,100 1999.......................... 5,500 14,406 - 12,906 (Note) 7,000 - ------------------- Note: Represents write-off of accounts considered to be uncollectible, less recoveries of amounts previously written off.
S-4
GULF POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Stated in Thousands of Dollars) Additions -------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period ------------------------------------ ------------------------ --------------- ------------------ ---------------- --------------- Provision for uncollectible accounts 2001.......................... $1,302 $2,282 $- $2,242(Note) $1,342 2000.......................... 1,026 2,702 - 2,426(Note) 1,302 1999.......................... 996 2,230 - 2,200(Note) 1,026 - ------------------- Note: Represents write-off of accounts considered to be uncollectible, less recoveries of amounts previously written off.
S-5
MISSISSIPPI POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Stated in Thousands of Dollars) Additions -------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period ------------------------------------ ------------------------- -------------- ------------------ ---------------- --------------- Provision for uncollectible accounts 2001.......................... $571 $2,877 $(165) $2,427 (Note) $856 2000.......................... 697 1,156 14 1,296 (Note) 571 1999.......................... 621 1,964 - 1,888 (Note) 697 - ------------------- Note: Represents write-off of accounts considered to be uncollectible, less recoveries of amounts previously written off.
S-6
SAVANNAH ELECTRIC AND POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (Stated in Thousands of Dollars) Additions ------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period -------------------------------------- ---------------------- ------------ ------------------ --------------- ----------------- Provision for uncollectible accounts 2001.......................... $407 $978 $- $885 (Note) $500 2000.......................... 237 999 - 829 (Note) 407 1999.......................... 284 594 - 641 (Note) 237 - ------------------- Note: Represents write-off of accounts receivable considered to be uncollectible, less recoveries of amounts previously written off.
S-7 EXHIBIT INDEX The following exhibits indicated by an asterisk preceding the exhibit number are filed herewith. The balance of the exhibits have heretofore been filed with the SEC as the exhibits and in the file numbers indicated and are incorporated herein by reference. The exhibits marked with a pound sign are management contracts or compensatory plans or arrangements required to be filed herewith and required to be identified as such by Item 14 of Form 10-K. Reference is made to a duplicate list of exhibits being filed as a part of this Form 10-K, which list, prepared in accordance with Item 601 of Regulation S-K of the SEC, immediately precedes the exhibits being physically filed with this Form 10-K. (3) Articles of Incorporation and By-Laws SOUTHERN (a) 1 - Composite Certificate of Incorporation of SOUTHERN, reflecting all amendments thereto through January 5, 1994. (Designated in Registration No. 33-3546 as Exhibit 4(a), in Certificate of Notification, File No. 70-7341, as Exhibit A and in Certificate of Notification, File No. 70-8181, as Exhibit A.) (a) 2 - By-laws of SOUTHERN as amended effective October 21, 1991, and as presently in effect. (Designated in Form U-1, File No. 70-8181, as Exhibit A-2.) ALABAMA (b) 1 - Charter of ALABAMA and amendments thereto through January 10, 2001. (Designated in Registration Nos. 2-59634 as Exhibit 2(b), 2-60209 as Exhibit 2(c), 2-60484 as Exhibit 2(b), 2-70838 as Exhibit 4(a)-2, 2-85987 as Exhibit 4(a)-2, 33-25539 as Exhibit 4(a)-2, 33-43917 as Exhibit 4(a)-2, in Form 8-K dated February 5, 1992, File No. 1-3164, as Exhibit 4(b)-3, in Form 8-K dated July 8, 1992, File No. 1-3164, as Exhibit 4(b)-3, in Form 8-K dated October 27, 1993, File No. 1-3164, as Exhibits 4(a) and 4(b), in Form 8-K dated November 16, 1993, File No. 1-3164, as Exhibit 4(a), in Certificate of Notification, File No. 70-8191, as Exhibit A, in ALABAMA's Form 10-K for the year ended December 31, 1997, File No. 1-3164, as Exhibit 3(b)2, in Form 8-K dated August 10, 1998, File No. 1-3164, as Exhibit 4.4 and in ALABAMA's Form 10-K for the year ended December 31, 2000, File No. 1-3164, as Exhibit 3(b)2.) *(b) 2 - Amendment to Charter of ALABAMA dated November 21, 2001. *(b) 3 - By-laws of ALABAMA as amended effective April 26, 2001, and as presently in effect. GEORGIA (c) 1 - Charter of GEORGIA and amendments thereto through January 16, 2001. (Designated in Registration Nos. 2-63392 as Exhibit 2(a)-2, 2-78913 as Exhibits 4(a)-(2) and 4(a)-(3), 2-93039 as Exhibit 4(a)-(2), 2-96810 as Exhibit 4(a)-2, 33-141 as Exhibit 4(a)-(2), 33-1359 as Exhibit 4(a)(2), 33-5405 as Exhibit 4(b)(2), 33- E-1 14367 as Exhibits 4(b)-(2) and 4(b)-(3), 33-22504 as Exhibits 4(b)-(2), 4(b)-(3) and 4(b)-(4), in GEORGIA's Form 10-K for the year ended December 31, 1991, File No. 1-6468, as Exhibits 4(a)(2) and 4(a)(3), in Registration No. 33-48895 as Exhibits 4(b)-(2) and 4(b)-(3), in Form 8-K dated December 10, 1992, File No. 1-6468 as Exhibit 4(b), in Form 8-K dated June 17, 1993, File No. 1-6468, as Exhibit 4(b), in Form 8-K dated October 20, 1993, File No. 1-6468, as Exhibit 4(b), in GEORGIA's Form 10-K for the year ended December 31, 1997, File No. 1-6468, as Exhibit 3(c)2 and in GEORGIA's Form 10-K for the year ended December 31, 2000, File No. 1-6468, as Exhibit 3(c)2.) (c) 2 - By-laws of GEORGIA as amended effective November 15, 2000, and as presently in effect. (Designated in GEORGIA's Form 10-K for the year ended December 31, 2000, File No. 1-6468, as Exhibit 3(c)3.) GULF (d) 1 - Restated Articles of Incorporation of GULF and amendments thereto through February 9, 2001. (Designated in Registration No. 33-43739 as Exhibit 4(b)-1, in Form 8-K dated January 15, 1992, File No. 0-2429, as Exhibit 1(b), in Form 8-K dated August 18, 1992, File No. 0-2429, as Exhibit 4(b)-2, in Form 8-K dated September 22, 1993, File No. 0-2429, as Exhibit 4, in Form 8-K dated November 3, 1993, File No. 0-2429, as Exhibit 4, in GULF's Form 10-K for the year ended December 31, 1997, File No. 0-2429, as Exhibit 3(d)2 and in GULF's Form 10-K for the year ended December 31, 2000, File No. 0-2429, as Exhibit 3(d)2.) *(d) 2 - By-laws of GULF as amended effective May 22, 2001, and as presently in effect. MISSISSIPPI (e) 1 - Articles of Incorporation of MISSISSIPPI, articles of merger of Mississippi Power Company (a Maine corporation) into MISSISSIPPI and articles of amendment to the articles of incorporation of MISSISSIPPI through March 8, 2001. (Designated in Registration No. 2-71540 as Exhibit 4(a)-1, in Form U5S for 1987, File No. 30-222-2, as Exhibit B-10, in Registration No. 33-49320 as Exhibit 4(b)-(1), in Form 8-K dated August 5, 1992, File No. 0-6849, as Exhibits 4(b)-2 and 4(b)-3, in Form 8-K dated August 4, 1993, File No. 0-6849, as Exhibit 4(b)-3, in Form 8-K dated August 18, 1993, File No. 0-6849, as Exhibit 4(b)-3, in MISSISSIPPI's Form 10-K for the year ended December 31, 1997, File No. 0-6849, as Exhibit 3(e)2 and in MISSISSIPPI's Form 10-K for the year ended December 31, 2000, File No. 0-6849, as Exhibit 3(e)2.) *(e) 2 - By-laws of MISSISSIPPI as amended effective February 28, 2001, and as presently in effect. E-2 SAVANNAH (f) 1 - Charter of SAVANNAH and amendments thereto through December 2, 1998. (Designated in Registration Nos. 33-25183 as Exhibit 4(b)-(1), 33-45757 as Exhibit 4(b)-(2), in Form 8-K dated November 9, 1993, File No. 1-5072, as Exhibit 4(b) and in SAVANNAH's Form 10-K for the year ended December 31, 1998, as Exhibit 3(f)2.) (f) 2 - By-laws of SAVANNAH as amended effective May 17, 2000, and as presently in effect. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 2000, File No. 1-5072, as Exhibit 3(f)2.) (4) Instruments Describing Rights of Security Holders, Including Indentures SOUTHERN (a) 1 - Subordinated Note Indenture dated as of February 1, 1997, among SOUTHERN, Southern Company Capital Funding, Inc. and Bankers Trust Company, as Trustee, and indentures supplemental thereto dated as of February 4, 1997. (Designated in Registration Nos. 333-28349 as Exhibits 4.1 and 4.2 and 333-28355 as Exhibit 4.2.) (a) 2 - Subordinated Note Indenture dated as of June 1, 1997, among SOUTHERN, Southern Company Capital Funding, Inc. and Bankers Trust Company, as Trustee, and indentures supplemental thereto through December 23, 1998. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit (4)(a)2, in Form 8-K dated June 18, 1998, File No. 1-3526, as Exhibit 4.2 and in Form 8-K dated December 18, 1998, File No. 1-3526, as Exhibit 4.4.) (a) 3 - Senior Note Indenture dated as of February 1, 2002, among SOUTHERN, Southern Company Capital Funding, Inc. and The Bank of New York, as Trustee, and indentures supplemental thereto through those dated February 1, 2002. (Designated in Form 8-K dated January 29, 2002, File No. 1-3526, as Exhibits 4.1 and 4.2 and in Form 8-K dated January 30, 2002, File No. 1-3526, as Exhibit 4.2.) (a) 4 - Amended and Restated Trust Agreement of Southern Company Capital Trust I dated as of February 1, 1997. (Designated in Registration No. 333-28349 as Exhibit 4.6) (a) 5 - Amended and Restated Trust Agreement of Southern Company Capital Trust II dated as of February 1, 1997. (Designated in Registration No. 333-28355 as Exhibit 4.6) (a) 6 - Amended and Restated Trust Agreement of Southern Company Capital Trust III dated as of June 1, 1997. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit (4)(a)5.) (a) 7 - Amended and Restated Trust Agreement of Southern Company Capital Trust IV dated as of June 1, 1998. (Designated in Form 8-K dated June 18, 1998, File No. 1-3526, as Exhibit 4.5.) E-3 (a) 8 - Amended and Restated Trust Agreement of Southern Company Capital Trust V dated as of December 1, 1998. (Designated in Form 8-K dated December 18, 1998, File No. 1-3526, as Exhibit 4.7A.) (a) 9 - Capital Securities Guarantee Agreement relating to Southern Company Capital Trust I dated as of February 1, 1997. (Designated in Registration No. 333-28349 as Exhibit 4.10) (a) 10 - Capital Securities Guarantee Agreement relating to Southern Company Capital Trust II dated as of February 1, 1997. (Designated in Registration No. 333-28355 as Exhibit 4.10) (a) 11 - Preferred Securities Guarantee Agreement relating to Southern Company Capital Trust III dated as of June 1, 1997. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit (4)(a)8.) (a) 12 - Preferred Securities Guarantee Agreement relating to Southern Company Capital Trust IV dated as of June 1, 1998. (Designated in Form 8-K dated June 18, 1998, File No. 1-3626, as Exhibit 4.8.) (a) 13 - Preferred Securities Guarantee Agreement relating to Southern Company Capital Trust V dated as of December 1, 1998. (Designated in Form 8-K dated December 18, 1998, File No. 1-3526, as Exhibit 4.11A.) ALABAMA (b) 1 - Indenture dated as of January 1, 1942, between ALABAMA and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee, and indentures supplemental thereto through December 1, 1994. (Designated in Registration Nos. 2-59843 as Exhibit 2(a)-2, 2-60484 as Exhibits 2(a)-3 and 2(a)-4, 2-60716 as Exhibit 2(c), 2-67574 as Exhibit 2(c), 2-68687 as Exhibit 2(c), 2-69599 as Exhibit 4(a)-2, 2-71364 as Exhibit 4(a)-2, 2-73727 as Exhibit 4(a)-2, 33-5079 as Exhibit 4(a)-2, 33-17083 as Exhibit 4(a)-2, 33-22090 as Exhibit 4(a)-2, in ALABAMA's Form 10-K for the year ended December 31, 1990, File No. 1-3164, as Exhibit 4(c), in Registration Nos. 33-43917 as Exhibit 4(a)-2, 33-45492 as Exhibit 4(a)-2, 33-48885 as Exhibit 4(a)-2, 33-48917 as Exhibit 4(a)-2, in Form 8-K dated January 20, 1993, File No. 1-3164, as Exhibit 4(a)-3, in Form 8-K dated February 17, 1993, File No. 1-3164, as Exhibit 4(a)-3, in Form 8-K dated March 10, 1993, File No. 1-3164, as Exhibit 4(a)-3, in Certificate of Notification, File No. 70-8069, as Exhibits A and B, in Form 8-K dated June 24, 1993, File No. 1-3164, as Exhibit 4, in Certificate of Notification, File No. 70-8069, as Exhibit A, in Form 8-K dated November 16, 1993, File No. 1-3164, as Exhibit 4(b), in Certificate of Notification, File No. 70-8069, as Exhibits A and B, in Certificate of Notification, File No. 70-8069, as Exhibit A, in Certificate of Notification, File No. 70-8069, as Exhibit A and in Form 8-K dated November 30, 1994, File No. 1-3164, as Exhibit 4.) E-4 (b) 2 - Subordinated Note Indenture dated as of January 1, 1996, between ALABAMA and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee, and indenture supplemental thereto dated as of January 1, 1996. (Designated in Certificate of Notification, File No. 70-8461, as Exhibits E and F.) (b) 3 - Subordinated Note Indenture dated as of January 1, 1997, between ALABAMA and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee, and indentures supplemental thereto through February 25, 1999. (Designated in Form 8-K dated January 9, 1997, File No. 1-3164, as Exhibits 4.1 and 4.2 and in Form 8-K dated February 18, 1999, File No. 3164, as Exhibit 4.2.) (b) 4 - Senior Note Indenture dated as of December 1, 1997, between ALABAMA and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee, and indentures supplemental thereto through August 29, 2001. (Designated in Form 8-K dated December 4, 1997, File No. 1-3164, as Exhibits 4.1 and 4.2, in Form 8-K dated February 20, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated April 17, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated August 11, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated September 8, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated September 16, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated October 7, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated October 28, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated November 12, 1998, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated May 19, 1999, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated August 13, 1999, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated September 21, 1999, File No. 1-3164, as Exhibit 4.2, in Form 8-K dated May 11, 2000, File No. 1-3164, as Exhibit 4.2 and in Form 8-K dated August 22, 2001, File No. 1-3164, as Exhibits 4.2(a) and 4.2(b).) (b) 5 - Amended and Restated Trust Agreement of Alabama Power Capital Trust I dated as of January 1, 1996. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit D.) (b) 6 - Amended and Restated Trust Agreement of Alabama Power Capital Trust II dated as of January 1, 1997. (Designated in Form 8-K dated January 9, 1997, File No. 1-3164, as Exhibit 4.5.) (b) 7 - Amended and Restated Trust Agreement of Alabama Power Capital Trust III dated as of February 1, 1999. (Designated in Form 8-K dated February 18, 1999, File No. 1-3164, as Exhibit 4.5.) (b) 8 - Guarantee Agreement relating to Alabama Power Capital Trust I dated as of January 1, 1996. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit G.) (b) 9 - Guarantee Agreement relating to Alabama Power Capital Trust II dated as of January 1, 1997. (Designated in Form 8-K dated January 9, 1997, File No. 1-3164, as Exhibit 4.8.) (b) 10 - Guarantee Agreement relating to Alabama Power Capital Trust III dated as of February 1, 1999. (Designated in Form 8-K dated February 18, 1999, File No. 1-3164, as Exhibit 4.8.) E-5 GEORGIA (c) 1 - Indenture dated as of March 1, 1941, between GEORGIA and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee, and indentures supplemental thereto dated as of March 1, 1941, March 3, 1941 (3 indentures), March 6, 1941 (139 indentures), March 1, 1946 (88 indentures) and December 1, 1947, through October 15, 1995. (Designated in Registration Nos. 2-4663 as Exhibits B-3 and B-3(a), 2-7299 as Exhibit 7(a)-2, 2-61116 as Exhibit 2(a)-3 and 2(a)-4, 2-62488 as Exhibit 2(a)-3, 2-63393 as Exhibit 2(a)-4, 2-63705 as Exhibit 2(a)-3, 2-68973 as Exhibit 2(a)-3, 2-70679 as Exhibit 4(a)-(2), 2-72324 as Exhibit 4(a)-2, 2-73987 as Exhibit 4(a)-(2), 2-77941 as Exhibits 4(a)-(2) and 4(a)-(3), 2-79336 as Exhibit 4(a)-(2), 2-81303 as Exhibit 4(a)-(2), 2-90105 as Exhibit 4(a)-(2), 33-5405 as Exhibit 4(a)-(2), 33-14367 as Exhibits 4(a)-(2) and 4(a)-(3), 33-22504 as Exhibits 4(a)-(2), 4(a)-(3) and 4(a)-(4), 33-32420 as Exhibit 4(a)-(2), 33-35683 as Exhibit 4(a)-(2), in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 4(a)(3), in Form 10-K for the year ended December 31, 1991, File No. 1-6468, as Exhibit 4(a)(5), in Registration No. 33-48895 as Exhibit 4(a)-(2), in Form 8-K dated August 26, 1992, File No. 1-6468, as Exhibit 4(a)-(3), in Form 8-K dated September 9, 1992, File No. 1-6468, as Exhibits 4(a)-(3) and 4(a)-(4), in Form 8-K dated September 23, 1992, File No. 1-6468, as Exhibit 4(a)-(3), in Form 8-A dated October 12, 1992, as Exhibit 2(b), in Form 8-K dated January 27, 1993, File No. 1-6468, as Exhibit 4(a)-(3), in Registration No. 33-49661 as Exhibit 4(a)-(2), in Form 8-K dated July 26, 1993, File No. 1-6468, as Exhibit 4, in Certificate of Notification, File No. 70-7832, as Exhibit M, in Certificate of Notification, File No. 70-7832, as Exhibit C, in Certificate of Notification, File No. 70-7832, as Exhibits K and L, in Certificate of Notification, File No. 70-8443, as Exhibit C, in Certificate of Notification, File No. 70-8443, as Exhibit C, in Certificate of Notification, File No. 70-8443, as Exhibit E, in Certificate of Notification, File No. 70-8443, as Exhibit E, in Certificate of Notification, File No. 70-8443, as Exhibit E, in GEORGIA's Form 10-K for the year ended December 31, 1994, File No. 1-6468, as Exhibits 4(c)2 and 4(c)3, in Certificate of Notification, File No. 70-8443, as Exhibit C, in Certificate of Notification, File No. 70-8443, as Exhibit C, in Form 8-K dated May 17, 1995, File No. 1-6468, as Exhibit 4 and in GEORGIA's Form 10-K for the year ended December 31, 1995, File No. 1-6468, as Exhibits 4(c)2, 4(c)3, 4(c)4, 4(c)5 and 4(c)6.) *(c) 2 - Satisfaction and Discharge of Indenture, Release and Deed of Reconveyance dated as of February 27, 2002, by JPMorgan Chase Bank, as Trustee, to GEORGIA relating to the defeasance of the Indenture dated as of March 1, 1941 between GEORGIA and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee, and indentures supplemental thereto through October 15, 1995. (c) 3 - Subordinated Note Indenture dated as of August 1, 1996, between GEORGIA and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee, and indentures supplemental thereto through January 1, 1997. (Designated in Form 8-K dated August 21, 1996, File No. 1-6468, as Exhibits 4.1 and 4.2 and in Form 8-K dated January 9, 1997, File No. 1-6468, as Exhibit 4.2.) E-6 (c) 4 - Subordinated Note Indenture dated as of June 1, 1997, between GEORGIA and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee, and indentures supplemental thereto through February 25, 1999. (Designated in Certificate of Notification, File No. 70-8461, as Exhibits D and E and Form 8-K dated February 17, 1999, File No. 1-6468, as Exhibit 4.4.) (c) 5 - Senior Note Indenture dated as of January 1, 1998, between GEORGIA and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee, and indentures supplemental thereto through May 8, 2001. (Designated in Form 8-K dated January 21, 1998, File No. 1-6468, as Exhibits 4.1 and 4.2, in Forms 8-K each dated November 19, 1998, File No. 1-6468, as Exhibit 4.2, in Form 8-K dated March 3, 1999, File No. 1-6469 as Exhibit 4.2, in Form 8-K dated February 15, 2000, File No. 1-6469 as Exhibit 4.2, in Form 8-K dated January 26, 2001, File No. 1-6469 as Exhibits 4.2(a) and 4.2(b), in Form 8-K dated February 16, 2001, File No. 1-6469 as Exhibit 4.2 and in Form 8-K dated May 1, 2001, File No. 1-6468, as Exhibit 4.2.) (c) 6 - Amended and Restated Trust Agreement of Georgia Power Capital Trust I dated as of August 1, 1996. (Designated in Form 8-K dated August 21, 1996, File No. 1-6468, as Exhibit 4.5.) (c) 7 - Amended and Restated Trust Agreement of Georgia Power Capital Trust II dated as of January 1, 1997. (Designated in Form 8-K dated January 9, 1997, File No. 1-6468, as Exhibit 4.5.) (c) 8 - Amended and Restated Trust Agreement of Georgia Power Capital Trust III dated as of June 1, 1997. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit C.) (c) 9 - Amended and Restated Trust Agreement of Georgia Power Capital Trust IV dated as of February 1, 1999. (Designated in Form 8-K dated February 17, 1999, as Exhibit 4.7-A) (c) 10 - Guarantee Agreement relating to Georgia Power Capital Trust I dated as of August 1, 1996. (Designated in Form 8-K dated August 21, 1996, File No. 1-6468, as Exhibit 4.8.) (c) 11 - Guarantee Agreement relating to Georgia Power Capital Trust II dated as of January 1, 1997. (Designated in Form 8-K dated January 9, 1997, File No. 1-6468, as Exhibit 4.8.) (c) 12 - Guarantee Agreement relating to Georgia Power Capital Trust III dated as of June 1, 1997. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit F.) (c) 13 - Guarantee Agreement relating to Georgia Power Capital Trust IV dated as of February 1, 1999. (Designated in Form 8-K dated February 17, 1999, as Exhibit 4.11-A.) E-7 GULF (d) 1 - Indenture dated as of September 1, 1941, between GULF and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee, and indentures supplemental thereto through November 1, 1996. (Designated in Registration Nos. 2-4833 as Exhibit B-3, 2-62319 as Exhibit 2(a)-3, 2-63765 as Exhibit 2(a)-3, 2-66260 as Exhibit 2(a)-3, 33-2809 as Exhibit 4(a)-2, 33-43739 as Exhibit 4(a)-2, in GULF's Form 10-K for the year ended December 31, 1991, File No. 0-2429, as Exhibit 4(b), in Form 8-K dated August 18, 1992, File No. 0-2429, as Exhibit 4(a)-3, in Registration No. 33-50165 as Exhibit 4(a)-2, in Form 8-K dated July 12, 1993, File No. 0-2429, as Exhibit 4, in Certificate of Notification, File No. 70-8229, as Exhibit A, in Certificate of Notification, File No. 70-8229, as Exhibits E and F, in Form 8-K dated January 17, 1996, File No. 0-2429, as Exhibit 4, in Certificate of Notification, File No. 70-8229, as Exhibit A, in Certificate of Notification, File No. 70-8229, as Exhibit A and in Form 8-K dated November 6, 1996, File No. 0-2429, as Exhibit 4.) (d) 2 - Subordinated Note Indenture dated as of January 1, 1997, between GULF and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee, and indentures supplemental thereto through November 16, 2001. (Designated in Form 8-K dated January 27, 1997, File No. 0-2429, as Exhibits 4.1 and 4.2, in Form 8-K dated July 28, 1997, File No. 0-2429, as Exhibit 4.2, in Form 8-K dated January 13, 1998, File No. 0-2429, as Exhibit 4.2 and in Form 8-K dated November 8, 2001, File No. 0-2429, as Exhibit 4.2.) (d) 3 - Senior Note Indenture dated as of January 1, 1998, between GULF and JPMorgan Chase Bank (formerly The Chase Manhattan Bank), as Trustee, and indentures supplemental thereto through January 30, 2002. (Designated in Form 8-K dated June 17, 1998, File No. 0-2429, as Exhibits 4.1 and 4.2, in Form 8-K dated August 17, 1999, File No. 0-2429, as Exhibit 4.2, in Form 8-K dated July 31, 2001, File No. 0-2429, as Exhibit 4.2, in Form 8-K dated October 5, 2001, File No. 0-2429, as Exhibit 4.2 and in Form 8-K dated January 18, 2002, File No. 0-2429, as Exhibit 4.2.) (d) 4 - Amended and Restated Trust Agreement of Gulf Power Capital Trust I dated as of January 1, 1997. (Designated in Form 8-K dated January 27, 1997, File No. 0-2429, as Exhibit 4.5.) (d) 5 - Amended and Restated Trust Agreement of Gulf Power Capital Trust II dated as of January 1, 1998. (Designated in Form 8-K dated January 13, 1998, File No. 0-2429, as Exhibit 4.5.) (d) 6 - Amended and Restated Trust Agreement of Gulf Power Capital Trust III dated as of November 1, 2001. (Designated in Form 8-K dated November 8, 2001, File No. 0-2429, as Exhibit 4.5.) (d) 7 - Guarantee Agreement relating to Gulf Power Capital Trust I dated as of January 1, 1997. (Designated in Form 8-K dated January 27, 1997, File No. 0-2429, as Exhibit 4.8.) E-8 (d) 8 - Guarantee Agreement relating to Gulf Power Capital Trust II dated as of January 1, 1998. (Designated in Form 8-K dated January 13, 1998, File No. 0-2429, as Exhibit 4.8.) (d) 9 - Guarantee Agreement relating to Gulf Power Capital Trust III dated as of November 1, 2001. (Designated in Form 8-K dated November 8, 1998, File No. 0-2429, as Exhibit 4.8.) MISSISSIPPI (e) 1 - Indenture dated as of September 1, 1941, between MISSISSIPPI and Bankers Trust Company, as Successor Trustee, and indentures supplemental thereto through December 1, 1995. (Designated in Registration Nos. 2-4834 as Exhibit B-3, 2-62965 as Exhibit 2(b)-2, 2-66845 as Exhibit 2(b)-2, 2-71537 as Exhibit 4(a)-(2), 33-5414 as Exhibit 4(a)-(2), 33-39833 as Exhibit 4(a)-2, in MISSISSIPPI's Form 10-K for the year ended December 31, 1991, File No. 0-6849, as Exhibit 4(b), in Form 8-K dated August 5, 1992, File No. 0-6849, as Exhibit 4(a)-2, in Second Certificate of Notification, File No. 70-7941, as Exhibit I, in MISSISSIPPI's Form 8-K dated February 26, 1993, File No. 0-6849, as Exhibit 4(a)-2, in Certificate of Notification, File No. 70-8127, as Exhibit A, in Form 8-K dated June 22, 1993, File No. 0-6849, as Exhibit 1, in Certificate of Notification, File No. 70-8127, as Exhibit A, in Form 8-K dated March 8, 1994, File No. 0-6849, as Exhibit 4, in Certificate of Notification, File No. 70-8127, as Exhibit C and in Form 8-K dated December 5, 1995, File No. 0-6849, as Exhibit 4.) (e) 2 - Senior Note Indenture dated as of May 1, 1998 between MISSISSIPPI and Bankers Trust Company, as Trustee and indentures supplemental thereto through March 28, 2000. (Designated in Form 8-K dated May 14, 1998, File No. 0-6849, as Exhibits 4.1, 4.2(a) and 4.2(b) and in Form 8-K dated March 22, 2000, File No. 0-6849, as Exhibit 4.2.) (e) 3 - Subordinated Note Indenture dated as of February 1, 1997, between MISSISSIPPI and Bankers Trust Company, as Trustee, and indenture supplemental thereto dated as of February 1, 1997. (Designated in Form 8-K dated February 20, 1997, File No. 0-6849, as Exhibits 4.1 and 4.2.) (e) 4 - Amended and Restated Trust Agreement of Mississippi Power Capital Trust I dated as of February 1, 1997. (Designated in Form 8-K dated February 20, 1997, File No. 0-6849, as Exhibit 4.5.) (e) 5 - Guarantee Agreement relating to Mississippi Power Capital Trust I dated as of February 1, 1997. (Designated in Form 8-K dated February 20, 1997, File No. 0-6849, as Exhibit 4.8.) SAVANNAH (f) 1 - Indenture dated as of March 1, 1945, between SAVANNAH and The Bank of New York, as Trustee, and indentures supplemental thereto through May 1, 1996. (Designated in Registration Nos. 33-25183 as Exhibit 4(a)-(1), 33-41496 as Exhibit 4(a)-(2), 33-45757 as Exhibit 4(a)-(2), in SAVANNAH's Form 10-K for E-9 the year ended December 31, 1991, File No. 1-5072, as Exhibit 4(b), in Form 8-K dated July 8, 1992, File No. 1-5072, as Exhibit 4(a)-3, in Registration No. 33-50587 as Exhibit 4(a)-(2), in Form 8-K dated July 22, 1993, File No. 1-5072, as Exhibit 4, in Form 8-K dated May 18, 1995, File No. 1-5072, as Exhibit 4 and in Form 8-K dated May 23, 1996, File No. 1-5072, as Exhibit 4.) (f) 2 - Senior Note Indenture dated as of March 1, 1998 between SAVANNAH and The Bank of New York, as Trustee and indentures supplemental thereto through May 17, 2001. (Designated in Form 8-K dated March 9, 1998, File No. 1-5072, as Exhibits 4.1 and 4.2 and in Form 8-K dated May 8, 2001, File No. 1-5072, as Exhibits 4.2(a) and 4.2(b).) (f) 3 - Subordinated Note Indenture dated as of December 1, 1998, between SAVANNAH and The Bank of New York, as Trustee, and indenture supplemental thereto dated as of December 9, 1998. (Designated in Form 8-K dated December 3, 1998, File No. 1-5072, as Exhibit 4.3 and 4.4.) (f) 4 - Amended and Restated Trust Agreement of Savannah Electric Capital Trust I dated as of December 1, 1998. (Designated in Form 8-K dated December 3, 1998, File No. 1-5072, as Exhibit 4.7.) (f) 5 - Guarantee Agreement relating to Savannah Electric Capital Trust I dated as of December 1, 1998. (Designated in Form 8-K dated December 3, 1998, File No. 1-5072, as Exhibit 4.11.) (10) Material Contracts SOUTHERN (a) 1 - Service contracts dated as of January 1, 1984, between SCS and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SEGCO and SOUTHERN and Amendment No. 1 dated as of September 6, 1985 between SCS and SOUTHERN. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1984, File No. 1-3526, as Exhibit 10(a) and in SOUTHERN's Form 10-K for the year ended December 31, 1985, File No. 1-3526, as Exhibit 10(a)(3).) *(a) 2 - Service contract dated as of January 1, 2001, between SCS and Southern Power. (a) 3 - Service contract dated as of March 3, 1988, between SCS and SAVANNAH. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1987, File No. 1-5072, as Exhibit 10-p.) (a) 4 - Service contract dated as of January 15, 1991, between SCS and Southern Nuclear. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1991, File No. 1-3526, as Exhibit 10(a)(4).) (a) 5 - Service contract dated as of December 12, 1994, between SCS and Mobile Energy Services Company, Inc. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)58.) E-10 (a) 6 - Interchange contract dated February 17, 2000, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, SPC and SCS. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)6.) (a) 7 - Agreement dated as of January 27, 1959, Amendment No. 1 dated as of October 27, 1982 and Amendment No. 2 dated November 4, 1993 and effective June 1, 1994, among SEGCO, ALABAMA and GEORGIA. (Designated in Registration No. 2-59634 as Exhibit 5(c), in GEORGIA's Form 10-K for the year ended December 31, 1982, File No. 1-6468, as Exhibit 10(d)(2) and in ALABAMA's Form 10-K for the year ended December 31, 1994, File No. 1-3164, as Exhibit 10(b)18.) (a) 8 - Joint Committee Agreement dated as of August 27, 1976, among GEORGIA, OPC, MEAG and Dalton. (Designated in Registration No. 2-61116 as Exhibit 5(d).) (a) 9 - Edwin I. Hatch Nuclear Plant Purchase and Ownership Participation Agreement dated as of January 6, 1975, between GEORGIA and OPC. (Designated in Form 8-K for January, 1975, File No. 1-6468, as Exhibit (b)(1).) (a) 10 - Edwin I. Hatch Nuclear Plant Operating Agreement dated as of January 6, 1975, between GEORGIA and OPC. (Designated in Form 8-K for January, 1975, File No. 1-6468, as Exhibit (b)(3).) (a) 11 - Revised and Restated Integrated Transmission System Agreement dated as of November 12, 1990, between GEORGIA and OPC. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(g).) (a) 12 - Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of March 26, 1976, between GEORGIA and OPC. (Designated in Certificate of Notification, File No. 70-5592, as Exhibit A.) (a) 13 - Plant Hal Wansley Operating Agreement dated as of March 26, 1976, between GEORGIA and OPC. (Designated in Certificate of Notification, File No. 70-5592, as Exhibit B.) (a) 14 - Edwin I. Hatch Nuclear Plant Purchase and Ownership Participation Agreement dated as of August 27, 1976, between GEORGIA, MEAG and Dalton. (Designated in Form 8-K dated as of June 13, 1977, File No. 1-6468, as Exhibit (b)(1).) (a) 15 - Edwin I. Hatch Nuclear Plant Operating Agreement dated as of August 27, 1976, between GEORGIA, MEAG and Dalton. (Designated in Form 8-K for February 1977, File No. 1-6468, as Exhibit (b)(2).) (a) 16 - Alvin W. Vogtle Nuclear Units Number One and Two Purchase and Ownership Participation Agreement dated as of August 27, 1976 and Amendment No. 1 dated as of January 18, 1977, among GEORGIA, OPC, MEAG and Dalton. (Designated in Form U-1, File No. 70-5792, as Exhibit B-1 and in Form 8-K for January 1977, File No. 1-6468, as Exhibit (B)(3).) E-11 (a) 17 - Alvin W. Vogtle Nuclear Units Number One and Two Operating Agreement dated as of August 27, 1976, among GEORGIA, OPC, MEAG and Dalton. (Designated in Form U-1, File No. 70-5792, as Exhibit B-2.) (a) 18 - Alvin W. Vogtle Nuclear Units Number One and Two Purchase, Amendment, Assignment and Assumption Agreement dated as of November 16, 1983, between GEORGIA and MEAG. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1983, File No. 1-6468, as Exhibit 10(k)(4).) (a) 19 - Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of August 27, 1976, between GEORGIA and MEAG. (Designated in Form 8-K dated as of July 5, 1977, File No. 1-6468, as Exhibit (b)(2).) (a) 20 - Plant Hal Wansley Operating Agreement dated as of August 27, 1976, between GEORGIA and MEAG. (Designated in Form 8-K dated as of July 5, 1977, File No. 1-6468, as Exhibit (b)(4).) (a) 21 - Nuclear Operating Agreement between Southern Nuclear and GEORGIA dated as of July 1, 1993. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit 10(a)21.) (a) 22 - Pseudo Scheduling and Services Agreement between GEORGIA and MEAG dated as of April 8, 1997. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit 10(a)22.) (a) 23 - Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of April 19, 1977, between GEORGIA and Dalton. (Designated in Form 8-K dated as of June 13, 1977, File No. 1-6468, as Exhibit (b)(3).) (a) 24 - Plant Hal Wansley Operating Agreement dated as of April 19, 1977, between GEORGIA and Dalton. (Designated in Form 8-K dated as of June 13, 1977, File No. 1-6468, as Exhibit (b)(7).) (a) 25 - Plant Robert W. Scherer Units Number One and Two Purchase and Ownership Participation Agreement dated as of May 15, 1980, Amendment No. 1 dated as of December 30, 1985, Amendment No. 2 dated as of July 1, 1986, Amendment No. 3 dated as of August 1, 1988 and Amendment No. 4 dated as of December 31, 1990, among GEORGIA, OPC, MEAG and Dalton. (Designated in Form U-1, File No. 70-6481, as Exhibit B-3, in SOUTHERN's Form 10-K for the year ended December 31, 1987, File No. 1-3526, as Exhibit 10(o)(2), in SOUTHERN's Form 10-K for the year ended December 31, 1989, File No. 1-3526, as Exhibit 10(n)(2) and in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)54.) (a) 26 - Plant Robert W. Scherer Units Number One and Two Operating Agreement dated as of May 15, 1980, Amendment No. 1 dated as of December 3, 1985 and Amendment No. 2 dated as of December 31, 1990, among GEORGIA, OPC, MEAG and Dalton. (Designated in Form U-1, File No. 70-6481, as Exhibit B-4, in SOUTHERN's Form 10-K for the year ended December 31, 1987, File No. 1-3526, as Exhibit 10(o)(4) and in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)55.) E-12 (a) 27 - Plant Robert W. Scherer Purchase, Sale and Option Agreement dated as of May 15, 1980, between GEORGIA and MEAG. (Designated in Form U-1, File No. 70-6481, as Exhibit B-1.) (a) 28 - Plant Robert W. Scherer Purchase and Sale Agreement dated as of May 16, 1980, between GEORGIA and Dalton. (Designated in Form U-1, File No. 70-6481, as Exhibit B-2.) (a) 29 - Plant Robert W. Scherer Unit Number Three Purchase and Ownership Participation Agreement dated as of March 1, 1984, Amendment No. 1 dated as of July 1, 1986 and Amendment No. 2 dated as of August 1, 1988, between GEORGIA and GULF. (Designated in Form U-1, File No. 70-6573, as Exhibit B-4, in SOUTHERN's Form 10-K for the year ended December 31, 1987, as Exhibit 10(o)(2) and in SOUTHERN's Form 10-K for the year ended December 31, 1989, as Exhibit 10(n)(2).) (a) 30 - Plant Robert W. Scherer Unit Number Three Operating Agreement dated as of March 1, 1984, between GEORGIA and GULF. (Designated in Form U-1, File No. 70-6573, as Exhibit B-5.) (a) 31 - Plant Robert W. Scherer Unit No. Four Amended and Restated Purchase and Ownership Participation Agreement by and among GEORGIA, FP&L and JEA, dated as of December 31, 1990 and Amendment No. 1 dated as of June 15, 1994. (Designated in Form U-1, File No. 70-7843, as Exhibit B-1 and in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)60.) (a) 32 - Plant Robert W. Scherer Unit No. Four Operating Agreement by and among GEORGIA, FP&L and JEA, dated as of December 31, 1990 and Amendment No. 1 dated as of June 15, 1994. (Designated in Form U-1, File No. 70-7843, as Exhibit B-2 and in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)61.) (a) 33 - Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1988, File No. 1-5072, as Exhibit 10(d).) (a) 34 - Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1988, File No. 1-5072, as Exhibit 10(e).) (a) 35 - Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1988, File No. 1-5072, as Exhibit 10(f).) (a) 36 - Rocky Mountain Pumped Storage Hydroelectric Project Ownership Participation Agreement dated November 18, 1988, between OPC and GEORGIA. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1988, File No. 1-6468, as Exhibit 10(x).) E-13 (a) 37 - Rocky Mountain Pumped Storage Hydroelectric Project Operating Agreement dated November 18, 1988, between OPC and GEORGIA. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1988, File No. 1-6468, as Exhibit 10(y).) (a) 38 - Purchase and Ownership Agreement for Joint Ownership Interest in the James H. Miller, Jr. Steam Electric Generating Plant Units One and Two dated November 18, 1988, between ALABAMA and AEC. (Designated in Form U-1, File No. 70-7609, as Exhibit B-1.) (a) 39 - Operating Agreement for Joint Ownership Interest in the James H. Miller, Jr. Steam Electric Generating Plant Units One and Two dated November 18, 1988, between ALABAMA and AEC. (Designated in Form U-1, File No. 70-7609, as Exhibit B-2.) (a) 40 - Transmission Facilities Agreement dated February 25, 1982, Amendment No. 1 dated May 12, 1982 and Amendment No. 2 dated December 6, 1983, between Gulf States and MISSISSIPPI. (Designated in MISSISSIPPI's Form 10-K for the year ended December 31, 1981, File No. 0-6849, as Exhibit 10(f), in MISSISSIPPI's Form 10-K for the year ended December 31, 1982, File No. 0-6849, as Exhibit 10(f)(2) and in MISSISSIPPI's Form 10-K for the year ended December 31, 1983, File No. 0-6849, as Exhibit 10(f)(3).) (a) 41 - Long Term Transaction Service Agreement between GEORGIA and OPC dated as of February 26, 1999. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1999, File No. 1-3526, as Exhibit 10(a)46.) (a) 42 - Revised and Restated Coordination Services Agreement between and among GEORGIA, OPC and Georgia Systems Operations Corporation dated as of September 10, 1997. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit 10(a)48.) (a) 43 - Amended and Restated Nuclear Managing Board Agreement for Plant Hatch and Plant Vogtle among GEORGIA, OPC, MEAG and Dalton dated as of July 1, 1993. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)49.) (a) 44 - Integrated Transmission System Agreement, Power Sale and Coordination Umbrella Agreement between GEORGIA and OPC dated as of November 12, 1990. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(ff).) (a) 45 - Revised and Restated Integrated Transmission System Agreement between GEORGIA and Dalton dated as of December 7, 1990. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(gg).) (a) 46 - Revised and Restated Integrated Transmission System Agreement between GEORGIA and MEAG dated as of December 7, 1990. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(hh).) E-14 (a) 47 - Long Term Transmission Service Agreement between Entergy Power, Inc. and ALABAMA, MISSISSIPPI and SCS. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1992, File No. 1-3526, as Exhibit 10(a)53.) (a) 48 - Plant Scherer Managing Board Agreement dated as of December 31, 1990 among GEORGIA, OPC, MEAG, Dalton, GULF, FP&L and JEA. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)56.) (a) 49 - Plant McIntosh Combustion Turbine Purchase and Ownership Participation Agreement between GEORGIA and SAVANNAH dated as of December 15, 1992. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)57.) (a) 50 - Plant McIntosh Combustion Turbine Operating Agreement between GEORGIA and SAVANNAH dated as of December 15, 1992. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)58.) (a) 51 - Operating Agreement for the Joseph M. Farley Nuclear Plant between ALABAMA and Southern Nuclear dated as of December 23, 1991. (Designated in Form U-1, File No. 70-7530, as Exhibit B-7.) *(a) 52 - The Southern Company Employee Savings Plan, Amended and Restated effective January 1, 2002. *(a) 53 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective January 1, 2002. # (a) 54 - Southern Company Omnibus Incentive Compensation Plan, Amended and Restated effective May 23, 2001. (Designated in Form S-8, File No. 333-73462, as Exhibit 4(c).) # (a) 55 - The Deferred Compensation Plan for the Directors of The Southern Company, Amended and Restated effective February 19, 2001. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)59.) # (a) 56 - The Southern Company Outside Directors Pension Plan. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)77.) # (a) 57 - The Southern Company Deferred Compensation Plan, Amended and Restated effective February 23, 2001. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)61.) # (a) 58 - The Southern Company Outside Directors Stock Plan and First Amendment thereto. (Designated in Registration No. 33-54415 as Exhibit 4(c) and in SOUTHERN's Form 10-K for the year ended December 31, 1995, File No. 1-3526, as Exhibit 10(a)79.) E-15 # (a) 59 - Outside Directors Stock Plan for Subsidiaries of The Southern Company, Amended and Restated effective January 1, 2000. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)63.) (a) 60 - The Southern Company Pension Plan, effective as of January 1, 1997 and all amendments thereto through Amendment Number Six. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1996, File No. 1-3526, as Exhibit 10(a)83, in SOUTHERN's Form 10-K for the year ended December 31, 1997, File No. 1-3526, as Exhibit 10(a)79, in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)71, in SOUTHERN's Form 10-K for the year ended December 31, 1999, File No. 1-3526, as Exhibit 10(a)72 and in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526 as Exhibit 10(a)66.) *(a) 61 - Amendment Number Seven to The Southern Company Pension Plan. #*(a) 62 - The Southern Company Supplemental Executive Retirement Plan, Amended and Restated effective May 1, 2000. #*(a) 63 - The Southern Company Performance Sharing Plan, Amended and Restated effective January 1, 2002. #*(a) 64 - The Southern Company Supplemental Benefit Plan, Amended and Restated effective May 1, 2000. (a) 65 - Southern Company Change in Control Severance Plan, Amended and Restated effective July 10, 2000. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)72.) # (a) 66 - Southern Company Executive Change in Control Severance Plan, Amended and Restated effective July 10, 2000. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)73.) # (a) 67 - Deferred Compensation Agreement between SOUTHERN, Southern Nuclear and William G. Hairston III. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)81.) # (a) 68 - Deferred Compensation Agreement between SOUTHERN, GEORGIA and Warren Y. Jobe. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1998, File No. 1-3526 as Exhibit 10(a)82.) # (a) 69 - Amended and Restated Change in Control Agreement between SOUTHERN, GULF and Travis J. Bowden. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)79.) # (a) 70 - Amended and Restated Change in Control Agreement between SOUTHERN, SCS and A. W. Dahlberg. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)80.) E-16 # (a) 71 - Amended and Restated Change in Control Agreement between SOUTHERN, MISSISSIPPI and Dwight H. Evans. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)81.) # (a) 72 - Amended and Restated Change in Control Agreement between SOUTHERN, SCS and Henry Allen Franklin. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)83.) # (a) 73 - Amended and Restated Change in Control Agreement between SOUTHERN, Southern Nuclear and William G. Hairston, III. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)84.) # (a) 74 - Amended and Restated Change in Control Agreement between SOUTHERN, ALABAMA and Elmer B. Harris. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)85.) # (a) 75 - Amended and Restated Change in Control Agreement between SOUTHERN, SAVANNAH and G. Edison Holland, Jr. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)86.) # (a) 76 - Amended and Restated Change in Control Agreement between SOUTHERN, SCS and C. Alan Martin. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)87.) # (a) 77 - Amended and Restated Change in Control Agreement between SOUTHERN, SCS and Charles Douglas McCrary. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)88.) # (a) 78 - Amended and Restated Change in Control Agreement between SOUTHERN, GEORGIA and David M. Ratcliffe. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)89.) # (a) 79 - Amended and Restated Change in Control Agreement between SOUTHERN, SCS and Stephen A. Wakefield. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)90.) # (a) 80 - Amended and Restated Change in Control Agreement between SOUTHERN, SCS and W. Lawrence Westbrook. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)91.) # (a) 81 - Amended and Restated Change in Control Agreement between SOUTHERN, SCS and Gale E. Klappa. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)92.) # (a) 82 - Deferred Compensation Agreement between SOUTHERN and William L. Westbrook. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)94.) #*(a) 83 - First Amendment to Deferred Compensation Agreement between SOUTHERN and William L. Westbrook dated September 7, 2001. E-17 # (a) 84 - Deferred Compensation Agreement between SOUTHERN and Alfred W. Dahlberg, III. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)95.) # (a) 85 - Southern Company Change in Control Benefit Plan Determination Policy, effective July 10, 2000. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)96.) # (a) 86 - Change in Control Agreement between SOUTHERN, SCS and Robert H. Haubein, Jr. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)97.) # (a) 87 - Master Separation and Distribution Agreement dated as of September 1, 2000 between SOUTHERN and Mirant. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)100.) # (a) 88 - Indemnification and Insurance Matters Agreement dated as of September 1, 2000 between SOUTHERN and Mirant. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)101.) # (a) 89 - Tax Indemnification Agreement dated as of September 1, 2000 among SOUTHERN and its affiliated companies and Mirant and its affiliated companies. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)102.) # (a) 90 - Southern Company Deferred Compensation Trust Agreement dated as of January 1, 2001 between Wachovia Bank, N.A., SOUTHERN, SCS, ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, Southern Communications, Energy Solutions, Mirant and Southern Nuclear. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)103.) # (a) 91 - Deferred Stock Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of January 1, 2000, between Reliance Trust Company, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 2000, File No. 1-3526, as Exhibit 10(a)104.) #*(a) 92 - Amended and Restated Deferred Cash Compensation Trust Agreement for Directors of SOUTHERN and its subsidiaries, effective September 1, 2001, between Wachovia Bank, N.A, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH. ALABAMA (b) 1 - Service contracts dated as of January 1, 1984, between SCS and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SEGCO and SOUTHERN and Amendment No. 1 dated as of September 6, 1985 between SCS and SOUTHERN. See Exhibit 10(a)1 herein. E-18 (b) 2 - Interchange contract dated February 17, 2000, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, SPC and SCS. See Exhibit 10(a)6 herein. (b) 3 - Agreement dated as of January 27, 1959, Amendment No. 1 dated as of October 27, 1982 and Amendment No. 2 dated November 4, 1993 and effective June 1, 1994, among SEGCO, ALABAMA and GEORGIA. See Exhibit 10(a)7 herein. (b) 4 - Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)33 herein. (b) 5 - Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)34 herein. (b) 6 - Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)35 herein. (b) 7 - Firm Power Purchase Contract between ALABAMA and AMEA. (Designated in Certificate of Notification, File No. 70-7212, as Exhibit B.) (b) 8 - 1991 Firm Power Purchase Contract between ALABAMA and AMEA. (Designated in Form U-1, File No. 70-7873, as Exhibit B-1.) (b) 9 - Purchase and Ownership Agreement for Joint Ownership Interest in the James H. Miller, Jr. Steam Electric Generating Plant Units One and Two dated November 18, 1988, between ALABAMA and AEC. See Exhibit 10(a)38 herein. (b) 10 - Operating Agreement for Joint Ownership Interest in the James H. Miller, Jr. Steam Electric Generating Plant Units One and Two dated November 18, 1988, between ALABAMA and AEC. See Exhibit 10(a)39 herein. (b) 11 - Long Term Transmission Service Agreement between Entergy Power, Inc. and ALABAMA, MISSISSIPPI and SCS. See Exhibit 10(a)47 herein. (b) 12 - Operating Agreement for the Joseph M. Farley Nuclear Plant between ALABAMA and Southern Nuclear dated as of December 23, 1991. See Exhibit 10(a)51 herein. *(b) 13 - The Southern Company Employee Savings Plan, Amended and Restated effective January 1, 2002. See Exhibit 10(a)52 herein. *(b) 14 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective January 1, 2002. See Exhibit 10(a)53 herein. # (b) 15 - Southern Company Omnibus Incentive Compensation Plan, Amended and Restated effective May 23, 2001. See Exhibit 10(a)54 herein. # (b) 16 - The Southern Company Deferred Compensation Plan, Amended and Restated effective February 23, 2001. See Exhibit 10(a)57 herein. E-19 # (b) 17 - The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)56 herein. # (b) 18 - Outside Directors Stock Plan for Subsidiaries of The Southern Company, Amended and Restated effective January 1, 2000. See Exhibit 10(a)59 herein. (b) 19 - The Southern Company Pension Plan, effective as of January 1, 1997 and all amendments thereto through Amendment Number Six. See Exhibit 10(a)60 herein. *(b) 20 - Amendment Number Seven to The Southern Company Pension Plan. See Exhibit 10(a)61 herein. #*(b) 21 - The Southern Company Supplemental Executive Retirement Plan, Amended and Restated effective May 1, 2000. See Exhibit 10(a)62 herein. #*(b) 22 - The Southern Company Performance Sharing Plan, Amended and Restated effective January 1, 2002. See Exhibit 10(a)63 herein. #*(b) 23 - The Southern Company Supplemental Benefit Plan, Amended and Restated effective May 1, 2000. See Exhibit 10(a)64 herein. (b) 24 - Southern Company Change in Control Severance Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)65 herein. # (b) 25 - Southern Company Executive Change in Control Severance Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)66 herein. #*(b) 26 - Deferred Compensation Agreement between ALABAMA and Elmer B. Harris. # (b) 27 - Supplemental Pension Agreement between ALABAMA, GULF and Travis J. Bowden. (Designated in ALABAMA's Form 10-K for the year ended December 31, 1998, File No. 1-3164, as Exhibit 10(b)40.) #*(b) 28 - Deferred Compensation Plan for Directors of Alabama Power Company, Amended and Restated effective January 1, 2001. # (b) 29 - Southern Company Change in Control Benefit Plan Determination Policy, effective July 10, 2000. See Exhibit 10(a)85 herein. # (b) 30 - Southern Company Deferred Compensation Trust Agreement dated as of January 1, 2001 between Wachovia Bank, N.A., SOUTHERN, SCS, ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, Southern Communications, Energy Solutions, Mirant and Southern Nuclear. See Exhibit 10(a)90 herein. # (b) 31 - Deferred Stock Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of January 1, 2000, between Reliance Trust Company, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH. See Exhibit 10(b)91 herein. E-20 #*(b) 32 - Amended and Restated Deferred Cash Compensation Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of September 1, 2001, between Wachovia Bank, N.A, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH. See Exhibit 10(a)92 herein. GEORGIA (c) 1 - Service contracts dated as of January 1, 1984, between SCS and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SEGCO and SOUTHERN and Amendment No. 1 dated as of September 6, 1985, between SCS and SOUTHERN. See Exhibit 10(a)1 herein. (c) 2 - Interchange contract dated February 17, 2000, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, SPC and SCS. See Exhibit 10(a)6 herein. (c) 3 - Agreement dated as of January 27, 1959, Amendment No. 1 dated as of October 27, 1982 and Amendment No. 2 dated November 4, 1993 and effective June 1, 1994, among SEGCO, ALABAMA and GEORGIA. See Exhibit 10(a)7 herein. (c) 4 - Joint Committee Agreement dated as of August 27, 1976, among GEORGIA, OPC, MEAG and Dalton. See Exhibit 10(a)8 herein. (c) 5 - Edwin I. Hatch Nuclear Plant Purchase and Ownership Participation Agreement dated as of January 6, 1975, between GEORGIA and OPC. See Exhibit 10(a)9 herein. (c) 6 - Edwin I. Hatch Nuclear Plant Operating Agreement dated as of January 6, 1975, between GEORGIA and OPC. See Exhibit 10(a)10 herein. (c) 7 - Revised and Restated Integrated Transmission System Agreement dated as of November 12, 1990, between GEORGIA and OPC. See Exhibit 10(a)11 herein. (c) 8 - Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of March 26, 1976, between GEORGIA and OPC. See Exhibit 10(a)12 herein. (c) 9 - Plant Hal Wansley Operating Agreement dated as of March 26, 1976, between GEORGIA and OPC. See Exhibit 10(a)13 herein. (c) 10 - Edwin I. Hatch Nuclear Plant Purchase and Ownership Participation Agreement dated as of August 27, 1976, between GEORGIA, MEAG and Dalton. See Exhibit 10(a)14 herein. (c) 11 - Edwin I. Hatch Nuclear Plant Operating Agreement dated as of August 27, 1976, between GEORGIA, MEAG and Dalton. See Exhibit 10(a)15 herein. (c) 12 - Alvin W. Vogtle Nuclear Units Number One and Two Purchase and Ownership Participation Agreement dated as of August 27, 1976 and Amendment No. 1 dated as of January 18, 1977, among GEORGIA, OPC, MEAG and Dalton. See Exhibit 10(a)16 herein. E-21 (c) 13 - Alvin W. Vogtle Nuclear Units Number One and Two Operating Agreement dated as of August 27, 1976, among GEORGIA, OPC, MEAG and Dalton. See Exhibit 10(a)17 herein. (c) 14 - Alvin W. Vogtle Nuclear Units Number One and Two Purchase, Amendment, Assignment and Assumption Agreement dated as of November 16, 1983, between GEORGIA and MEAG. See Exhibit 10(a)18 herein. (c) 15 - Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of August 27, 1976, between GEORGIA and MEAG. See Exhibit 10(a)19 herein. (c) 16 - Plant Hal Wansley Operating Agreement dated as of August 27, 1976, between GEORGIA and MEAG. See Exhibit 10(a)20 herein. (c) 17 - Nuclear Operating Agreement between Southern Nuclear and GEORGIA dated as of July 1, 1993. See Exhibit 10(a)21 herein. (c) 18 - Pseudo Scheduling and Services Agreement between GEORGIA and MEAG dated as of April 8, 1997. See Exhibit 10(a)22 herein. (c) 19 - Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of April 19, 1977, between GEORGIA and Dalton. See Exhibit 10(a)23 herein. (c) 20 - Plant Hal Wansley Operating Agreement dated as of April 19, 1977, between GEORGIA and Dalton. See Exhibit 10(a)24 herein. (c) 21 - Plant Robert W. Scherer Units Number One and Two Purchase and Ownership Participation Agreement dated as of May 15, 1980, Amendment No. 1 dated as of December 30, 1985, Amendment No. 2 dated as of July 1, 1986, Amendment No. 3 dated as of August 1, 1988 and Amendment No. 4 dated as of December 31, 1990, among GEORGIA, OPC, MEAG and Dalton. See Exhibit 10(a)25 herein. (c) 22 - Plant Robert W. Scherer Units Number One and Two Operating Agreement dated as of May 15, 1980, Amendment No. 1 dated as of December 3, 1985 and Amendment No. 2 dated as of December 31, 1990, among GEORGIA, OPC, MEAG and Dalton. See Exhibit 10(a)26 herein. (c) 23 - Plant Robert W. Scherer Purchase, Sale and Option Agreement dated as of May 15, 1980, between GEORGIA and MEAG. See Exhibit 10(a)27 herein. (c) 24 - Plant Robert W. Scherer Purchase and Sale Agreement dated as of May 16, 1980, between GEORGIA and Dalton. See Exhibit 10(a)28 herein. (c) 25 - Plant Robert W. Scherer Unit Number Three Purchase and Ownership Participation Agreement dated as of March 1, 1984, Amendment No. 1 dated as of July 1, 1986 and Amendment No. 2 dated as of August 1, 1988, between GEORGIA and GULF. See Exhibit 10(a)29 herein. (c) 26 - Plant Robert W. Scherer Unit Number Three Operating Agreement dated as of March 1, 1984, between GEORGIA and GULF. See Exhibit 10(a)30 herein. E-22 (c) 27 - Plant Robert W. Scherer Unit No. Four Amended and Restated Purchase and Ownership Participation Agreement by and among GEORGIA, FP&L and JEA dated as of December 31, 1990 and Amendment No. 1 dated as of June 15, 1994. See Exhibit 10(a)31 herein. (c) 28 - Plant Robert W. Scherer Unit No. Four Operating Agreement by and among GEORGIA, FP&L and JEA dated as of December 31, 1990 and Amendment No. 1 dated as of June 15, 1994. See Exhibit 10(a)32 herein. (c) 29 - Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)33 herein. (c) 30 - Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)34 herein. (c) 31 - Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)35 herein. (c) 32 - Rocky Mountain Pumped Storage Hydroelectric Project Ownership Participation Agreement dated November 18, 1988, between OPC and GEORGIA. See Exhibit 10(a)36 herein. (c) 33 - Rocky Mountain Pumped Storage Hydroelectric Project Operating Agreement dated November 18, 1988, between OPC and GEORGIA. See Exhibit 10(a)37 herein. (c) 34 - Long Term Transaction Service Agreement between GEORGIA and OPC dated as of February 26, 1999. See Exhibit 10(a)41 herein. (c) 35 - Revised and Restated Coordination Services Agreement between and among GEORGIA, OPC and Georgia Systems Operations Corporation dated as of September 10, 1997. See Exhibit 10(a)42 herein. (c) 36 - Amended and Restated Nuclear Managing Board Agreement for Plant Hatch and Plant Vogtle among GEORGIA, OPC, MEAG and Dalton dated as of July 1, 1993. See Exhibit 10(a)43 herein. (c) 37 - Integrated Transmission System Agreement, Power Sale and Coordination Umbrella Agreement between GEORGIA and OPC dated as of November 12, 1990. See Exhibit 10(a)44 herein. (c) 38 - Revised and Restated Integrated Transmission System Agreement between GEORGIA and Dalton dated as of December 7, 1990. See Exhibit 10(a)45 herein. (c) 39 - Revised and Restated Integrated Transmission System Agreement between GEORGIA and MEAG dated as of December 7, 1990. See Exhibit 10(a)46 herein. E-23 (c) 40 - Plant Scherer Managing Board Agreement dated as of December 31, 1990 among GEORGIA, OPC, MEAG, Dalton, GULF, FP&L and JEA. See Exhibit 10(a)48 herein. (c) 41 - Plant McIntosh Combustion Turbine Purchase and Ownership Participation Agreement between GEORGIA and SAVANNAH dated as of December 15, 1992. See Exhibit 10(a)49 herein. (c) 42 - Plant McIntosh Combustion Turbine Operating Agreement between GEORGIA and SAVANNAH dated as of December 15, 1992. See Exhibit 10(a)50 herein. *(c) 43 - The Southern Company Employee Savings Plan, Amended and Restated effective January 1, 2002. See Exhibit 10(a)52 herein. *(c) 44 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective January 1, 2002. See Exhibit 10(a)53 herein. # (c) 45 - Southern Company Omnibus Incentive Compensation Plan, Amended and Restated effective May 23, 2001. See Exhibit 10(a)54 herein. # (c) 46 - The Southern Company Deferred Compensation Plan, Amended and Restated effective February 23, 2001. See Exhibit 10(a)57 herein. # (c) 47 - The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)56 herein. # (c) 48 - Outside Directors Stock Plan for Subsidiaries of The Southern Company, Amended and Restated effective January 1, 2000. See Exhibit 10(a)59 herein. (c) 49 - The Southern Company Pension Plan, effective as of January 1, 1997 and all amendments thereto through Amendment Number Six. See Exhibit 10(a)60 herein. *(c) 50 - Amendment Number Seven to The Southern Company Pension Plan. See Exhibit 10(a)61 herein. #*(c) 51 - The Southern Company Supplemental Executive Retirement Plan, Amended and Restated effective May 1, 2000. See Exhibit 10(a)62 herein. #*(c) 52 - The Southern Company Performance Sharing Plan, Amended and Restated effective January 1, 2002. See Exhibit 10(a)63 herein. #*(c) 53 - The Southern Company Supplemental Benefit Plan, Amended and Restated effective May 1, 2000. See Exhibit 10(a)64 herein. (c) 54 - Southern Company Change in Control Severance Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)65 herein. # (c) 55 - Southern Company Executive Change in Control Severance Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)66 herein. E-24 # (c) 56 - Deferred Compensation Agreement between SOUTHERN, GEORGIA and Warren Y. Jobe. See Exhibit 10(a)68 herein. # (c) 57 - Amended and Restated Change in Control Agreement between SOUTHERN, GEORGIA and David M. Ratcliffe. See Exhibit 10(a)78 herein. # (c) 58 - Supplemental Pension Agreement between GEORGIA and Warren Y. Jobe. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1998, File No. 1-6468, as Exhibit 10(c)77.) #*(c) 59 - Separation Agreement between GEORGIA and Robert H. Haubein, Jr. dated December 21, 2001 and First Amendment thereto effective December 21, 2001. #*(c) 60 - Separation Agreement between GEORGIA and Fred D. Williams dated December 31, 2001. # (c) 61 - Deferred Compensation Plan For Directors of Georgia Power Company, Amended and Restated Effective February 21, 2001. (Designated in GEORGIA's Form 10-K for the year ended December 31, 2000, File No. 1-6468 as Exhibit 10(c)71 # (c) 62 - Southern Company Change in Control Benefit Plan Determination Policy, effective July 10, 2000. See Exhibit 10(a)85 herein. # (c) 63 - Southern Company Deferred Compensation Trust Agreement dated as of January 1, 2001 between Wachovia Bank, N.A., SOUTHERN, SCS, ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, Southern Communications, Energy Solutions, Mirant and Southern Nuclear. See Exhibit 10(a)90 herein. # (c) 64 - Deferred Stock Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of January 1, 2000, between Reliance Trust Company, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH. See Exhibit 10(a)91 herein. #*(c) 65 - Amended and Restated Deferred Cash Compensation Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of September 1, 2001, between Wachovia Bank, N.A, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH. See Exhibit 10 (a)92 herein. GULF (d) 1 - Service contracts dated as of January 1, 1984, between SCS and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SEGCO and SOUTHERN and Amendment No. 1 dated as of September 6, 1985, between SCS and SOUTHERN. See Exhibit 10(a)1 herein. (d) 2 - Interchange contract dated February 17, 2000, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, SPC and SCS. See Exhibit 10(a)6 herein. E-25 (d) 3 - Plant Robert W. Scherer Unit Number Three Purchase and Ownership Participation Agreement dated as of March 1, 1984, Amendment No. 1 dated as of July 1, 1986 and Amendment No. 2 dated as of August 1, 1988, between GEORGIA and GULF. See Exhibit 10(a)29 herein. (d) 4 - Plant Robert W. Scherer Unit Number Three Operating Agreement dated as of March 1, 1984, between GEORGIA and GULF. See Exhibit 10(a)30 herein. (d) 5 - Plant Scherer Managing Board Agreement dated as of December 31, 1990 among GEORGIA, OPC, MEAG, Dalton, GULF, FP&L and JEA. See Exhibit 10(a)48 herein. (d) 6 - Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)33 herein. (d) 7 - Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)34 herein. (d) 8 - Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)35 herein. (d) 9 - Agreement between GULF and AEC, effective August 1, 1985. (Designated in GULF's Form 10-K for the year ended December 31, 1985, File No. 0-2429, as Exhibit 10(g).) *(d) 10 - The Southern Company Employee Savings Plan, Amended and Restated effective January 1, 2002. See Exhibit 10(a)52 herein. *(d) 11 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective January 1, 2002. See Exhibit 10(a)53 herein. # (d) 12 - Southern Company Omnibus Incentive Compensation Plan, Amended and Restated effective May 23, 2001. See Exhibit 10(a)54 herein. # (d) 13 - The Southern Company Deferred Compensation Plan, Amended and Restated effective February 23, 2001. See Exhibit 10(a)57 herein. # (d) 14 - The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)56 herein. # (d) 15 - Outside Directors Stock Plan for Subsidiaries of The Southern Company, Amended and Restated effective January 1, 2000. See Exhibit 10(a)59 herein. (d) 16 - The Southern Company Pension Plan, effective as of January 1, 1997 and all amendments thereto through Amendment Number Six. See Exhibit 10(a)60 herein. *(d) 17 - Amendment Number Seven to The Southern Company Pension Plan. See Exhibit 10(a)61 herein. E-26 #*(d) 18 - The Southern Company Supplemental Benefit Plan, Amended and Restated effective May 1, 2000. See Exhibit 10(a)64 herein. (d) 19 - Southern Company Change in Control Severance Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)65 herein. # (d) 20 - Southern Company Executive Change in Control Severance Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)66 herein. # (d) 21 - Amended and Restated Change in Control Agreement between SOUTHERN, GULF and Travis J. Bowden. See Exhibit 10(a)69 herein. #*(d) 22 - The Southern Company Supplemental Executive Retirement Plan, Amended and Restated effective May 1, 2000. See Exhibit 10(a)62 herein. #*(d) 23 - The Southern Company Performance Sharing Plan, Amended and Restated effective January 1, 2002. See Exhibit 10(a)63 herein. # (d) 24 - Supplemental Pension Agreement between SAVANNAH, GULF and G. Edison Holland, Jr. (Designated in GULF's Form 10-K for the year ended December 31, 1998, File No. 0-2429, as Exhibit 10(d)35.) # (d) 25 - Supplemental Pension Agreement between ALABAMA, GULF and Travis J. Bowden. See Exhibit 10(b)27 herein. # (d) 26 - Deferred Compensation Plan For Directors of Gulf Power Company, Amended and Restated Effective January 1, 2000 and First Amendment thereto. (Designated in GULF's Form 10-K for the year ended December 31, 2000, File No. 0-2429 as Exhibit 10(d)33.) # (d) 27 - Southern Company Change in Control Benefit Plan Determination Policy, effective July 10, 2000. See Exhibit 10(a)85 herein. # (d) 28 - Southern Company Deferred Compensation Trust Agreement dated as of January 1, 2001 between Wachovia Bank, N.A., SOUTHERN, SCS, ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, Southern Communications, Energy Solutions, Mirant and Southern Nuclear. See Exhibit 10(a)90 herein. # (d) 29 - Deferred Stock Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of January 1, 2000, between Reliance Trust Company, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH. See Exhibit 10(a)91 herein. #*(d) 30 - Amended and Restated Deferred Cash Compensation Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of September 1, 2001, between Wachovia Bank, N.A, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH. See Exhibit 10(a)92 herein. E-27 MISSISSIPPI (e) 1 - Service contracts dated as of January 1, 1984, between SCS and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SEGCO and SOUTHERN and Amendment No. 1 dated as of September 6, 1985, between SCS and SOUTHERN. See Exhibit 10(a)1 herein. (e) 2 - Interchange contract dated February 17, 2000, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, SPC and SCS. See Exhibit 10(a)6 herein. (e) 3 - Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)33 herein. (e) 4 - Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)34 herein. (e) 5 - Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)35 herein. (e) 6 - Transmission Facilities Agreement dated February 25, 1982, Amendment No. 1 dated May 12, 1982 and Amendment No. 2 dated December 6, 1983, between Gulf States and MISSISSIPPI. See Exhibit 10(a)40 herein. (e) 7 - Long Term Transmission Service Agreement between Entergy Power, Inc. and ALABAMA, MISSISSIPPI and SCS. See Exhibit 10(a)47 herein. *(e) 8 - The Southern Company Employee Savings Plan, Amended and Restated effective January 1, 2002. See Exhibit 10(a)52 herein. *(e) 9 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective January 1, 2002. See Exhibit 10(a)53 herein. # (e) 10 - Southern Company Omnibus Incentive Compensation Plan, Amended and Restated effective May 23, 2001. See Exhibit 10(a)54 herein. # (e) 11 - The Southern Company Deferred Compensation Plan, Amended and Restated effective February 23, 2001. See Exhibit 10(a)57 herein. # (e) 12 - The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)56 herein. # (e) 13 - Outside Directors Stock Plan for Subsidiaries of The Southern Company, Amended and Restated effective January 1, 2000. See Exhibit 10(a)59 herein. (e) 14 - The Southern Company Pension Plan, effective as of January 1, 1997 and all amendments thereto through Amendment Number Six. See Exhibit 10(a)60 herein. E-28 *(e) 15 - Amendment Number Seven to The Southern Company Pension Plan. See Exhibit 10(a)61 herein. #*(e) 16 - The Southern Company Supplemental Benefit Plan, Amended and Restated effective May 1, 2000. See Exhibit 10(a)64 herein. (e) 17 - Southern Company Change in Control Severance Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)65 herein. # (e) 18 - Southern Company Executive Change in Control Severance Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)66 herein. # (e) 19 - Amended and Restated Change in Control Agreement between SOUTHERN, MISSISSIPPI and Dwight H. Evans. See Exhibit 10(a)71 herein. #*(e) 20 - The Southern Company Supplemental Executive Retirement Plan, Amended and Restated effective May 1, 2000. See Exhibit 10(a)62 herein. #*(e) 21 - The Southern Company Performance Sharing Plan, Amended and Restated effective January 1, 2002. See Exhibit 10(a)63 herein. # (e) 22 - Deferred Compensation Plan for Directors of Mississippi Power Company, Amended and Restated Effective January 1, 2000 and Amendment Number One thereto. (Designated in MISSISSIPPI's Form 10-K for the year ended December 31, 1999, File No. 0-6849 as Exhibit 10(e)37 and in MISSISSIPPI'S Form 10-K for the year December 31, 2000, File No. 0-6849 as Exhibit 10(e)30.) # (e) 23 - Southern Company Change in Control Benefit Plan Determination Policy, effective July 10, 2000. See Exhibit 10(a)85 herein. # (e) 24 - Southern Company Deferred Compensation Trust Agreement dated as of January 1, 2001 between Wachovia Bank, N.A., SOUTHERN, SCS, ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, Southern Communications, Energy Solutions, Mirant and Southern Nuclear. See Exhibit 10(a)90 herein. # (e) 25 - Deferred Stock Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of January 1, 2000, between Reliance Trust Company, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH. See Exhibit 10(a)91 herein. #*(e) 26 - Amended and Restated Deferred Cash Compensation Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of September 1, 2001, between Wachovia Bank, N.A, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH. See Exhibit 10(a)92 herein. SAVANNAH (f) 1 - Service contract dated as of March 3, 1988, between SCS and SAVANNAH. See Exhibit 10(a)3 herein. E-29 (f) 2 - Interchange contract dated February 17, 2000, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, SPC and SCS. See Exhibit 10(a)6 herein. (f) 3 - Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)33 herein. (f) 4 - Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)34 herein. (f) 5 - Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)35 herein. (f) 6 - Plant McIntosh Combustion Turbine Purchase and Ownership Participation Agreement between GEORGIA and SAVANNAH dated as of December 15, 1992. See Exhibit 10(a)49 herein. (f) 7 - Plant McIntosh Combustion Turbine Operating Agreement between GEORGIA and SAVANNAH dated December 15, 1992. See Exhibit 10(a)50 herein. *(f) 8 - The Southern Company Employee Savings Plan, Amended and Restated effective January 1, 2002. See Exhibit 10(a)52 herein. *(f) 9 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective January 1, 2002. See Exhibit 10(a)53 herein. # (f) 10 - Southern Company Omnibus Incentive Compensation Plan, Amended and Restated effective May 23, 2001. See Exhibit 10(a)54 herein. # (f) 11 - Supplemental Executive Retirement Plan of SAVANNAH, Amended and Restated effective October 26, 2000. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 2000, File No. 1-5072 as Exhibit 10(f)13.) # (f) 12 - Deferred Compensation Plan for Key Employees of SAVANNAH, Amended and Restated effective October 26, 2000. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 2000, File No. 1-5072 as Exhibit 10(f)14.) # (f) 13 - The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)56 herein. # (f) 14 - Deferred Compensation Plan for Directors of SAVANNAH, Amended and Restated effective October 26, 2000. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 2000, File No. 1-5072 as Exhibit 10(f)18.) # (f) 15 - Outside Directors Stock Plan for Subsidiaries of The Southern Company, Amended and Restated effective January 1, 2000. See Exhibit 10(a)59 herein. (f) 16 - The Southern Company Pension Plan, effective as of January 1, 1997 and all amendments thereto through Amendment Number Six. See Exhibit 10(a)60 herein. E-30 *(f) 17 - Amendment Number Seven to The Southern Company Pension Plan. See Exhibit 10(a)61 herein. #*(f) 18 - The Southern Company Supplemental Benefit Plan, Amended and Restated effective May 1, 2000. See Exhibit 10(a)64 herein. (f) 19 - Southern Company Change in Control Severance Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)65 herein. # (f) 20 - Southern Company Executive Change in Control Severance Plan, Amended and Restated effective July 10, 2000. See Exhibit 10(a)66 herein. # (f) 21 - Amended and Restated Change in Control Agreement between SOUTHERN, SAVANNAH and G. Edison Holland, Jr. See Exhibit 10(a)75 herein. # (f) 22 - The Southern Company Deferred Compensation Plan, Amended and Restated effective February 23, 2001. See Exhibit 10(a)57 herein. #*(f) 23 - The Southern Company Supplemental Executive Retirement Plan, Amended and Restated effective May 1, 2000. See Exhibit 10(a)62 herein. #*(f) 24 - The Southern Company Performance Sharing Plan, Amended and Restated effective January 1, 2002. See Exhibit 10(a)63 herein. # (f) 25 - Supplemental Pension Agreement between SAVANNAH, GULF and G. Edison Holland, Jr. See Exhibit 10(d)24 herein. # (f) 26 - Southern Company Change in Control Benefit Plan Determination Policy, effective July 10, 2000. See Exhibit 10(a)85 herein. # (f) 27 - Agreement for supplemental pension benefits between SAVANNAH and William Miles Greer. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 2000, File No. 1-5072 as Exhibit 10(f)34.) # (f) 28 - Agreement crediting additional service between SAVANNAH and William Miles Greer. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 2000, File No. 1-5072 as Exhibit 10(f)35.) # (f) 29 - Southern Company Deferred Compensation Trust Agreement dated as of January 1, 2001 between Wachovia Bank, N.A., SOUTHERN, SCS, ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH, Southern Communications, Energy Solutions, Mirant and Southern Nuclear. See Exhibit 10(a)90 herein. # (f) 30 - Deferred Stock Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of January 1, 2000, between Reliance Trust Company, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH. See Exhibit 10(a)91 herein. E-31 #*(f) 31 - Amended and Restated Deferred Cash Compensation Trust Agreement for Directors of SOUTHERN and its subsidiaries, dated as of September 1, 2001, between Wachovia Bank, N.A, SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH. See Exhibit 10(a)92 herein. (21) Subsidiaries of Registrants SOUTHERN *(a) - Subsidiaries of Registrant is contained herein at page IV-5. ALABAMA *(b) - Subsidiaries of Registrant is contained herein at page IV-5. GEORGIA *(c) - Subsidiaries of Registrant is contained herein at page IV-5. GULF *(d) - Subsidiaries of Registrant is contained herein at page IV-5. MISSISSIPPI *(e) - Subsidiaries of Registrant is contained herein at page IV-5. SAVANNAH *(f) - Subsidiaries of Registrant is contained herein at page IV-5. (23) Consents of Experts and Counsel SOUTHERN *(a) - The consent of Arthur Andersen LLP is contained herein at page IV-6. ALABAMA *(b) - The consent of Arthur Andersen LLP is contained herein at page IV-7. GEORGIA *(c) - The consent of Arthur Andersen LLP is contained herein at page IV-8. GULF *(d) - The consent of Arthur Andersen LLP is contained herein at page IV-9. E-32 MISSISSIPPI *(e) - The consent of Arthur Andersen LLP is contained herein at page IV-10. SAVANNAH *(f) - The consent of Arthur Andersen LLP is contained herein at page IV-11. (24) Powers of Attorney and Resolutions SOUTHERN *(a) - Power of Attorney and resolution. ALABAMA *(b) - Power of Attorney and resolution. GEORGIA *(c) - Power of Attorney and resolution. GULF *(d) - Power of Attorney and resolution. MISSISSIPPI *(e) - Power of Attorney and resolution. SAVANNAH *(f) - Power of Attorney and resolution. E-33 EX-3 3 x3b2.txt AMENDMENT TO CHARTER OF ALABAMA POWER COMPANY Exhibit 3(b)2 Articles of Amendment to Joint Agreement Between Alabama Power Company and Birmingham Electric Company Prescribing the Terms and Conditions of Merger Of Birmingham Electric Company Into and With Alabama Power Company STATE OF ALABAMA ) ) JEFFERSON COUNTY ) We, Charles D. McCrary and William E. Zales, Jr., respectively the President and Corporate Secretary of Alabama Power Company, a corporation, do hereby certify that, at a meeting of the Board of Directors of said corporation duly called and held at the office of said corporation in the City of Birmingham, Alabama, on the 26th day of October, 2001, at 10:15 o'clock A.M., Central Time, a majority and quorum of Directors being present, the following resolutions were duly adopted by said Board of Directors: WHEREAS, the charter, as amended, provides that the Board of Directors shall have, and is hereby granted the power and authority to divide the unissued shares of preferred stock and Class A preferred stock into series and to fix and determine the relative rights and preferences of any such series of preferred stock and Class A preferred stock; WHEREAS, the Board of Directors designated 500,000 shares of Class A preferred stock as shares of Auction Class A cumulative preferred stock (1988 Series) (stated capital $100 per share) (the "1988 Auction Preferred Stock") and determined the relative rights and preferences of such shares of Auction Class A cumulative preferred stock by resolution as filed with the Secretary of State as of November 22, 1988; WHEREAS, the Board of Directors designated 200 shares of Class A preferred stock as shares of Auction Class A cumulative preferred stock (1993 Series) (stated capital $100,000 per share) (the "1993 Auction Preferred Stock") and determined the relative rights and preferences of such shares of Auction Class A preferred stock by resolution as filed with the Secretary of State as of November 2, 1993; WHEREAS, the Board of Directors hereby desires to amend such provisions determining the Auction Procedures of the 1988 Auction Preferred Stock and the 1993 Auction Preferred Stock whereby the definition of "Rate Multiple" shall be amended to reflect current market terms and conditions; and WHEREAS, the amendment shall be submitted to a vote by the shareholders of all issued and outstanding shares of common stock and by the shareholders of all issued and outstanding shares of the 1988 Auction Preferred Stock and 1993 Auction Preferred Stock. NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby approves and adopts an amendment to the Charter of the Company to amend certain terms of the Auction Procedures for the 1988 Auction Preferred Stock to include the following amendment to the Joint Agreement Between Alabama Power Company and Birmingham Electric Company Prescribing the Terms and Conditions of Merger Of Birmingham Electric Company Into and With Alabama Power Company, dated as of October 21, 1952, as amended, as filed with the Alabama Secretary of State as of November 22, 1988: The Prevailing Rating Table in Part II, Auction Procedures, 1. Certain Definitions, paragraph (r) "Rate Multiple" is hereby deleted in its entirety and replaced with the following: Articles of Amendment Alabama Power Company - 11-21-01.doc Prevailing Rating* Percentage AA/aa or Above 150% A/a 175% BBB/baa 200% Below BBB/baa 250% * As explained below, in the event of a split rating the prevailing rating will be determined by reference to the lower of the two ratings. 3 Articles of Amendment Alabama Power Company - 11-21-01.doc RESOLVED FURTHER, that the Board of Directors hereby approves and adopts an amendment to the Charter of the Company to amend certain terms of the Auction Procedures for the 1993 Auction Preferred Stock to include the following amendment to the Joint Agreement Between Alabama Power Company and Birmingham Electric Company Prescribing the Terms and Conditions of Merger Of Birmingham Electric Company Into and With Alabama Power Company, dated as of October 21, 1952, as amended, as filed with the Alabama Secretary of State as of November 2, 1993: The Prevailing Rating Table in Part II, Auction Procedures, 1. Certain Definitions, paragraph (r) "Rate Multiple" is hereby deleted in its entirety and replaced with the following: Prevailing Rating* Percentage AA/aa or Above 150% A/a 175% BBB/baa 200% Below BBB/baa 250% * As explained below, in the event of a split rating the prevailing rating will be determined by reference to the lower of the two ratings. RESOLVED FURTHER, that the Board of Directors hereby recommends the proposed amendments described above to the shareholders and the proposed amendments shall be submitted to a vote of the shareholders and the Board of Directors hereby calls a special meeting for that purpose; RESOLVED FURTHER, That the date, time and location of such special meeting, and any record date with respect thereto, shall be as determined by the officers in their discretion and caused by them to be specified in the notice of such meeting; RESOLVED FURTHER: that the officers of the Company be and hereby are authorized to solicit proxies or consents from the shareholders of the Company for use in connection with such special meeting and to employ such broker-dealers, dealer-managers, proxy solicitors or other parties and to incur such costs and expenses (including payments to shareholders who vote affirmatively) in soliciting such proxies as the officers shall consider necessary or appropriate; and RESOLVED FURTHER, that, in connection with the foregoing authorization and to carry out its purposes and intents, the officers of the Company be and they hereby are authorized to take any and all actions on behalf of the Company as they shall consider necessary or appropriate, including execution and filing of any applications or other documents with the Securities and Exchange Commission and other regulatory authorities and execution and delivery of agreements with broker-dealers, dealer-managers, proxy solicitors or other parties. We do further certify that at the close of business on November 1, 2001, the record date, Alabama Power Company had 6,000,000 shares of common stock issued and outstanding, and 500,000 shares of the 1988 Auction Preferred Stock and 200 shares of the 1993 Auction Preferred Stock issued and outstanding. All of such outstanding shares of the 1988 Auction Preferred Stock and 1993 Auction Preferred Stock were entitled to vote on the above proposal as a single class, each share of 1988 Auction Preferred Stock being counted as one, each share of 1993 Auction Preferred Stock being counted as 1,000. The adoption of the above proposal required the affirmative vote in favor thereof of (i) the holders of a majority of the shares of the common stock of Alabama Power Company voting at the meeting and (ii) the holders of a majority of the shares of the 1988 Auction Preferred Stock and 1993 Auction Preferred Stock voting at the meeting, voting as a single class and counted as described above; and We do further certify that at said meeting all of the 6,000,000 shares of common stock outstanding voted affirmatively for the adoption of the proposal, and of the total shares of 1988 Auction Preferred Stock and 1993 Auction Preferred Stock voting at the meeting (counting shares as described above) 377,000 shares voted affirmatively for the adoption of the proposal, 0 shares voted against the proposal and 0 shares abstained, such affirmative votes being sufficient for the adoption of the proposal. We, Charles D. McCrary and William E. Zales, Jr., as President and Corporate Secretary, respectively, of Alabama Power Company, do hereby make this report of such meeting and certify that such amendment, as set forth above, was duly adopted in accordance with the applicable provisions of the Alabama Business Corporation Act; and we do further certify that the proceedings of said meeting of the Board of Directors and said special meeting of the shareholders were reduced to writing and that the same are hereby certified by Charles D. McCrary, the President, and William E. Zales, Jr., the Corporate Secretary, of Alabama Power Company, under its corporate seal. IN WITNESS WHEREOF, we, Charles D. McCrary and William E. Zales, Jr., as President and Corporate Secretary, respectively, of Alabama Power Company, do hereunto set our hands and seal of such corporation on the 21st day of November, 2001. CHARLES D. MCCRARY President, Alabama Power Company WILLIAM E. ZALES, JR. Corporate Secretary, Alabama Power Company UNITED STATES OF AMERICA ) STATE OF ALABAMA ) MONTGOMERY COUNTY ) I, Jim Bennett, Secretary of State of the State of Alabama, do hereby certify that the foregoing pages numbered to , both inclusive, to which this certificate is attached, contain a full, true and correct copy of the Certificate of Resolutions of Board of Directors of Alabama Power Company, as the same was certified by the President and Secretary of such Alabama Power Company under its corporation seal and filed in this, the office of Secretary of State of Alabama, on the 21st day of November, 2001. In Testimony Whereof, I have hereunto set my hand and caused the Great Seal of the State of Alabama to be hereunto affixed at the Capitol in the City of Montgomery, on this the 21st day of November in the year of our Lord, Two Thousand and One. (Seal) JIM BENNETT Secretary of State of the State of Alabama EX-3 4 x3b3.txt ALABAMA POWER COMPANY BY-LAWS Exhibit 3(b)3 ALABAMA POWER COMPANY BY-LAWS -------- ARTICLE I NAME, DURATION, PURPOSE AND LOCATION OF CORPORATION Section 1. The name of this corporation is ALABAMA POWER COMPANY. Its duration is perpetual. Its purposes are expressed in the original certificate of incorporation of Alabama Power Company and the additions thereto and the amendments and changes which have been or which may be made therein from time to time; in the certificate of incorporation and the several amendments thereto of the corporations which have been or may hereafter be merged into or consolidated with this corporation; and the joint agreements of merger or consolidation heretofore made or which may hereafter be made with this corporation. Its principal office and place of business shall be in Birmingham, Jefferson County, Alabama; but the corporation may also have offices in other counties, cities and towns in the State of Alabama, and in the City of New York, and in such other places beyond the State of Alabama as the board of directors may from time to time appoint, or the business of the corporation may require. ARTICLE II STOCKHOLDERS' MEETINGS Place of Meeting Section 1. All meetings of the stockholders shall be held, either within or without the State of Alabama, at such place designated in the call for or notice of the meeting. Annual Meeting Section 2. The annual meeting of the stockholders shall be held on the fourth Friday in April in each year, if not a legal holiday, and if a legal holiday, then on the following Friday, when the stockholders entitled to vote shall elect by ballot a board of not exceeding twenty-five directors to serve for one year and until their successors are elected or chosen and qualified and shall transact such other business as may come before the meeting. 2. Special Meetings Section 3. Special meetings of the stockholders for any purpose or purposes other than those regulated by statute may be called at any time by the chairman of the board of directors or the president or the board of directors or the holders of not less than one-tenth of all the shares entitled to vote thereat. In the event of catastrophe wrought by war affecting the territory, facilities, or personnel of the corporation, a special meeting of stockholders may be called by a majority of the stockholders entitled to vote or by a proxy or proxies appointed by such a majority for the purpose of either electing directors to the extent deemed necessary or desirable to fill vacancies or for the exercise of powers for removal of directors who are not, in the opinion of the said proxy or proxies, available for service because of disability, disappearance or other reasons, or for both such purposes; and at such meeting it shall constitute cause for such removal of a director when he is not, in the opinion of said proxy or proxies, available for service because of disability, disappearance or any other reason which would interfere with the performance of his duties as director and any member of the board of directors may be removed for such cause and the vacancy thereby created filled. Notice of Meeting Section 4. Written notice of the time and place of holding all meetings shall, unless waived, be given to each stockholder entitled to vote not less than ten or more than fifty days before the date of the meeting, either personally or by mail, to such address as appears on the books of the corporation, unless by statute other or further notice is required, and in this event the required statutory notice shall be given; and, in the case of special meetings, the purpose thereof shall be stated in the notice. Voting Section 5. The voting rights of the stockholders shall be set forth in the charter of the corporation as amended. Any stockholder entitled to vote may vote in person or by proxy appointed by an instrument in writing subscribed by such stockholder. The proxy holder need not be a stockholder. Upon the demand of any stockholder entitled to vote, the vote upon any question before the meeting shall be by ballot. All elections shall be had and, subject to the provisions of the charter of the corporation as amended, all questions decided by a majority vote of the stock represented at the meeting in person or by proxy and entitled to vote thereat. Quorum Section 6. Subject to the provisions of the charter of the corporation as amended, the holders of a majority of the stock issued and outstanding and entitled to vote at the meeting, present in person or represented by proxy, shall be requisite to constitute a quorum at all meetings of the stockholders for the transaction of business. If, however, such majority shall not be present or represented at any meeting, the stockholders present in person or by proxy and so entitled to vote, shall have power to adjourn the meeting until 3. the requisite amount of stock shall be represented; and at such adjourned meeting any business may be transacted at the original meeting. Every meeting of the stockholders may be adjourned from time to time until its business is completed. Rules of Order Section 7. The rules of order governing deliberative bodies shall, as far as possible, govern the meetings of stockholders and directors, and, unless otherwise ordered by the meeting, the order of business shall be as follows: (a) Call to order and organization of meeting; (b) Statement of object of the meeting; (c) Reading of and passing upon the minutes of the previous meeting; (d) Reports and other communications and the disposition of the same; (e) Unfinished business; (f) New business; (g) The election of directors and officers. ARTICLE III DIRECTORS Election Of Section 1. The property and business of the corporation shall be managed by its board of directors, the members of which shall be elected by the stockholders as aforesaid. Eligibility Section 2. A person being a full time executive employee of the corporation or its parent company or any affiliated company when first elected a director of the corporation (hereinafter sometimes referred to as an "employee-director") shall not be eligible for election as a director when he ceases to be an executive employee; whether by reason of resignation, retirement or other cause. Any employee-director shall resign as a director effective on the date he ceases to be an executive employee. A person not an employee-director shall not be eligible for election or re-election as a director of this corporation (1) after his 70th birthday, (2) one year after permanent separation from the business or professional organization with which he was primarily associated when first elected a director, (3) one year after other material change in his primary occupation or executive position from that which he pursued or held when first elected a director, or (4) one year after moving his principal residence outside the state in which he was a resident when first elected a director, whichever event first occurs. The application to an individual of any provision of this paragraph may be waived by the Board of Directors. Any such waiver shall only be effective on a year-to-year basis. 4. Compensation Section 3. Directors, other than "employee-directors", shall receive directors' fees in the amounts and by the method fixed by the board of directors. All directors shall be reimbursed for actual expenses incurred in connection with their attendance of meetings of the board of directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. ARTICLE IV BOARD OF DIRECTORS Meetings of the Board Section 1. The directors may hold their meetings either within or outside the State of Alabama at such places as they may from time to time determine and as authorized by the laws of the State of Alabama. Annual Meeting Section 2. The annual meeting of the board of directors shall be held as soon as practicable after the annual meeting of the stockholders, for the purpose of electing officers and for the transaction of such other business as may come before the meeting; at least three days' notice of the time and place of holding the meeting to be given to each member of the board. Regular Meetings Section 3. Regular meetings of the board may be held without notice at such time and place as may from time to time be appointed by the board. Special Meetings Section 4. Special meetings of the board may be called by the chairman of the board or the president, on two day's notice to each director, by delivered letter, by mail or by telegram or by personal communication either over the telephone or otherwise. Special meetings shall be called by the secretary in like manner and on like notice, on the written request of one-third of the directors for the time being in office. Quorum Section 5. At all meetings of the board of directors, a majority of the directors in office shall be necessary and sufficient to constitute a quorum for the transaction of business, except as otherwise provided in Section 14 of this Article IV, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically permitted or provided by statute or by the charter of the corporation as amended or by these by-laws. If at any 5. meeting of the board there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum is obtained and no further notice thereof need be given other than by announcement at the meeting which shall be so adjourned. General Powers Section 6. In addition to the powers and authority by these by-laws expressly conferred on it, the board may exercise all such powers of the corporation and do all such lawful acts and things as are not be statute or by the charter of the corporation as amended or by these by-laws, directed or required to be exercised or done by the stockholders. Specific Powers Section 7. Without prejudice to the general powers conferred by Section 6 of this Article IV, the board of directors shall in addition thereto have the following specific powers, that is to say: (a) From time to time to make and change rules and regulations not inconsistent with these by-laws for the management of the property and business of the corporation; (b) To purchase or otherwise acquire for the corporation any property, rights, privileges or franchises which the corporation is authorized to acquire, at such prices or consideration and generally on such terms and conditions as the board shall think fit; and at its discretion to pay for the same either wholly or partly in money, stock or other securities or property of the corporation; (c) To sell, exchange or otherwise dispose of any property of the corporation less than all, for such price or consideration, and generally on such terms and conditions as the board thinks fit; and at its discretion to accept in whole or partial payment therefor, money, stock or other securities or properties; (d) To appoint and at the discretion of the board to remove or suspend such subordinate officers, agents or employees, permanently or temporarily, as it may think fit, and to determine their duties, and to require bonds in such instances and in such amounts and with such sureties as it may think fit; (e) To appoint any person or corporation to accept and hold in trust for the corporation any property belonging to the corporation or in which it is interested, or for any other purpose, and to execute all such deeds and instruments and perform such acts as may be requisite in relation to any such trust; (f) To determine who shall be authorized on behalf of the corporation to sign bills, notes, receipts, acceptances, endorsements, checks, releases, contracts and documents; 6. (g) To authorize the execution and delivery of notes and other evidences of indebtedness of the corporation for money borrowed or other indebtedness incurred by the corporation; and to authorize the execution, certification, delivery and sale of the mortgage bonds of the corporation, from time to time upon such terms and conditions as the board may approve. (h) To delegate any of the powers of the board in the course of the current business of the corporation, to any standing or special committee or to any officer or agent, or to appoint any persons to be agents of the corporation, with such powers and upon such terms as the board thinks fit. Record of Proceedings Section 8. The board of directors shall cause a record of its proceedings and of all directors meetings to be properly kept by the secretary of the corporation or by a secretary pro tempore. The records shall be verified by the signature of the person acting as secretary. Books of Account Section 9. The board of directors shall cause regular and correct books of account to be kept, and to be balanced and certified by some public accountant at least once every year. Election of Officers Section 10. The board of directors at its annual meeting may elect from their own number a chairman of the board, shall elect from their own number a president and shall elect a secretary. In addition, the board of directors at its annual meeting shall elect one or more vice presidents. At the annual meeting or any other meeting duly held from time to time the board may elect other vice presidents, a treasurer and such other officers as the board shall deem necessary or appropriate. Books, Papers, Etc. Section 11. The property and funds, books, correspondence and papers of the corporation, in the possession or control of any officer or agent thereof, shall at all times be subject to the inspection of the board of directors, the executive committee or a committee appointed for the purpose at a general meeting of the holders of the common stock. The minutes, including the resolutions and proceedings of the board, shall be produced when required by the stockholders at any general meeting. Annual Report and Inspection of Books Section 12. The president and chairman of the board shall 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. The chief executive officer shall have the duty of preparing such report which may also contain 7. such other information and may be in such detail as the president, the chairman of the board and the board of directors may determine in their absolute discretion. The stockholders of the corporation by majority vote at any meeting of the stockholders duly called, or in case the stockholders shall fail to act, the board of directors, shall determine, except as otherwise provided by law, the conditions and regulations under which the books and accounts of the corporation, or any of them, shall be open to inspection by the stockholders of the corporation; and the stockholders shall have no right to inspect any account or book or document of the corporation except as conferred by law or authorized by a resolution of the stockholders or of the board of directors. Voting Section 13. No member of the board shall vote on a question in which he is interested otherwise than as a stockholder, except in election of officers; or be present at the meeting while the same is being considered if requested by the chairman of the meeting or the majority of those present to retire. No action, however, shall be taken on the question unless after such retirement there be left a quorum in the meeting. Vacancies Section 14. Subject to the provisions of the charter of the corporation as amended, if the office of any director becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the remaining directors even though such remaining directors do not constitute a quorum, may choose a successor or successors, who shall hold office for the unexpired term in respect of which such vacancy occurred; but vacancies in the board of directors arising from an increase of the number of directors shall be filled by the stockholders, unless otherwise directed by the stockholders. ARTICLE V EXECUTIVE AND OTHER COMMITTEES Executive Committee Section 1. The board of directors may, by resolution adopted by a majority of the whole board in office, designate no fewer than three (3) of the directors to constitute an executive committee, of which the president and chairman of the board shall be members. Three members of such committee shall constitute a quorum. The chief executive officer shall act as chairman of the executive committee. During the intervals between the meetings of the board, the executive committee shall have and may exercise all the powers of the board of directors in the management of the property and business of the corporation and shall have power to authorize the seal of the corporation to be affixed to all instruments that may require it, all except as otherwise provided by law. 8. Audit Committee Section 2. The board of directors may, by resolution adopted by a majority of the whole board in office, designate no fewer than three nonofficer directors to constitute an audit committee. A majority of the members of the audit committee shall constitute a quorum. The board of directors shall appoint the chairman of the audit committee. The audit committee shall assist the directors in fulfilling their responsibilities for financial reporting, improving and maintaining financial controls, and periodically review the work of the corporation's external and internal auditors, including, but not limited to, the following activities: (a) Recommending the selection of independent auditors to the board of directors; (b) Prior approval of the overall scope of the corporation's annual audit; (c) Review of the results of the corporation's annual audit; (d) Review of overall accounting controls; (e) Review of internal auditing procedures; (f) Review of data processing controls; (g) Review of general security procedures; (h) Review of pension fund audits; and (i) Review procedures designed to identify any interests of officers or employees which conflict with the interests of the company and prevent any monetary payments or transfers of corporate assets which are not appropriate and in the best interest of the corporation. Other Standing Committees Section 3. The board of directors may also, by resolution or resolutions adopted by a majority of the whole board in office, designate one or more other standing committees as it deems necessary and desirable. Each such committee shall consist of at least two voting directors of the corporation and shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation to the extent provided in such resolution or resolutions and these by-laws. The board of directors shall designate the name of and appoint the chairman of each such committee. A majority of the members of each such committee shall constitute a quorum. Advisory Committees Section 4. The board of directors may also, by resolution or resolutions adopted by a majority of the whole board in office, designate one or more advisory committees as it deems necessary and desirable. Each such committee shall consist of at least two voting directors of the corporation and shall advise the board of directors on the matter or matters provided in such resolution or resolutions. Each such committee shall select its own chairman and prepare a memorandum of each of its meetings. Each such committee shall prepare and deliver reports to the board of directors as the board of directors or the chairman thereof requests. A majority of the members of each such committee shall constitute a quorum. 9. Election of Committee Members Section 5. The members of the executive committee, the audit committee, the other standing committees and the advisory committees shall be elected at the annual meeting of the board of directors or as soon thereafter as is practicable. The members of all such committees shall hold office until the next annual meeting of the board of directors and until their respective successors are elected. The board of directors shall have the power to fill vacancies in, to change the membership of and to dissolve any such committee. Meetings and Minutes Section 6. The executive committee and the other committees shall meet at such time and place as their respective chairman may appoint. Notice of each meeting of the executive committee and the other committees may be given by telephone, telex or telecopy or in writing specifying the place, day and hour thereof. If given in writing, such notice may be served personally at least one hour before such meeting or as otherwise provided in these by-laws. The executive committee and each of the other standing committees shall maintain regular minutes of their respective proceedings; each of the advisory committees shall maintain memoranda of their respective meetings. All actions taken by the executive committee, the audit committee or any of the other standing committees shall be reported to the board of directors at its next succeeding meeting and shall be subject to amendment, revision or alteration by the board of directors, provided, however, that the rights or acts of third parties shall not be affected by such amendment, revision or alteration. The members of the executive committee and the other committees shall be entitled to such fees and expenses as may be fixed by the board of directors. ARTICLE VI OFFICERS Enumeration of Section 1. The officers of the corporation shall be chosen by the board of directors, except as herein provided. The full time executive officers may include a chairman of the board and shall include a president and one or more vice presidents, all as the board of directors may from time to time determine. The administrative officers shall include a secretary and may include one or more vice presidents in charge of particular work or divisions of the corporation, a treasurer, a comptroller and such assistant secretaries, assistant treasurers and assistant comptrollers as the board of directors may from time to time determine. Two or more offices may be held by the same person, except that the same person may not serve as president and as secretary. Officers other than the chairman of the board and the president need not be members of the board. 10. Powers and Duties of the Chairman of the Board Section 2. The chairman of the board shall preside at all meetings of the board of directors and stockholders. He shall perform and do all acts and things incident to the position of the chairman of the board and such other duties as may be assigned to him from time to time by the board of directors. He shall be, so long as he is a regularly compensated officer and until otherwise provided by the board of directors or by amendment of this bylaw, an ex-officio member of all standing committees. Subject to the control of the board of directors, the executive committee or the committees of the board having authority, he shall be vested with authority to act for the corporation. Powers and Duties of the President Section 3. The president shall be either an advisor to or member of all standing committees. He shall preside at the meetings of the board of directors and stockholders at which the chairman shall be absent. Subject to the limitations stated, he shall have full power and authority to do and perform in the name of the corporation all acts necessary or proper to be done and performed, and to delegate to the vice presidents such part of his authority as may be appropriate. He shall, subject to the control of the board of directors and of the committees of the board, discharge the functions and exercise the authority vested in the chairman in the absence of the chairman or the inability of the chairman to act. Vice Presidents Section 4. The vice presidents shall perform such of the duties of the president on behalf of the corporation as may be respectively assigned to them from time to time by the board of directors or the president. Secretary Section 5. The secretary shall, unless otherwise directed, attend all sessions of the board and all meetings of the stockholders and act as clerk thereof, and record all votes and the minutes of all proceedings in a book to be kept for that purpose; and shall perform like duties for standing committees when required. He shall give or cause to be given notice of all meetings of the stockholders and of the board of directors and of standing committees when required, and shall perform such other duties as may be prescribed by the board of directors or the chief executive officer under whose supervision he shall act. He shall keep in safe custody the seal of the corporation and, when authorized, affix the same to any instrument requiring a seal and attest the signature thereof when directed or required to do so. Treasurer Section 6. The treasurer shall have the custody of the corporation funds and securities and shall be accountable for the receipts and disbursements in books belonging to the corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. 11. Section 7. He shall disburse funds of the corporation as may be ordered by the board, taking proper vouchers for such disbursements, and shall render to the president, to the chairman of the board and to the board of directors at the regular meetings of the board or whenever the board may require it, an account of all his transactions as treasurer and of the financial condition of the corporation and shall perform such other duties as may be assigned to him from time to time. Section 8. He shall give the corporation a bond for the faithful performance of the duties of his office, and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind, in his possession or under his control belonging to the corporation. Comptroller Section 9. The comptroller shall have charge of all books and accounts of the corporation, and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation, and shall perform such other duties as may be assigned to him from time to time. Assistant Secretaries, Assistant Treasurers and Assistant Comptrollers Section 10. One or more assistant secretaries, assistant treasurers and assistant comptrollers may be elected by the board of directors or appointed by the chief executive officer to hold office until the next annual meeting of the board of directors and until their successors are elected or appointed, but may be removed at any time. They shall perform any of or all of the duties of secretary, treasurer or comptroller, as the case may be, and such other duties as may be assigned to them from time to time. Duties of Officers May Be Delegated Section 11. In case of the absence of any officer of the corporation, or for any other reason the board may deem sufficient, the board may delegate the powers or duties of such officers to any other officer or to any director, for the time being. Term of Office Section 12. The officers of the corporation shall hold office one year and until their successors are chosen and qualified in their stead. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the whole board of directors. All officers, agents and employees other than officers appointed by the board, shall hold office at the discretion of the officer appointing them, but shall be subject to removal by the board of directors or the executive committee at any time. 12. ARTICLE VII VACANCIES Section 1. If the office of the chairman of the board, the president, vice president, secretary, treasurer, comptroller or other officer or agent elected by the board, becomes vacant by reason of death, resignation, retirement, disqualification, removal from office or otherwise, the directors then in office although less than a quorum, by a majority vote may choose a successor or successors who shall hold office for the unexpired term in respect of which such vacancy occurred. ARTICLE VIII CAPITAL STOCK Certificates Section 1. The certificates of stock of the corporation shall be numbered and shall be entered on the stock certificate books of the corporation as they are issued. They shall exhibit the holder's name and number of shares and shall be signed by the president or a vice president and the secretary or an assistant secretary or the treasurer or an assistant treasurer, and shall bear the corporate seal, which may be facsimile, engraved or printed. To the extent permitted under Alabama law, the signature of any such president, vice president, secretary, assistant secretary, treasurer or assistant treasurer upon such certificate may be facsimile, engraved or printed. In any case, when such officer or officers who shall have signed, or whose facsimile signature or signatures shall have been placed upon such certificate shall cease to be such either because of death, resignation or otherwise before such certificate is delivered by the corporation, such certificate may nevertheless be issued and delivered by the corporation with the same effect as if such officer or officers had not ceased to be such. No certificate shall be issued unless the stock represented thereby is fully paid up. Transfer Section 2. The transfer of all classes of stock shall be made and registered only the person named in the certificate, or by attorney lawfully constituted in writing, upon surrender of such certificate; and the corporation shall keep in the hands of an agent or other person designated for that purpose a true statement or book showing who are the holders of the stock of the corporation and all transfers and hypothecations thereof; and the corporation may by its board of directors appoint one or more transfer agents or transfer clerks and registrars, and may require all stock certificates and certificates representing any rights or options to be signed by such transfer agents or transfer clerks acting on behalf of the corporation and by such registrars. 13. Closing Transfer Books and Fixing Record Date Section 3. The board of directors shall have power to close the stock transfer books of the corporation for a period not exceeding thirty days preceding the 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 for a period of not exceeding thirty days in connection with obtaining the consent of stockholders for any purpose. In lieu of closing the stock transfer books, the board of directors may fix in advance a date, not exceeding fifty days preceding the date of any meeting of stockholders or the date of 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 notice of and to vote at such meetings and any adjournment thereof or to receive payment of such dividends or to receive such allotment of rights or to exercise such rights or to give consent, as the case may be, notwithstanding any transfer of stock on the books of the corporation after such record date fixed as aforesaid. While the stock transfer books of the corporation shall be so closed, no transfers of stock shall be made thereon. Record Holder Section 4. The corporation shall be entitled to treat the holder of record of any share of stock as the holder in fact thereof, and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Alabama. Lost Certificate Section 5. Any person claiming a certificate of stock to be lost, stolen, or destroyed shall execute and deliver to the corporation an affidavit of that fact, and shall give the corporation a bond of indemnity, in form and with sureties satisfactory to the board, or such other instrument of indemnity, as the board of directors may require, whereupon a new certificate may be issued of the tenor and for the same number of shares as the one alleged to have been lost, stolen, or destroyed. The board of directors may impose any additional requirements relating to the issuance of new stock certificates to replace lost, stolen, or destroyed stock certificates as it deems appropriate, and it may authorize one or more officers of the corporation to carry out the provisions of this by-law. 14. Dividends Section 6. Subject to the provisions of the charter of the corporation as amended, dividends upon the capital stock of the corporation when earned, may be declared by the board of directors at any regular meeting, or any special meeting. Before paying any dividend or making any distribution of profits, there may be set aside out of the surplus or net profits of the corporation such sum or sums as the board of directors from time to time in its absolute discretion may thing proper, as a reserve fund to meet contingencies or for equalizing dividends or for repairing or maintaining any property of the corporation or for such other purpose as the board shall think proper. ARTICLE IX CORPORATE SEAL Section 1. The seal of the corporation shall be circular in form and shall have inscribed thereon the name of the corporation followed by the word "Alabama," and shall have the word "Seal" inscribed in the center thereof. ARTICLE X FISCAL YEAR Section 1. The fiscal year shall begin with the first day of January in each year. ARTICLE XI NOTICES Notices by Mail Section 1. Whenever under the provision of these by-laws notice is required to be given to any director, officer or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing by depositing the same in the post office or letter box, in a postpaid wrapper, addressed to such stockholder, officer or director, at such address as it appears on the books of the corporation, or in default of other address, to such stockholder, director or officer at the general post office at the principal office of the corporation in the State of Alabama, and such notice shall be deemed to have been given at the time when the same shall have been thus mailed. Any stockholder, director or officer may waive any notice required to be given either by statute or under these by-laws; and all meetings of stockholders and directors may be held without notice, if waived, at such time and place as may be fixed. 15. Notice by Telegraph Section 2. Whenever under the provisions of these by-laws notice may be given to any stockholder, officer or director by telegraph, it may be given by a prepaid telegram addressed to such stockholder, officer or director at such address as appears on the books of the corporation, or in default of other address, at his place of residence or usual place of business last known to the corporation, and such notice shall be deemed to have been give at the time such telegram shall have been delivered to the telegraph company for transmittal. ARTICLE XII AMENDMENTS Section 1. Except as otherwise provided by law, these by-laws may be altered, amended or repealed by a majority of the board of directors present at any meeting thereof. ARTICLE XIII INDEMNIFICATION AND RELATED MATTERS Section 1. Each person who is or was a director, officer or employee of the corporation holding one or more positions of management through and inclusive of department managers or other employees explicitly designated in writing by the president or an executive vice president of the Company (such individuals being hereinafter referred to as "indemnified parties") and who was or is a party or was or is threatened to be made a party to any threatened, pending or completed claim, action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director of the corporation or officer or employee of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall be indemnified by the corporation as a matter of right against any and all expenses (including attorneys' fees) actually and reasonably incurred by him and against any and all claims, judgments, fines, penalties, liabilities and amounts paid in settlement actually incurred by him in defense of such claim, action, suit or proceeding, including appeals, to the full extent permitted by applicable law. The indemnification provided by this Section shall inure to the benefit of the heirs, executors and administrators of such person. Expenses (including attorneys' fees) incurred by an indemnified party with respect to the defense of any such claim, action, suit or proceeding may be advanced by the corporation prior to the final disposition of such claim, action, suit or proceeding, as authorized by the board of directors in the specific case, upon receipt of an undertaking by or on behalf of such person is entitled to be indemnified by the corporation under this Section or otherwise; provided, however, that the advancement of such expenses shall not be deemed to be indemnification unless and until it shall ultimately be determined that such person is entitled to be indemnified by the corporation. 16. The corporation may purchase and maintain insurance at the expense of the corporation on behalf of any person who is or was a director, officer, employee or agent of the corporation, or any person who is or was serving at the request of the corporation as a director (or the equivalent), officer, employee, agent or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against any liability or expense (including attorneys' fees) asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability or expense under this Section or otherwise. Without limiting the generality of the foregoing provisions of this Section, no present or future director or officer of the corporation, or his heirs, executors, or administrators, shall be liable for any act, omission, step, or conduct taken or had in good faith, which is required, authorized, or approve by any order or orders issued pursuant to the Public Utility Holding Company Act of 1935, the Federal Power Act, or any federal or state statue or municipal ordinance regulating the corporation or its parent by reason of their being holding or investment companies, public utility companies, public utility holding companies, or subsidiaries of public utility holding companies. In any action, suit, or proceeding based on any act, omission, step, or conduct, as in this paragraph described, the provisions hereof shall be brought to the attention of the court. In the event that the foregoing provisions of this paragraph are found by the court not to constitute a valid defense on the grounds of not being applicable to the particular class of plaintiff, each such director and officer, and his heirs, executors, and administrators, shall be reimbursed for, or indemnified against, all expenses and liabilities incurred by him or imposed on him, in connection with, or arising out of, any such action, suit, or proceeding based on any act, omission, step, or conduct taken or had in good faith as in this paragraph described. Such expenses and liabilities shall include, but shall not be limited to, judgments, court costs, and attorneys' fees. The foregoing rights shall not be exclusive of any other rights to which any such director or officer or employee may otherwise be entitled and shall be available whether or not the director or officer or employee continues to be a director or officer or employee at the time of incurring any such expenses and liabilities. ARTICLE XIV SEVERABILITY AND RULES OF CONSTRUCTION Section 1. If any word, clause or provision of the by-laws or any indemnification made under Article XIV hereof shall for any reason be determined to be invalid, the provisions of the by-laws shall not otherwise be affected thereby but shall remain in full force and effect. The masculine pronoun, as used in the by-laws, means the masculine and feminine wherever applicable. As Amended April 26, 2001 EX-3 5 x3d2.txt GULF POWER COMPANY BY-LAWS Exhibit 3(d)2 GULF POWER COMPANY BY-LAWS I N D E X Section Page 1. Annual Meeting of Stockholders - Location and date 1 (The annual meeting of stockholders is to be held at the office of the Corporation in Augusta, Maine, or at such other place within or without the State of Maine as the Board of Directors may determine, on the last Tuesday in June each year; provided, however, that the Board of Directors may fix an earlier day in any year.) 2. Special Meetings of Stockholders - Location and Method of Call 1 3. Notice of Meeting of Stockholders - Time, Place, and Purpose 1 (Notice of the time, place and purpose of every meeting of stockholders shall be mailed by the Secretary or the Officer performing his duties at least ten days before the meeting to each stockholder of record entitled to vote.) 4. Quorum 1 5. Stock 1 (a) Regulations governing issuance of stock (b) Dividends - Declaration, payment, limitations and definitions 6. Replacement of Lost, Destroyed or Mutilated Certificates 2 7. Election of Board of Directors - Total Number of Directors 3 Allowed, and Number Consituting a Quorum 8. Board of Directors' Meetings, Annual and Other Notices 4 of Meetings, etc GULF POWER COMPANY BY-LAWS I N D E X Section Page 9. Appointment and Term of Office 4 10. Appointment and Duties of Executive Committee 4 11. Duties and Powers of the President 5 12. Succession of Officers in Event of Inability of 5 President to Act 13. Duties and Powers of the Secretary 5 14. Duties and Powers of the Treasurer 5 15. Duties and Powers of the Comptroller 6 16. Duties and Powers of Assistant Secretaries, 6 Assistant Treasurers, and Assistant Comptroller 17. Qualifications, Duties and Powers of the Clerk 6 18. Delegation of Duties and Powers by the Board of Directors 6 19. Selection of Successor Directors to fill Vacancies by Reason 6 of Death, Resignation, etc. 20. Power to Authorize Compensation for Directors 7 21. Indemnification 7 22. Power to Select Depositaries and Designate Required Signatures 8 23. Corporate Seal - Description 8 24. Business Transactions Between Corporation and its Directors 9 25. Amendment to By-laws 9 GULF POWER COMPANY BY-LAWS Section 1. The annual meeting of the stockholders of the corporation for the election of directors and for the transaction of such other corporate business as may properly come before such meeting shall be held at the corporation's office at Augusta, in the State of Maine, or at such other place within or without the State of Maine as the Board of Directors may determine, on the last Tuesday in June in each year; provided, however, that the Board of Directors may fix an earlier day for such annual meeting of stockholders in any particular year; and provided further that, if the day fixed for such annual meeting of stockholders is a legal holiday, such meeting shall be held on the first day thereafter which is not a legal holiday. Section 2. Special meetings of the stockholders of the corporation may be held at such time and at such place within or without the State of Maine as may be determined by the President or the Board of Directors or Executive Committee, or stockholders holding one-fourth of the then outstanding capital stock entitled to vote. Section 3. Notice of the time, place and purpose of every meeting of stockholders shall be mailed by the Secretary or the officer performing his duties at least ten days before the meeting to each stockholder of record entitled to vote, at his post office address as shown by the records of the corporation, but meetings may be held without notice if all stockholders entitled to vote are present or if notice is waived before or after the meeting by those not present. No stockholder shall be entitled to notice of any meeting of stockholders with respect to any shares registered in his name after the date upon which notice of such meeting is required by law or by these by-laws to have been mailed or otherwise given to stockholders. Section 4. Subject to the provisions of the articles of incorporation, as amended, the holders of a majority of the stock of the corporation entitled to vote, present in person or by proxy, shall constitute a quorum, but less than a quorum shall have power to adjourn. At all meetings of stockholders, each stockholder entitled to vote may vote and otherwise act either in person or by proxy. Section 5. The stock of the corporation shall be transferable or assignable on the books of the corporation by the holders in person or by attorney on the surrender of the certificates therefor duly endorsed. The certificates of stock of the corporation shall be numbered and shall be entered in the books of the corporation and registered as they are issued. They shall exhibit the name of the registered holder and shall certify the number of shares owned by him and shall be signed by, or in the name of the corporation by, the President or a Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, and shall be sealed with the corporate seal of the corporation. Where such certificate is signed by a Transfer Agent or by a Transfer Clerk acting on behalf of the corporation and by a Registrar, the signature of any such President, Vice-President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary and the seal of the corporation may be facsimile. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates, shall cease to be such officer or officers of the corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the corporation, such certificate or certificates may nevertheless be adopted by the corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers of the corporation and the issuance and delivery of any such certificate or certificates shall be conclusive evidence of such adoption. The stock transfer books of the corporation may be closed by order of the Board of Directors for such period, not to exceed sixty days previous to any meeting of the stockholders or previous to the payment of any dividend upon the stock of the corporation, as the Board may determine, during which time no transfer of stock upon the books of the Corporation shall be made, and said books shall be re-opened the day following the date fixed for such meeting or for the payment of such dividend. If the stock transfer books of the corporation are ordered closed by the Board of Directors, every stockholder who appears of record at the time of closing said books shall be entitled to vote at the meeting or to receive the dividend on account of which the said books were ordered closed. In lieu of providing for the closing of the stock transfer books of the corporation, the Board of Directors may fix a date not exceeding sixty days preceding the date of any meeting of stockholders, or any dividend payment date, as the record date for the determination of the stockholders entitled to notice of and to vote at such meeting, or entitled to receive such dividend, as the case may be. If the stock transfer books of the corporation are not ordered closed by the Board of Directors or if the Board of Directors does not fix a date of record in lieu thereof, every stockholder who appears of record on the date of a stockholders' meeting shall be entitled to vote at such meeting and every stockholder who appears of record on the date specified by the Board of Directors in their declaration of a dividend shall be entitled to such dividend. Section 6. Upon receipt by this corporation of evidence, satisfactory to the Board of Directors, of the loss, destruction or mutilation of any certificate of stock of this corporation and, if required by the Board of Directors, upon receipt of indemnity satisfactory to the Board of Directors and upon surrender and cancellation of such certificate, if mutilated, the Board of Directors may, if it so determines, direct the officers of this corporation to execute and deliver a new certificate of like tenor and for the same number of shares of the same class of stock to be issued in lieu of such lost, destroyed or mutilated certificate. Section 7. The affairs of this corporation shall be managed by a Board consisting of not less than six directors, nor more than fifteen directors, their number to be fixed at the annual or any special meeting of the stockholders, who shall be elected annually by the stockholders entitled to vote, to hold office until their successors are elected and qualify. Directors need not be stockholders. A majority of the members of the Board then in office shall constitute a quorum. Vacancies in the Board of Directors may be filled by the Board at any meeting, including vacancies arising from the election of fewer directors than the total number fixed. Any and all of the directors may at any time be removed without cause assigned by the vote of the holders of a majority in number of all of the outstanding stock entitled to vote given at a meeting called for the purpose of considering such action. The foregoing provisions of this Section 7 relating to the election of directors and to the filling of vacancies in the Board of Directors shall be subject to the provisions of the Articles of Incorporation, as amended. A person being a full-time executive employee of the corporation or its parent company or any affiliated company when first elected a director of the corporation (hereinafter sometimes referred to as an "employee-director") shall not be eligible for election as a director when he ceases to be an executive employee, whether by reason of resignation, retirement or other cause. Any employee-director shall resign as a director effective on the date he ceases to be an executive employee. A person not an employee-director shall not be eligible to serve as a director of the corporation (1) after his 70th birthday, (2) one year after permanent separation from the business or professional organization with which he was primarily associated when first elected a director, (3) one year after any other material change in his primary occupation or executive position from that which he pursued or held when first elected a director, or (4) one year after moving his principal residence outside the service area in which he was a resident when first elected a director, whichever event first occurs. The application to an individual of any provision of this paragraph may be waived by the Board of Directors. Any such waiver shall only be effective on a year-to-year basis. The provisions of this paragraph, with the exception of item (1) above, shall apply only to those individuals elected as a member of the Board of Directors after the annual meeting of this Board held July 26, 1996. Any employee-director who is not eligible for election as a director by reason of the foregoing provisions shall be eligible for election and re-election by the Board of Directors as an advisory director, upon the recommendation of the Chief Executive Officer of the corporation, for a term ending at the first meeting of the Board of Directors following the annual meeting of stockholders next following such election. Any person eligible for election as an advisory director must be one 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 but not to vote at, meetings of the Board of Directors, and of any committees thereof to which he shall be appointed, nor shall he be counted in determining the existence of a quorum, 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. Section 8. The annual meeting of the Board of Directors shall be held as soon as practicable after the annual meeting of the stockholders. Other meetings of the Board of Directors shall be held at the times fixed by resolution of the Board or upon call of the Chairman of the Board, the President or a Vice-President or any person upon whom powers have devolved pursuant to Section 12 hereof. The Secretary or officer performing his duties shall give at least two days' notice of all meetings of Directors, provided that a meeting may be held without notice immediately after the annual election of Directors, and notice need not be given of regular meetings held at times fixed by resolution of the Board. Meetings may be held at any time without notice if all the Directors are present or if those not present waive notice either before or after the meeting. Notice by mail or telegraph to the usual business or residence address of the director shall be sufficient. The purpose of special meetings of the Board of Directors need not be stated in such notice unless required by law and unless otherwise indicated in the notice any and all business may be transacted at a special meeting of the Board of Directors. Section 9. The Board of Directors, as soon as may be convenient after the election of directors in each year, may appoint one of their number Chairman of the Board and shall appoint one of their number President of the corporation, and shall also appoint one or more Vice-presidents, a Secretary, a Clerk and a Treasurer, none of whom need be members of the Board, and shall, from time to time, appoint such other officers as they may deem proper. The same person may be appointed to more than one office. The term of office of all officers shall be for one year and until their respective successors are chosen and qualified, but any officer may be removed from office at any time by the Board of Directors without cause assigned. Vacancies in the offices shall be filled by the Board of Directors. Section 10. The Board of Directors, as soon as may be after the election in each year, may appoint an executive committee to consist of the President and such number of directors as the Board may from time to time determine. Such committee shall have and may exercise all of the powers of the Board during the intervals between its meetings which may be lawfully delegated, subject to such limitations as may be provided by a resolution of the Board. The Board shall have the power at any time to change the membership of such committee and to fill vacancies in it. The executive committee may make rules for the conduct of its business and may appoint such committees and assistants as it may deem necessary. The Board may, from time to time, determine by resolution the number of members of such committee required to constitute a quorum. The Board shall designate the Chairman of the executive committee and the proceedings of the executive committee shall from time to time be reported to the Board of Directors. Section 11. Unless otherwise designated as separate offices by the Board of Directors, the President shall be the Chief Executive Officer of the corporation; he shall preside at all meetings of the stockholders and directors; he shall have general supervision of the business of the corporation; shall see that all orders and resolutions of the Board are carried into effect, subject, however, to the rights of the directors to delegate any specific powers, except such as may be by statute exclusively conferred on the President, to any other officer of the corporation. He shall, unless otherwise ordered, execute bonds, deeds, mortgages, and other contracts, and when required shall cause the seal of the corporation to be affixed thereto and shall sign certificates of stock. He shall be ex officio a member of all standing committees, and shall submit to the stockholders at their annual meeting a report of the year's business. Should the offices of President and Chief Executive Officer be held by different persons, the above duties shall be as delegated to each office by the Board of Directors. Section 12. Notwithstanding the provisions of Section 9 hereof, in the event of the absence or inability of the President to act, the powers and duties of the President shall, subject to the control of the Board of Directors, devolve successively upon such other persons as shall have been designated in a resolution adopted by the Board of Directors, and in accordance with the order of succession set forth therein. Section 13. The Secretary shall attend all sessions of the Board and record all votes and the minutes of all proceedings in a book to be kept for that purpose; and shall perform like duties for standing committees when required. He shall give or cause to be given notice of all meetings of the stockholders and the Board of Directors, and of standing committees when required, and shall perform such other duties as may be prescribed by the Board of Directors or the President under whose supervision he shall act. He shall keep in safe custody the seal of the Corporation, and when authorized, affix the same to any instrument requiring a seal, and attest the signatures thereof, when directed or required to do so. Section 14. The Treasurer shall have the custody of the corporate funds and securities, and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation, in such depositaries as may be designated by the Board of Directors. He shall disburse the funds of the corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the President, and to the directors at the regular meetings of the Board or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the corporation. He shall give the corporation a bond for the faithful performance of the duties of his office, and for the restoration to the corporation in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind, in his possession or under his control belonging to the corporation. Section 15. It shall be the duty of the Comptroller to supervise and be responsible for accounting transactions of the corporation; to have charge of the installation and supervision of all accounting and statistical records, the preparation of all financial and statistical statements and reports, and the accounting methods, systems and forms in use by all departments; he shall perform such other duties as may be assigned to him from time to time by the President. Section 16. One or more Assistant Secretaries or Assistant Treasurers or Assistant Comptrollers may be elected by the Board or appointed by the President to hold office until the next annual meeting of the Board of Directors and until their successors are elected or appointed, but may be removed at any time. They shall perform any or all of the duties of the Secretary or Treasurer, or Comptroller as the case may be, and such other duties as may be assigned to them from time to time. Section 17. The Clerk of the corporation shall be a resident of Maine, and shall be sworn to the faithful performance of his duties. He need not be a stockholder. He shall keep a full and accurate record of all stockholders' meetings, shall keep an office in said Augusta as required by law, and shall have the custody of all books and papers belonging to the corporation which are located in said office. He shall receive as compensation for his services in acting as proxy at annual meetings, keeping an office in Maine, preparing records of annual meetings and furnishing the Secretary with duplicate copies of same and of necessary blanks and forms at proper times the sum of fifty dollars annually, payable in advance. He shall receive a reasonable compensation for all additional services. In the absence of the Clerk, a Clerk pro tempore may be chosen, who shall be a resident of Maine, and shall be duly sworn. Section 18. In the 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 the powers or duties of such officers to any other officer or to any director, for the time being. Section 19. If the office of any director becomes vacant by reason of death, resignation, retirement, disqualification, removal from office, or otherwise, the remaining directors then in office, even though less than a quorum, by a majority vote may choose a successor or successors, who shall hold office for the unexpired term in respect of which such vacancy occurred; but vacancies in the Board of Directors arising from the election of fewer directors than the total number fixed shall be filled in the manner prescribed by Section 7 thereof. Section 20. The Board of Directors shall have power to authorize the payment of compensation to the directors for services to the corporation, including fees for attendance at meetings of the Board of Directors, of the executive committee and all other committees and to determine the amount of such compensation and fees. Section 21. A. Indemnity To the fullest extent permitted by law, the Company shall indemnify each person made, or threatened to be made, a party to any threatened, pending, or completed claim, action, suit or proceeding, whether civil or criminal, administrative or investigative, and whether by or in the right of the Company or otherwise, by reason of the fact that such person, or such person's testator or intestate, is or was a director, officer or was an employee of the Company holding one or more management positions through and inclusive of managers (but not positions below the level of managers) (such positions being hereinafter referred to as "Management Positions") or is or was serving at the request of the Company as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, in any capacity at the request of the Company, against all loss and expense actually or reasonably incurred by him including, without limiting the generality of the foregoing, judgments, fines, penalties, liabilities, sanctions, and amounts paid in settlement and attorneys fees and disbursements actually and necessarily incurred by him in defense of such action or proceeding, or any appeal therefrom. The indemnification provided by this Section shall inure to the benefit of the heirs, executors and administrators of such person. In any case in which a director, officer of the Company or employee of the Company holding one or more Management Positions requests indemnification with respect to the defense of any such claim, action, suit or proceedings, the Company may advance expenses (including attorney's fees) incurred by such person 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 a written undertaking by or on behalf of such person to repay amounts advanced if it shall ultimately be determined that such person was not entitled to be indemnified by the Company under this Section or otherwise; provided, however, that the advancement of such expenses shall not be deemed to be indemnification unless and until it shall ultimately be determined that such person is entitled to be indemnified by the Company. Such a person claiming indemnification shall be entitled to indemnification upon a determination that no judgment or other final adjudication adverse to such person has established that such person's acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, or such person personally obtained an economic benefit including a financial profit or other advantage to which such person was not legally entitled. Without limiting the generality of the foregoing provision, no former, present or future director or officer of the Company or employee of the Company holding one or more management positions, or his heirs, executors or administrators, shall be liable for any undertaking entered into by the Company or its subsidiaries or affiliates as required by the Securities and Exchange Commission pursuant to any rule or regulation of the Securities and Exchange Commission now or hereafter in effect or orders issued pursuant to the Public Utility Holding Company Act of 1935, the Federal Power Act, or any undertaking entered into by the Company due to environmental requirements including all legally enforceable environmental compliance obligations imposed by federal, state or local statute, regulation, permit, judicial or administrative decree, order and judgment or other similar means, or any undertaking entered into by the Company pursuant to any approved Company compliance plan or any federal or state or municipal ordinance which directly or indirectly regulates the Company, or its parent by reason of their being holding or investment companies, public utility companies, public utility holding companies or subsidiaries of public utility holding companies. The foregoing rights shall not be exclusive of any other rights to which any such director, officer or employee may otherwise be entitled and shall be available whether or not the director, officer or employee continues to be a director, officer or employee 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 this Section 21 shall for any reason be determined to be invalid, the remaining 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. B. Insurance The Company may purchase and maintain insurance on behalf of any person described in Section 21 against any liability or expense (including attorney fees) which may be asserted against such person whether or not the Company would have the power to indemnify such person against such liability or expense under this Section 21 or otherwise. Section 22. The Board of Directors are authorized to select such depositaries as they shall deem proper for the funds of the corporation. All checks and drafts against such deposited funds shall be signed by such officers or such other persons as may be specified by the Board of Directors. Section 23. The corporate seal shall be circular in form, and shall have inscribed thereon the name of the corporation, followed by the word "Maine" and shall have the word "Seal" inscribed in the center thereof. Section 24. A director of this corporation shall not be disqualified by his office from dealing or contracting with the corporation, either as vendor, purchaser or otherwise, nor shall any transaction or contract of this corporation be void or voidable by reason of the fact that any director or any firm of which any director is a member or any corporation of which any director is a shareholder or director is in any way interested in such transaction or contract, provided that such transaction or contract is or shall be authorized, ratified or approved either (a) by vote of a majority of a quorum of the Board of Directors or the executive committee, without counting in such majority or quorum any directors so interested or being a member of a firm so interested or a shareholder or director of a corporation so interested, or (b) by vote at a stockholders' meeting of the holders of a majority of all the outstanding shares of the stock of the corporation entitled to vote or by a writing or writings signed by a majority of such holders; nor shall any director be liable to account to the corporation for any profit realized by him from or through any transaction or contract of this corporation authorized, ratified or approved as aforesaid, by reason of the fact that he or any firm of which he is a member or any corporation of which he is a shareholder or director was interested in such transaction or contract. Nothing herein contained shall create any liability in the events above described or prevent the authorization, ratification or approval of such contracts or transactions in any other manner provided by law. Section 25. These by-laws may be altered or amended (a) by a majority vote of the outstanding stock entitled to vote at any annual meeting or upon notice at any special meeting of stockholders, or (b) at any meeting of the Board of Directors by a majority vote of the entire Board then in office. EX-3 6 x3e2.txt MISSISSIPPI POWER COMPANY BY-LAWS Exhibit 3(e)2 MISSISSIPPI POWER COMPANY BYLAWS AMENDED: February 28, 2001 MISSISSIPPI POWER COMPANY BYLAWS ARTICLE I Stockholders SECTION 1.01. Annual Meeting. The annual meeting of the shareholders of the Corporation for the election of directors and for the transaction of such other corporate business as may properly come before such meeting shall be held at the Corporation's office at Gulfport, in the State of Mississippi, or at such other place within or without the State of Mississippi as the Chairman of the Board, the President or the Board of Directors may determine on the last Tuesday in June in each year; provided, however, that the Chairman of the Board, the President or the Board of Directors may fix an earlier day for such annual meeting of shareholders in any particular year; and provided further that, if the day fixed for such annual meeting of shareholders is a legal holiday, such meeting shall be held on the first day thereafter which is not a legal holiday. [79-4-7.01] SECTION 1.02. Special Meetings. Subject to the provisions of Article Fourth of the Corporation's Articles of Incorporation, special meetings of the shareholders of the Corporation may be held at such time and at such place within or without the State of Mississippi as the Chairman of the Board, the President or the Board of Directors may determine. A special meeting may be called at any time by the Chairman of the Board, the President, the Board of Directors, the Executive Committee or shareholders holding one-tenth of the then outstanding capital stock entitled to vote. [79-4-7.02] SECTION 1.03. Notice of Meetings of Stockholders. Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered by the Secretary or the other officer performing his duties, or the officer or persons calling the meeting not less than ten nor more than fifty days before the meeting, either personally or by mail, to each shareholder of record entitled to vote. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his address as it appears on the stock transfer books of the Corporation, with postage prepaid. [79-4-7.05] Whenever any notice is required to be given to any shareholder, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be equivalent to the giving of such notice. [79-4-7.06] SECTION 1.04. Fixing Date for Determination of Stockholders of Record. In order to determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other purpose, the Board of Directors may provide that the stock transfer books of the Corporation shall be closed for a stated period but not to exceed fifty (50) days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten (10) days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix, in advance, a record date for any such determination of shareholders, which shall not be more than fifty (50) days and, in case of a meeting of shareholders, not less than ten (10) days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof. [79-4-7.07 & 79-4-7.20(a)] SECTION 1.05. Quorum. Subject to the provisions of Article Fourth of the Corporation's Articles of Incorporation, at all meetings of shareholders, the holders of a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum for the transaction of any business. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on the subject matter shall constitute the act of shareholders. [79-4-7.25] SECTION 1.06. Voting Rights of Shareholders. Each shareholder of record entitled to vote in accordance with the laws of the State of Mississippi, the Corporation's Articles of Incorporation, or these Bylaws, shall at every meeting of shareholders be entitled to one vote in person or by proxy for each share of stock entitled to vote, but no proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. [79-4-7.21 & 79-4-7.22] SECTION 1.07. Voting List - Shareholder Examination. The officer or agent having charge of the stock transfer books for shares of the Corporation shall make, at least ten (10) days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten (10) days prior to such meeting, shall be kept on file at the registered office of the Corporation and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. No shareholder shall be entitled to inspect any such list or the stock transfer books unless such inspection shall be made in good faith for a proper purpose. The original stock transfer books shall be prima facie evidence as to who are the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders. [79-4-7.20(b)-(d)] Failure to comply with the requirements of this section shall not affect the validity of any action taken at such meeting. [79-4-7.20(e)] SECTION 1.08. Consent in Lieu of Meeting. Any corporate action either required or permitted by the Business Corporation Act of Mississippi, the Corporation's Articles of Incorporation, or these Bylaws, to be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. [79-4-7.04(a)] ARTICLE II Directors SECTION 2.01. Management of Business. The business and affairs of the Corporation shall be managed by the Board of Directors. The provisions of this Article II shall be subject to Article Fourth of the Corporation's Articles of Incorporation. [79-4-8.01(b)] SECTION 2.02. Number and Qualification of Directors. The number of directors shall be not less than three nor more than fifteen, the number to be fixed at the annual or any special meeting of the stockholders entitled to vote for the election of directors, but no decrease shall have the effect of shortening the term of any incumbent director. [79-4-8.03(a)-(c)] Directors need not be residents of Mississippi or shareholders of the Corporation. [79-4-8.02] No person who is engaged or interested in a competing business either individually or as employee or stockholder, shall serve as a director without the consent of a majority of interest of the stockholders. [79-4-8.31] A person being a full-time executive employee of the Corporation or its parent company or any affiliated company when first elected a director of the Corporation (hereinafter sometimes referred to as an "employee-director") shall not be eligible to serve as a director when he ceases to be an executive employee, whether by reason of resignation, retirement or other cause; and a person not an employee-director shall not be eligible to serve as a director of the Corporation after his 70th birthday. Any employee-director who is not eligible to serve as a director by reason of the foregoing provisions shall be eligible to serve as an advisory director until he shall have reached his 70th birthday, if elected or re-elected by the Board of Directors, upon the recommendation of the Chief Executive Officer of the Corporation. 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 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. Any person eligible for election as an advisory director must be one 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, to attend, and to advise but not to vote at meetings of the Board of Directors and of any committees thereof to which he shall be appointed. An advisory director shall not be counted in determining the existence of a quorum, 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. SECTION 2.03. Election and Term. The directors shall be elected at the annual meeting of shareholders, and each director shall be elected to hold office until his successor shall be elected and qualified, or until his earlier resignation or removal. The Board of Directors, as soon as may be convenient after the election of directors in each year, may appoint one of their number Chairman of the Board. [79-4-8.03(d)] SECTION 2.04. Vacancies and Newly Created Directorships. In case of any vacancies in the Board of Directors through death, resignation, disqualification or any other cause, including a vacancy resulting from an increase in the number of directors, the Board of Directors may fill the vacancy by the affirmative vote of a majority of the remaining directors, which shall constitute a quorum for such purpose, and the director or directors so chosen shall hold office until the next annual election by shareholders and until their successor or successors shall be elected and qualified. [79-4-8.10] SECTION 2.05. Removal. At a meeting called expressly for that purpose, any and all of the directors may at any time be removed, with or without cause, by a vote of the holders of a majority of the shares then entitled to vote at an election of directors. If less than the entire Board is to be removed, no one of the directors may be removed if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors. [79-4-8.08] SECTION 2.06. Quorum of Directors. 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 constitute a quorum for the transaction of business. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. [79-4-8.24] SECTION 2.07. Annual Meeting. The newly elected Board of Directors shall meet as soon as practicable after the annual meeting of shareholders, within or without the State of Mississippi, and no notice of such meeting shall be necessary. [79-4-8.20] SECTION 2.08. Regular Meetings. Regular meetings of the Board may be held at such time and place, within or without the State of Mississippi, as shall from time to time be fixed by the Chairman of the Board, the President or the Board of Directors, and no notice of such meeting shall be necessary. [79-4-8.20] SECTION 2.09. Special Meetings. Special meetings may be called at any time by the Chairman of the Board, the President, any Vice President, the Treasurer or the Secretary or by the Board of Directors. Special meetings shall be held at such place, within or without the State of Mississippi, as shall be fixed by the person or persons calling the meeting and stated in the notice or waiver of notice of the meeting. [79-4-8.20] Notice of a special meeting shall be given by the Secretary, or such other officer performing his duties, to each director at least two days prior to such meeting, if delivered by express mail or courier, or one day's notice if given by telegram or telecopy or personal communication by telephone or otherwise, or not later than the fourth day prior to the meeting if given by regular, postage-prepaid U.S. mail. Attendance of a director at a special meeting shall constitute a waiver of notice of such meeting, except when a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Notice by mail or telegraph to the usual business or residence address of the director shall be sufficient. The business to be transacted at or the purpose of a special meeting of the Board of Directors need not be stated in such notice or waiver of notice and any and all business may be transacted at a special meeting of the Board of Directors. [79-4-8.22 & 79-4-8.23] SECTION 2.10. Action Without a Meeting. Any corporate action either required or permitted by the Business Corporation Act of Mississippi, the Corporation's Articles of Incorporation, or these Bylaws, to be taken at a meeting of the Board of Directors may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the directors entitled to vote with respect to the subject matter thereof. Members of the Board of Directors or any committee thereof may participate in a meeting of the Board or any committee thereof by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. [79-4-8.21] SECTION 2.11. Compensation. Directors shall be entitled to a fee for attendance at each regular or special meeting of the Board of Directors, or a committee of the Board, and in otherwise performing duties as such directors, and/or to a monthly or annual fee or salary, provided that no fees or salaries shall be paid to those directors who are officers or employees, other than retired employees, who are on a fixed basis of compensation from the Company or any subsidiary or affiliated company and who have duties and responsibilities to such companies other than those arising from the office of director. Directors shall be reimbursed for actual expenses incurred in attending meetings of the Board of Directors or any committee thereof and in otherwise performing duties as such directors or in lieu thereof to an allowance for expenses. The amount of fee or salary paid to directors and expense allowance, if any, shall be fixed by the Board of Directors. [79-4-8.11] SECTION 2.12. Executive and Other Committees. The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board, designate an Executive Committee and one or more other committees, including without limitation Audit and Compensation Committees, each consisting of three or more directors, and each of which committees may act by a majority of its members. Such Executive Committee shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Company when the Board is not meeting; and each other committee shall have such powers of the Board and otherwise as are provided in the resolution establishing such committee. Provided, however, notwithstanding anything to the contrary herein, the Executive Committee and all other committees established by the Board shall have no power or authority to take any action specifically prohibited under the Mississippi Business Corporation Act, Section 79-4-8.25(e), or any successor statute. Unless otherwise specifically permitted by the Board, the rules promulgated by these Bylaws with respect to meetings of directors, notice, quorums, voting and other procedures at such meetings shall be applicable to meetings of committees established by the Board. [79-4-8.25] SECTION 2.13. Interest of Director in Corporate Act. A director of this Corporation shall not be disqualified by his office from dealing or contracting with the Corporation, either as vendor, purchaser or otherwise, nor shall any transaction or contract of this Corporation be void or voidable by reason of the fact that any director or any firm of which any director is a member or any corporation of which any director is a shareholder or director is in any way interested in such transaction or contract, provided that such transaction or contract is or shall be authorized, ratified or approved either (1) by vote of a majority or a quorum of the Board of Directors or the Executive Committee, without counting in such majority or quorum any directors so interested or being a member of a firm so interested or a shareholder or director of a corporation so interested, or (2) by vote at a stockholders' meeting of the holders of a majority of all the outstanding shares of the stock of the Corporation entitled to vote or by a writing or writings signed by a majority of such holders; nor shall any director be liable to account to the Corporation for any profit realized by him from or through any transaction or contract of this Corporation authorized, ratified or approved as aforesaid, by reason of the fact that he or any firm of which he is a member or any corporation of which he is a shareholder or director was interested in such transaction or contract. Nothing herein contained shall create any liability in the events above described or prevent the authorization, ratification or approval of such contracts or transactions in any other manner provided by law. ARTICLE III Officers SECTION 3.01. Number. The officers of the Corporation shall be chosen by the Board of Directors. The officers shall be a President, a Secretary and a Treasurer, and such number of Vice Presidents, Assistant Secretaries and Assistant Treasurers, and such other officers, if any, as the Board of Directors may from time to time determine. The Board of Directors may from time to time, but shall not be required to, establish the office of Chairman of the Board and may, but shall not be required to, designate the holder of such office, if established, as Chief Executive Officer of the Corporation. The Board of Directors may choose such other agents as it shall deem necessary. Any number of offices may be held by the same person, except the offices of President and Secretary. [79-4-8.40] SECTION 3.02. Terms of Office. Each officer shall hold his office until the next election of officers and until his successor is chosen and qualified or until his earlier resignation or removal. Any officer may resign at any time upon written notice to the Corporation. Vacancies in any office shall be filled by the Board of Directors. SECTION 3.03. Removal of Officers. Any officer or agent may be removed by the Board of Directors whenever in its judgment the best interest of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. [79-4-8.43(b)] SECTION 3.04. Authority. The officers of the Corporation shall have such duties as usually pertain to their offices, except as modified by the Board of Directors and shall also have such powers and duties as may from time to time be conferred upon them by the Board of Directors. Notwithstanding the provisions of Section 3.01 hereof, in the event of the absence or inability of the President to act, the powers and duties of the President shall, subject to the control of the Board of Directors, devolve successively upon such other persons as shall have been designated in a resolution adopted by the Board of Directors, and in accordance with the order of succession set forth therein. [79-4-8.41] ARTICLE IV Indemnification of Directors and Officers SECTION 4.01. Indemnification and Related Matters. To the fullest extent permitted by law, the Company shall indemnify each person made, or threatened to be made, a party to any threatened, pending, or completed claim, action, suit or proceeding, whether civil or criminal, administrative or investigative, and whether by or in the right of the Company or otherwise, by reason of the fact that such person, or such person's testator or intestate, is or was a director, officer or was an employee of the Company holding one or more management positions through and inclusive of department managers (but not positions below the level of department managers) (such positions being hereinafter referred to as "Management Positions") or is or was serving at the request of the Company as a director, officer, employee, agent or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, in any capacity at the request of the Company, against all loss and expense actually or reasonably incurred by him including, without limiting the generality of the foregoing, judgments, fines, penalties, liabilities, sanctions, and amounts paid in settlement and attorney's fees and disbursements actually and necessarily incurred by him in defense of such action or proceeding, or any appeal therefrom. The indemnification provided by this Section shall inure to the benefit of the heirs, executors and administrators of such person. In any case in which a director, officer of the Company or employee of the Company holding one or more Management Positions requests indemnification with respect to the defense of any such claim, action or suit or proceedings, the Company may advance expenses (including attorney's fees) incurred by such person 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 a written undertaking by or on behalf of such person to repay amounts advanced if it shall ultimately be determined that such person was not entitled to be indemnified by the Company under this Section or otherwise; provided, however, that the advancement of such expenses shall not be deemed to be indemnification unless and until it shall ultimately be determined that such person is entitled to be indemnified by the Company. Such a person claiming indemnification shall be entitled to indemnification upon a determination that no judgment or other final adjudication adverse to such person has established that such person's acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated, or such person personally obtained an economic benefit including a financial profit or other advantage to which such person was not legally entitled. Without limiting the generality of the foregoing provision, no former, present or future director or officer of the Company or employee of the Company holding one or more management positions, or his heirs, executors or administrators, shall be liable for any undertaking entered into by the Company or its subsidiaries or affiliates as required by the Securities and Exchange Commission pursuant to any rule or regulation of the Securities and Exchange Commission now or hereafter in effect or orders issued pursuant to the Public Utility Holding Company Act of 1935, the Federal Power Act, or any undertaking entered into by the Company due to environmental requirements including all legally enforceable environmental compliance obligations imposed by federal, state or local statute, regulation, permit, judicial or administrative decree, order and judgment or other similar means, or any undertaking entered into by the Company pursuant to any approved Company compliance plan or any federal or state or municipal ordinance which directly or indirectly regulates the Company, or its parent by reason of their being holding or investment companies, public utility companies, public utility holding companies or subsidiaries of public utility holding companies. The foregoing rights shall not be exclusive of any other rights to which any such director, officer or employee may otherwise be entitled and shall be available whether or not the director, officer or employee continues to be a director, officer or employee at the time of incurring any such expenses and liabilities. If any word, clause or provision of the Bylaws or any indemnification made under this Section 4.01 shall for any reason be determined to be invalid, the remaining provisions of the Bylaws shall not otherwise be affected thereby but shall remain in full force and effect. The masculine pronoun, as used in the Bylaws, means the masculine and feminine wherever applicable. [79-4-8.51, 79-4-8.52, 79-4-8.53, 79-4-8.55 & 79-4-8.56] SECTION 4.02. Liability Insurance. The Company may purchase and maintain insurance on behalf of any person described in Section 4.01 against any liability or expense (including attorney's fees) which may be asserted against such person whether or not the Company would have the power to indemnify such person against such liability or expense under this Article IV or otherwise. [79-4-8.57] ARTICLE V Capital Stock SECTION 5.01. Stock Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed by the President or a Vice President of the Corporation, and by the Secretary or an Assistant Secretary of the Corporation, one of which may be facsimile signature, and may be sealed with the seal of the Corporation or a facsimile thereof. The signatures of the President or Vice President and the Secretary or Assistant Secretary upon a certificate may both be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar, other than the Corporation itself or an employee of the Corporation. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of issue. The certificates of stock of the Corporation shall be numbered and shall be entered in the books of the Corporation and registered as they are issued. They shall exhibit the name of the registered holder and shall certify the number of shares owned by him. [79-4-6.25] SECTION 5.02. Registered Holders. Prior to due presentment for registration of transfer of any security of the Corporation in registered form, the Corporation shall treat the registered owner as the person exclusively entitled to vote, to receive notifications and to otherwise exercise all the rights and powers of an owner, and shall not be bound to recognize any equitable or other claim to, or interest in, any security, whether or not the Corporation shall have notice thereof, except as otherwise provided by the laws of the State of Mississippi. SECTION 5.03. Transfers. The stock of the Corporation shall be transferable or assignable on the books of the Corporation by the holders in person or by attorney on the surrender of the certificates therefor duly endorsed, or in any other manner prescribed by the laws of the State of Mississippi. SECTION 5.04. Replacement Certificates. The Corporation may issue a new certificate of stock in place of any certificates theretofore issued by it, alleged to have been lost or destroyed, provided the person seeking the issuance of the new certificate shall be the owner or satisfy the Corporation he is the owner of the stock certificate alleged to have been lost or destroyed, and the directors shall require the owner of the lost or destroyed certificate, or his legal representatives, to give the Corporation a bond sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss or destruction of any such certificate or the issuance of such new certificate. The issuance of a new certificate, as herein above provided, shall not relieve the Corporation or the directors from corporate or personal liability in damages to any person to whom the original certificate has been or shall be transferred for value without notice of the issuance of the new certificate. ARTICLE VI Miscellaneous SECTION 6.01. Seal. The corporate seal of the Corporation shall be in such form as the Board of Directors shall prescribe. SECTION 6.02. Checks. The Board of Directors is authorized to select such depositories as they shall deem proper for the funds of the Corporation. All checks and drafts against such deposited funds shall be signed by such officers or such other persons as may be specified by the Board of Directors. SECTION 6.03. Loans. No loans shall be made by the Corporation to its officers or directors, except in the amounts and under the same terms and conditions as available to all regular employees of the Corporation, and no loans shall be made by the Corporation secured by its shares. SECTION 6.04. Amendment of Bylaws. These Bylaws may be amended or repealed and new Bylaws adopted by the Board of Directors or by vote of the holders of the shares at the time entitled to vote in the election of any director, except that any Bylaw adopted by such holders shall not be amended or repealed by the Board of Directors. [79-4-10.20] SECTION 6.05. Section Headings and References. The headings of the Articles and Sections of these Bylaws and the bracketed references to the Mississippi Business Corporation Act have been inserted for convenience of reference only and shall not be deemed to be a part of these Bylaws. SELECTION OF DIRECTORS - ---------------------- Unaffiliated or outside directors are selected on the basis of their business or professional ability and recognized leadership. The selection process ordinarily is the responsibility of the Chief Executive Officer. Advice is sought from many sources, including members of the Board of Directors, business leaders and others, before making an election recommendation. Directors selected include a mix if disciplines to ensure a well-rounded board of persons with proven abilities. COMPOSITION OF THE BOARD OF DIRECTORS - ------------------------------------- As prescribed by the Mississippi Business Corporation Act, effective January 1, 1988, and the Bylaws of the Company, the business and affairs of the Company are managed by its Board of Directors. The Bylaws establish a variable range for the size of the board by fixing the minimum number at three and the maximum at fifteen. The number of directors to serve within the minimum and maximum range is determined at the annual meeting or any special meeting of the shareholders entitled to vote for the election of directors. The terms of all directors expire at the next annual shareholders meeting following their election. Directors are not required to be residents of Mississippi or shareholders of the Company. Members of the Board of Directors are classified as outside directors, employee directors or advisory directors. Outside directors are those who are not employees of the Company or an affiliated company of Southern Company. An outside director is eligible to serve as a director until reaching his or her 70th birthday. Employee directors are employees of the Company or an affiliated company of Southern Company. An employee director may not serve as a director after ceasing to be an executive employee, whether by resignation, retirement or other cause. Following retirement, the Chief Executive Officer of the Company, upon invitation and election by the Board of Directors, may serve as an advisory director. An advisory director may serve until reaching age 70. The term of office for an advisory director terminates when he or she is no longer eligible, or on the date of the annual meeting of the Board of Directors following the annual meeting of shareholders. An advisory director may be reappointed at the annual meeting of the board. An advisory director has all the privileges of a regular director except the right to vote. EX-4 7 x4c2.txt SATISFACTION AND DISCHARGE OF INDENTURE Exhibit 4(C)2 JPMORGAN CHASE BANK (A New York Banking Corporation) As Successor Trustee under Georgia Power Company's Indenture, Dated as of March 1, 1941 TO GEORGIA POWER COMPANY (A Georgia Corporation) Satisfaction and Discharge of Indenture, Release and Deed of Reconveyance Dated as of February 27, 2002 Discharging Georgia Power Company's Indenture Dated as of March 1, 1941 SATISFACTION AND DISCHARGE OF INDENTURE, RELEASE AND DEED OF RECONVEYANCE THIS DOCUMENT, dated as of the 27th day of February, 2002 (hereinafter referred to as "Satisfaction of Indenture"), relates to that certain Indenture, dated as of March 1, 1941, as heretofore amended and supplemented (the "Indenture"), from Georgia Power Company, a Georgia corporation, whose address is 241 Ralph McGill Blvd., Atlanta, Georgia 30308 (hereinafter referred to as the "Company"), to The New York Trust Company. WHEREAS, The New York Trust Company merged into Chemical Corn Exchange Bank, the name of which became Chemical Bank New York Trust Company at the time of said merger, and said Chemical Bank New York Trust Company merged into Chemical Bank on February 17, 1969, and said Chemical Bank merged with The Chase Manhattan Bank, National Association, on July 15, 1996, and the name became The Chase Manhattan Bank and The Chase Manhattan Bank merged with Morgan Guaranty Trust Company of New York on November 10, 2001, and the name became JPMorgan Chase Bank, a New York banking corporation, whose address is 450 West 33rd Street, New York, New York 10001 (hereinafter referred to as "Trustee"). WHEREAS, the Indenture (including all indentures supplemental thereto) was recorded in the official records of the States of Georgia, Alabama and South Carolina and various counties within said states in which this Satisfaction of Indenture is to be recorded, and was filed as a financing statement in accordance with the Uniform Commercial Code of each of said states; and WHEREAS, the Company executed, delivered, recorded and filed numerous indentures supplemental to the Indenture; and WHEREAS, all indebtedness secured by the Indenture and all proper charges of the Trustee thereunder have been paid and there are no bonds Outstanding under the Indenture; and WHEREAS, none of the Defaults defined in Section 11.01 of the Indenture has occurred and is continuing; and WHEREAS, pursuant to Section 13.01 of the Indenture and a Resolution of the Finance Committee of its Board of Directors, the Company has requested the Trustee to cancel and discharge the Lien of the Indenture and all indentures supplemental thereto, and to execute and deliver to the Company this Satisfaction of Indenture in order to reconvey and transfer to the Company the property of the Company which is subject to the lien of the Indenture (whether created by the Indenture, including without limitation the lien created by the after-acquired property clauses of the Indenture, or by subsequent conveyance, delivery or pledge to the trustee under the Indenture or otherwise) (the "Mortgaged and Pledged Property") and to acknowledge that the Lien of the Indenture has been cancelled, discharged and satisfied; NOW, THEREFORE, THIS SATISFACTION OF INDENTURE WITNESSETH: ARTICLE I Satisfaction and Discharge The Trustee hereby acknowledges and agrees that The New York Trust Company merged into Chemical Corn Exchange Bank, the name of which became Chemical Bank New York Trust Company at the time of said merger, and said Chemical Bank New York Trust Company merged into Chemical Bank on February 17, 1969, and said Chemical Bank merged with The Chase Manhattan Bank, National Association, on July 15, 1996, and the name became The Chase Manhattan Bank and The Chase Manhattan Bank merged with Morgan Guaranty Trust Company of New York on November 10, 2001, and the name became JPMorgan Chase Bank, a New York banking corporation, and the Trustee is the successor trustee under the Indenture. The Trustee, pursuant to the provisions of Section 13.01 of the Indenture, hereby acknowledges that the Company's obligations under the Indenture have been satisfied and hereby cancels and discharges the Indenture and the Lien thereof. The Trustee hereby authorizes and directs the clerks of the superior courts of Georgia wherein the Indenture or any supplemental indenture is recorded to cancel the Indenture and all supplemental indentures thereto as provided in Code Section 44-14-4 of the Official Code of Georgia for other mortgage cancellations. The Trustee hereby authorizes and directs the officials in the States of Alabama and South Carolina in the offices wherein the Indenture or any supplemental indenture is recorded to cancel the Indenture and all supplemental indentures as provided by law. ARTICLE II Deed of Reconveyance The Trustee, for valuable consideration, the receipt and sufficiency whereof are hereby acknowledged, hereby reconveys, quitclaims, releases, reassigns, retransfers and sets over unto the Company, and its successors and assigns forever, and releases and forever discharges from the Lien of the Indenture, all of the Trustee's right, title and interest in and to the Mortgaged and Pledged Property, being all property, real, personal and mixed, held by the Trustee pursuant to the Indenture or subject to the Lien thereof, of any kind or nature and wheresoever situated, including the properties described in the Indenture and all indentures supplemental thereof, and including (without in anywise limiting or impairing by the enumeration of the same the scope and intent of the foregoing) all premises, property, franchises and rights of every kind and description, real, personal and mixed, tangible and intangible, all lands, power sites, flowage rights, water rights, water locations, water appropriations, ditches, flumes, reservoirs, reservoir sites, canals, raceways, dams, dam sites, aqueducts, water rights, and all other rights or means for appropriating, conveying, storing and supplying water; all rights of way and roads; all plants for the generation of electricity by steam, water and/or other power; all power houses, gas plants, street lighting systems, standards and other equipment incidental thereto, telephone, radio, television and air conditioning systems and equipment incidental thereto, water works, water systems, steam heat, water and hot water plants, systems and equipment, buildings and other structures, substations, lines, service and supply systems, bridges, culverts, tracks, ice or refrigeration plants, systems and equipment; all offices, buildings and other structures and the contents thereof and the equipment therefor; all machinery, engines, boilers, dynamos, electric, gas and other machines, regulators, meters, transformers, generators, motors, electrical, gas and mechanical appliances, conduits, cables, water, hot water, steam heat, gas or other pipes, gas mains and pipes, service pipes, fittings, valves and connections, pole and transmission lines, wires, cables, bridges, tracks, tools, implements, apparatus, furniture and chattels; all other franchises, consents or permits; all street and interurban railways, buses and bus properties; all cars, automobiles, trucks, motor cars, buses, vehicles, rolling stock and tracks; all supplies, merchandise, furniture, chattels; all municipal, county and other franchises; all lines or conduits for the transmission or distribution of electric current, gas, steam heat, water or hot water for any purpose, including without limitation towers, poles, wires, cables, pipes, conduits, ducts and all apparatus for use in connection therewith; all real estate, lands, leases, leaseholds, water rights, heat, light, gas, electric, water, ice, refrigeration and other properties, easements, servitudes, licenses, permits, franchises, privileges, rights of way and other rights in or relating to public or private property, real or personal, or the occupancy of such property, and all right, title and interest of the Trustee (in its capacity as trustee under the Indenture) in and to all property of any kind or nature wheresoever situated; TOGETHER WITH all and singular the tenements, hereditaments and appurtenances belonging or in anywise appertaining to the aforesaid property or any part thereof, with the reversion and reversions, remainder and remainders and the tolls, rents, revenues, issues, earnings, income, product and profits thereof, and all the estate, right, title and interest and claim whatsoever, at law as well as in equity, of the Trustee in and to the aforesaid property and franchises and every part and parcel thereof; TO HAVE AND TO HOLD all such real, personal and mixed properties that are herein reconveyed, quitclaimed, released, reassigned, retransferred, and set over by the Trustee as aforesaid, unto the Company and its successors and assigns forever, free and clear of all claims under and by virtue of the Mortgage; PROVIDED, HOWEVER, that this reconveyance, reassignment and retransfer shall be without covenants, warranties of title or seisin, or of any other nature whatsoever, either express or implied in law or in equity; and shall be without recourse against the Trustee in any event or any contingency, and shall be without prejudice to the rights of the Trustee under Article XVI of the Indenture, which rights shall survive satisfaction and discharge of the Indenture. ARTICLE III Regarding the Resignation of the Trustee Having acknowledged satisfaction and discharge of the Indenture, and having reconveyed the Mortgaged and Pledged Property to the Company, JPMorgan Chase Bank hereby resigns as Trustee under the Indenture, such resignation to take effect as of the date hereof and to be without prejudice to said rights under said Article XVI of the Indenture. ARTICLE IV Miscellaneous Provisions SECTION 4.01 The terms defined in the Indenture and used herein shall, for all purposes of this Satisfaction of Indenture, have the meanings specified in the Indenture. SECTION 4.02 The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Satisfaction of Indenture or for or in respect of the recitals contained herein, all of which recitals are made by the Company solely. SECTION 4.03 This Satisfaction of Indenture shall be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. ARTICLE V Reference to Recording Data The Indenture was recorded on the dates, in the offices and at the locations, among others, set forth in Exhibit 1 attached hereto and by this reference made a part hereof. Exhibit 1 is not intended to be, and shall not be deemed to be, an exhaustive listing and is not intended to, and shall not be deemed to, limit in any manner the effect of this Satisfaction of Indenture, and this Satisfaction of Indenture shall apply to the Indenture and all indentures supplemental thereto, wherever and whenever recorded, and whether or not listed on Exhibit 1. IN WITNESS WHEREOF, JPMorgan Chase Bank has caused its corporate name to be hereunto affixed, and this instrument to be signed and sealed by one of its Vice Presidents or one of its Assistant Vice Presidents, and its corporate seal to be attested to by one of its Senior Trust Officers, all as of the day and year first above written. JPMORGAN CHASE BANK [SEAL] as Trustee By: ---------------------------- Vice President Attest: Senior Trust Officer Signed, sealed and delivered in the presence of: - ---------------------------- Witness - ---------------------------- Witness - ---------------------------- Notary Public My Commission Expires: Notarial Seal STATE OF NEW YORK ) SS. COUNTY OF NEW YORK ) On this 27th day of February, 2002, before me, ___________________________, Notary Public in and for the State of New York, personally appeared ___________________________ and ____________________________, known to me to be a Vice President and a Senior Trust Officer, respectively, of JPMORGAN CHASE BANK, a New York banking corporation, who being duly sworn, stated that the seal affixed to the foregoing instrument is the corporate seal of said corporation and acknowledged this instrument to be the free, voluntary and in all respects duly and properly authorized act and deed of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and official seal the day and year first above written. [SEAL] Exhibit 1 List of Recording Information RECORDING DATA
Mortgage Name of County or Deed No. Pages Date Filed for Record - -------------- --------- --- ----- --------------------- GEORGIA (Recorded in Office of Clerk of Superior Court) Appling............................ Deed 50 467-521 March 10, 1941 Atkinson........................... Deed 18 1-56 March 8, 1941 Bacon.............................. Deed 29 117-172 March 10, 1941 Baker.............................. Deed 38 1 seq. March 8, 1941 Baldwin............................ Deed 20 489-544 March 8, 1941 Banks.............................. Mtg 44 1-56 March 8, 1941 Barrow............................. Deed R 3 1/2-60 March 7, 1941 Bartow............................. Deed 78 135 March 7, 1941 Ben Hill........................... Deed 52 449-565 March 8, 1941 Berrien............................ Deed 60 1-56 March 8, 1941 Bibb............................... Mtg 489 700 March 10, 1941 Bleckley........................... Deed D-14 421-476 March 10, 1941 Bryan.............................. Deed 2-X 1-56 March 8, 1941 Bulloch............................ Deed 145 1-56 March 8, 1941 Burke.............................. Deed 46 1-56 March 8, 1941 Butts.............................. Deed 12 367-422 March 10, 1941 Calhoun............................ Deed U 1-56 March 8, 1941 Camden............................. Deed 00 1 seq. March 10, 1941 Candler............................ Mtg 24 431-486 March 8, 1941 Carroll............................ Deed 65 1-56 March 7, 1941 Catoosa............................ Deed 38 1 March 8, 1941 Chattahoochee...................... Mtg 18 1-56 May 1, 1941 Chattooga.......................... Mtg 12 100 March 8, 1941 Cherokee........................... Deed 10 1 March 7, 1941 Clarke............................. Mtg 64 1 et seq. March 11, 1941 Clay............................... Mtg 43 360 March 8, 1941 Clayton............................ Mtg Z 101-156 March 7, 1941 Cobb............................... Deed 144 1 March 7, 1941 Coffee............................. Deed 63 1-56 March 8, 1941 Colquitt........................... Deed 109 50 March 8, 1941 Columbia........................... Deed 21 371-426 March 8, 1941 Cook............................... Deed 21 1 March 8, 1941 Coweta............................. Deed 41 1-56 March 10, 1941 Crawford........................... Deed 37 1 et seq. March 11, 1941 Crisp.............................. Deed 30 1-56 March 7, 1941 Dade............................... Mtg 10 1 March 8, 1941 Dawson............................. Mtg M 1-56 March 7, 1941 DeKalb............................. Mtg 160 51 March 7, 1941 Dodge.............................. Deed 40 371-426 March 10, 1941 Dooly.............................. Deed 53 1 March 7, 1941 Dougherty.......................... Mtg 67 401 March 8, 1941 Douglas............................ Mtg 10 1 March 8, 1941 Early.............................. Deed 51 99-154 March 8, 1941 Elbert............................. Deed 32 207-262 March 10, 1941 GEORGIA Emanuel............................ Mtg H-4 1 et seq. March 8, 1941 Evans.............................. Deed 18 419-476 March 8, 1941 Fayette............................ Deed 29 1 March 10, 1941 Floyd.............................. Deed 189 1-56 March 8, 1941 Forsyth............................ Mtg 20 421 March 7, 1941 Franklin........................... Mtg 94 151-250 March 8, 1941 Fulton............................. 1799 1 et seq. March 7, 1941 Gilmer............................. Mtg L 121-186 March 7, 1941 Glascock........................... HH 296-378 March 8, 1941 Glynn.............................. Deed 5-C 243 March 8, 1941 Gordon............................. Mtg 20 151 March 8, 1941 Grady.............................. Deed 42 530 March 8, 1941 Greene............................. Deed 30 157 March 7, 1941 Gwinnett........................... Mtg 97 1 et seq. March 7, 1941 Habersham.......................... 37 1-56 March 8, 1941 Hall............................... Deed 87 1 March 7, 1941 Hancock............................ Deed YY 1 et seq. March 8, 1941 Haralson........................... Deed 64 200 March 8, 1941 Harris............................. Deed 13 1 March 7, 1941 Hart............................... Deed 49 1-A March 8, 1941 Heard.............................. Deed 31 118-173 March 7, 1941 Henry.............................. Mtg 57 1-56 March 10, 1941 Houston............................ Deed 52 480-535 March 10, 1941 Irwin.............................. Deed 14 401 March 8, 1941 Jackson............................ Mtg 49 1-56 March 8, 1941 Jasper............................. Deed A-7 1-56 March 10, 1941 Jeff Davis......................... Deed 23 256-311 March 10, 1941 Jefferson.......................... Deed 3-F 1-56 March 8, 1941 Jenkins............................ Deed BB 1-56 March 8, 1941 Johnson............................ Deed 39 1 et seq. March 7, 1941 Jones.............................. Deed WW 1-56 March 10, 1941 Lamar.............................. Deed 15 311-366 March 7, 1941 Laurens............................ Deed 87 121-176 March 7, 1941 Lee................................ Deed W 1-56 March 10, 1941 Liberty............................ Deed AAH 357-412 March 8, 1941 Lincoln............................ Deed 10 543-598 March 10, 1941 Long............................... Deed 14 1-56 March 8, 1941 Lumpkin............................ Deed V-1 1-56 March 7, 1941 Macon.............................. Deed MM 240 March 7, 1941 Madison............................ Deed E-3 1 et seq. March 8, 1941 Marion............................. Deed 33 1-56 March 10, 1941 McDuffie........................... Deed Z 569-624 March 8, 1941 McIntosh........................... Mtg K 225-280 March 8, 1941 Meriwether......................... Deed 38 1-56 March 10, 1941 Mitchell........................... Deed 72 1-56 March 8, 1941 Monroe............................. Deed 51 111-166 March 7, 1941 Montgomery......................... Deed 38 1-56 March 10, 1941 Morgan............................. Mtg 102 1 March 7, 1941 GEORGIA Murray............................. Deed 15 1 March 7, 1941 Muscogee........................... Mtg 134 1 et seq. March 7, 1941 Newton............................. Mtg 69 219-274 March 7, 1941 Oconee............................. W 235-290 March 11, 1941 Oglethorpe......................... Deed GGG 1 March 11, 1941 Paulding........................... Deed 3-C 1-56 March 8, 1941 Peach.............................. Deed Q 95 March 10, 1941 Pickens............................ Deed U 293 March 7, 1941 Pike............................... Deed 25 1-56 March 11, 1941 Polk............................... Deed 62 1-56 March 8, 1941 Pulaski............................ Deed 33 513-569 March 8, 1941 Putnam............................. Mtg 60 1-56 March 10, 1941 Quitman............................ Deed 27 100 March 8, 1941 Rabun.............................. Mtg N 1-56 March 8, 1941 Randolph........................... Deed BB-1 20-77 March 8, 1941 Richmond........................... Deed 14G 1-56 March 8, 1941 Rockdale........................... Mtg 2 1-56 March 7, 1941 Schley............................. Mtg 2 29+ March 10, 1941 Spalding........................... Mtg 90 247 et seq. March 7, 1941 Stephens........................... 30 431-486 March 8, 1941 Stewart............................ Deed 27 1-56 March 8, 1941 Sumter............................. Deed 25 201-256 March 10, 1941 Talbot............................. Deed PP 455 March 10, 1941 Taliaferro......................... Mtg HH 253 et seq. March 7, 1941 Tattnall........................... Mtg 27 1-56 March 8, 1941 Taylor............................. Deed 1 1-56 March 10, 1941 Telfair............................ Deed 3-K 463-518 March 10, 1941 Terrell............................ Deed II 1-56 March 10, 1941 Thomas............................. Deed 5-W 131 March 8, 1941 Tift............................... Deed 31 65 March 7, 1941 Toombs............................. Mtg 44 1-56 March 10, 1941 Treutlen........................... Mtg 20 115-170 March 10, 1941 Troup.............................. Mtg 59 1-56 March 7, 1941 Turner............................. Deed 23 421 March 7, 1941 Twiggs............................. Mtg 47 153-208 March 7, 1941 Upson.............................. Deed 94 1 et seq. March 11, 1941 Walker............................. Deed 86 1-56 March 8, 1941 Walton............................. Deed 27 7-62 March 11, 1941 Warren............................. Deed 3C 1 et seq. March 7, 1941 Washington......................... Mtg Realty B 225 March 8, 1941 Webster............................ Deed H.H. 1-56 March 10, 1941 Wheeler............................ Deed 13 1-56 March 10, 1941 White.............................. CC 1-56 March 7, 1941 Whitfield.......................... Deed 30 251 March 8, 1941 Wilcox............................. Deed VV 450 March 8, 1941 Wilkes............................. Deed A-64 1-56 March 10, 1941 Wilkinson.......................... Mtg 68 1-56 March 10, 1941 Worth.............................. Deed 69 1 March 8, 1941 SOUTH CAROLINA (Recorded in Clerk's Office, Court of Common Pleas) Abbeville.......................... Mtg BBBB 121-178 March 10, 1941 Anderson........................... 246 1 March 10, 1941 Oconee............................. Mtg 4-L 1 March 10, 1941 ALABAMA (Recorded in Office of Judge of Probate) Chambers........................... Deed 68 1 March 12, 1941 Lee................................ 252 41-96 March 12, 1941 Russell............................ Mtg 29 410-465 March 12, 1941
EX-10 8 x10a2.txt SERVICE AGREEMENT Exhibit 10(a)2 SERVICE AGREEMENT THIS AGREEMENT, made and entered into as of January 10, 2001, between SOUTHERN COMPANY SERVICES, INC., a corporation organized under the laws of the State of Alabama (hereinafter sometimes referred to as the "Service Company") and SOUTHERN POWER COMPANY, a corporation organized under the laws of the State of Delaware (hereinafter sometimes referred to as "Client Company"); WITNESSETH: THAT, WHEREAS, Service Company is willing to provide Client Company certain services upon request by Client Company; and WHEREAS, Client Company wishes to obtain such services from Service Company; NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein, the parties hereto agree as follows: 1. Agreement to Furnish Services Service Company agrees to furnish to Client Company, upon the terms and conditions hereinafter set forth, such of the services described in Article 2 hereof, at such times, for such periods and in such manner as Client Company may from time to time require. 2. Description of Services Service Company will, as and to the extent required for Client Company, keep itself and its personnel available and competent to render to Client Company, the following services: A. Power Pool Operations The maintenance of a central dispatching office to coordinate the bulk power supply, if any, of Client Company and other client companies working with their Operating Committee, with the objective of reducing power costs and improving service reliability; and in connection with the foregoing to act as Client Company's agent pursuant to the intercompany interchange contract; to prepare the intercompany billing under such contract; to assist in negotiating and administering power purchase contracts on behalf of Client Company and other client companies; to make studies of power costs for use in hearings before regulatory Commissions; to make studies of present and future load characteristics and of future requirements for additional generating and transmission facilities; and, where appropriate, to prepare reports related to these activities. B. General Executive and Advisory Services To advise and assist the officers and employees of Client Company in connection with various phases of its business and operations, including particularly but not exclusively, those phases which involve coordination of planning or operation between Client Company and other client companies or otherwise have a direct effect not only on Client Company but also on the Southern system or other members thereof. C. General Engineering The maintenance of an organization staffed and equipped to perform for Client Company general engineering work, including system production and transmission studies, preparation and analysis of electrical apparatus specifications, distribution studies and standards, civil engineering and hydraulic studies and problems, fuel supply studies, advice and assistance in connection with analyses of operations and operating and construction budgets. The members of this group will keep informed as to improvements and developments in the art of generation, transmission and distribution of electricity through frequent contacts with the manufacturers of electrical equipment, through membership in the various national and regional engineering societies and through participation in the committee work of such societies and trade associations of the utility industry. Service Company will make available to Client Company the information thus gained with respect to such developments. D. Design Engineering To perform detailed design work for Client Company for fossil-fueled generating plants, hydroelectric generating plants, transmission lines and substations and otherwise as required by Client Company; to make available to Client Company and other client companies as required, the services of a specialist or specialists on various phases of plant operation; and also to make available as required, inspection and supervision personnel for generating plant, transmission line and substation and other construction and operation. E. Purchasing To render services to Client Company in connection with purchasing, including the coordination of group purchasing, and to supply expediting services. All requests for bids shall be made by and purchases confirmed in the name of Client Company or of Service Company as agent therefor, and all contracts of purchase shall be likewise made. F. Accounting To advise and assist Client Company in connection with the installation of new accounting systems and similar problems, appearances before regulatory commissions, requirements of Federal and State regulatory bodies with respect to accounting, studies of accounting procedures and practices to improve efficiency, book entries resulting from unusual financial transactions, internal audits, employment of independent auditors, preparation and analyses of financial and operating reports and other statistical matters relating to Client Company and other client companies, analyses of securities of other utility companies, preparation of annual reports to stockholders, regulatory commissions, insurance companies and others, standardization of accounting and statistical forms in the interest of economy, and other accounting and statistical matters. G. Finance and Treasury To advise and assist Client Company on (a) financing matters, including determination of types and times of sale of long and short-term securities, refunding studies, sinking fund problems, and (b) all treasury matters, including banking problems and investment of surplus funds, and (c) maintenance of books of accounts and other related corporate records. H. Taxes To advise and assist Client Company in connection with tax matters, including preparation of Federal and State income and other tax returns and of protests, claims and briefs where necessary, tax accruals, and other matters in connection with Client Company's taxes. I. Insurance and Pensions To advise and assist Client Company in connection with insurance and pension matters, including contracts with insurers, trustees and actuaries and the placing of blanket and group policies covering Client Company and other client companies, and other insurance problems as required. J. Corporate To advise and assist Client Company in connection with its corporate affairs, including assistance and suggestions in connection with the preparation of petitions and applications for the issuance of securities, contracts for the sale or underwriting of securities, preparation of schedules of steps required in connection with major financial and other corporate matters and the consummation thereof, and the preparation of various documents required in connection therewith, contacts with trustees, transfer agents and registrars; maintenance of minutes of directors' and stockholders' meetings and other proceedings and of other related corporate records; and also arrangements for stockholders' meetings, including notices, proxies and records thereof and for other types of meetings relating to its securities. K. Rates To study comparative rate levels for various classes of service, in different areas and for different operating conditions, and keep in touch with trends in rate design, and to make such information available to Client Company; to advise Client Company on matters relating to rates and valuation, the design of new and improved rate schedules, and their effect upon Client Company's revenues, the cost of competitive services, earning trends, the desirability of rate changes, rate audits, service rules and regulations, commodity and tax clauses, minimum charges, metering problems, special industrial contracts, resale rates and rural extension plans; and to assist Client Company in the preparation of petitions and applications required in connection with rate changes. L. Budgeting To advise and assist Client Company in matters involving the preparation and development of construction and operating budgets, cash and cost forecasts, and budgetary controls. M. Business Promotion and Public Relations To advise and assist Client Company in area development activities, in the development of residential, commercial and industrial sales programs, in the preparation and use of advertising, and in the determination and carrying out of public information programs, including those arising out of regulatory and legislative matters. N. Employee Relations To furnish Client Company with advisory services in connection with employee relations matters, including recruitment, employee placement, training, compensation, safety, labor relations and health, welfare and employee benefits. O. Systems and Procedures To advise and assist Client Company in the formation of good operating practices and methods of procedure, the standardization of forms, the purchase, rental and use of mechanical and electronic data processing, computing and communications equipment, in conducting economic research and planning and in the development of special economic studies. P. Wholesale Power Purchase and Sale To render services to Client Company in connection with the purchase and sale of electric power on the wholesale market, including the purchase and sale of transportation and transmission capacity in connection with power generation and delivery and the negotiation and administration of derivative transactions, including without limitation those entered into pursuant to master swap agreements; to make studies and, where appropriate, prepare reports on present and future requirements and abilities concerning the purchase and sale of electric power for resale; and to perform other services in connection with such sales and purchase as are required. Q. Other Services To render advice and assistance in connection with such other matters as Client Company may request and Service Company may be able to perform with respect to Client Company's business and operations 3. Compensation of Service Company As compensation for such services rendered to it by Service Company, Client Company hereby agrees to pay to Service Company the cost of such services. Bills will be rendered for the amount of such cost on or before the 10th day of the succeeding month and will be payable on or before the 20th day of such month. Cost of services to be paid by Client Company shall include direct charges and Client Company's pro rata share of certain of Service Company's costs, determined as set forth below: Direct Charges To the extent that the costs incurred by Service Company in connection with services rendered by it to Client Company can be identified and related to a particular transaction, direct charges will be made by Service Company against Client Company. B. Prorated Charges Such costs incurred by Service Company each month as cannot be charged by Service Company directly to the companies for which it performs services will be distributed among such companies in a fair and equitable manner as set forth in the Southern Company Services, Inc. Cost Allocation Manual which is incorporated herein by reference. The Service Company may revise the Cost Allocation Manual from time to time, subject to the approval of the Client Company and to any necessary regulatory approval, and the revised Cost Allocation Manual shall be incorporated herein by reference upon the effective date of the revision. 4. Companies to be Served Service Company agrees that during the term hereof it will render services as required by companies in the Southern System and that all such companies will compensate Service Company as provided in Section 3 hereof. 5. Appointment of Service Company as Agent Client Company hereby appoints Service Company to act as its agent in the performance of the services furnished pursuant to Sections 2 and 4. Such authorization shall include, without limitation, the rights and authority to perform, negotiate, execute and administer agreements pursuant to which Client Company will (i) purchase and sell electric power for resale, (ii) purchase and sell fuels and related services in connection with power generation, (iii) purchase and sell utility equipment and facilities and related services, (iv) purchase and sell transportation and transmission capacity in connection with power generation and delivery, (v) engage in derivative transactions, including (without limitation) those entered into pursuant to master swap agreements (the "Contracts"), and (vi) purchase and sell other goods and services. Service Company's agency with respect to the Contracts shall include without limitation the right to collect payments required under such Contracts, to advance payments on Client Company's behalf, and to accept and give notices and other communications on behalf of Client Company. . 6. Effective Date - Term - Cancellation After execution by the parties hereto this agreement shall become effective as of January 10, 2001, subject to receipt of any required regulatory approval, and shall remain in effect until terminated by mutual agreement of said parties. It is also understood and agreed that nothing herein shall be construed to release the officers and directors of Client Company from the obligation to perform their respective duties, or to limit the exercise of their powers in accordance with the provisions of law or otherwise, and this agreement shall be cancelled to the extent and from the time that performance hereunder may conflict with any rule, regulation or order of the Securities and Exchange Commission adopted before or after the execution hereof. 7. Limitation of Liability. As between Client Company and Service Company, Client Company will be solely responsible for all liabilities, obligations, and performance under any Contract executed pursuant to this Agreement, whether or not Service Company's role as agent for Client Company is disclosed to the other party to such contract. Service Company will not warrant or guaranty or otherwise be secondarily liable for performance by Client Company under any Contract or under any other agreement the Client Company may enter in relation to such Contract, including (without limitation) subcontracts, purchase orders and other similar agreements. Client Company shall defend, hold harmless, and indemnify Service Company against any claim made by any third party in connection with the subject matter of such Contract. IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed by their duly authorized officers and their respective seals to be affixed as of the day and year first above written. SOUTHERN COMPANY SERVICES, INC. By: Its President Attest: Secretary SOUTHERN POWER COMPANY By: Its President Attest: Secretary EX-10 9 x10a52.txt EMPLOYEE SAVINGS PLAN Exhibit 10(a)52 THE SOUTHERN COMPANY EMPLOYEE SAVINGS PLAN As Amended and Restated Effective January 1, 2002 TABLE OF CONTENTS ARTICLE I PURPOSE............................................................1 ARTICLE II DEFINITIONS.......................................................2 2.1 Account......................................................2 2.2 Actual Contribution Percentage Test..........................2 2.3 Actual Deferral Percentage...................................2 2.4 Actual Deferral Percentage Test..............................2 2.5 Affiliated Employer..........................................2 2.6 Aggregate Account............................................2 2.7 Aggregation Group............................................3 2.8 Annual Addition..............................................3 2.9 Average Actual Deferral Percentage...........................3 2.10 Average Contribution Percentage..............................3 2.11 Beneficiary..................................................4 2.12 Board of Directors...........................................4 2.13 Break-in-Service Date........................................4 2.14 Code.........................................................4 2.15 Committee....................................................4 2.16 Common Stock.................................................4 2.17 Company......................................................4 2.18 Compensation.................................................4 2.19 Contribution Percentage......................................5 2.20 Determination Date...........................................5 2.21 Determination Year...........................................5 2.22 Direct Rollover..............................................5 2.23 Distributee..................................................5 2.24 Elective Employer Contribution...............................5 2.25 Eligible Employee............................................6 2.26 Eligible Participant.........................................6 2.27 Eligible Retirement Plan.....................................6 2.28 Eligible Rollover Distribution...............................7 2.29 Employee.....................................................7 2.30 Employer Matching Contribution...............................7 2.31 Employing Company............................................7 2.32 Enrollment Date..............................................7 2.33 ERISA........................................................7 2.34 Excess Aggregate Contributions...............................7 2.35 Excess Deferral Amount.......................................7 2.36 Excess Deferral Contributions................................8 2.37 Highly Compensated Employee..................................8 2.38 Hour of Service..............................................8 2.39 Investment Fund..............................................8 2.40 Key Employee.................................................8 2.41 Limitation Year..............................................8 2.42 Look-Back Year...............................................8 2.43 Mirant.......................................................8 2.44 Mirant Services.............................................8 2.45 Mirant Stock................................................8 2.46 Mirant Stock Account.........................................8 2.47 Mirant Stock Fund............................................8 2.48 Non-Highly Compensated Employee..............................8 2.49 Normal Retirement Date.......................................9 2.50 One-Year Break in Service....................................9 2.51 Participant..................................................9 2.52 Permissive Aggregation Group.................................9 2.53 Plan.........................................................9 2.54 Plan Year....................................................9 2.55 Present Value of Accrued Retirement Income...................9 2.56 Required Aggregation Group...................................9 2.57 Rollover Contribution........................................9 2.58 SCEM........................................................10 2.59 SEPCO.......................................................10 2.60 SEPCO Plan..................................................10 2.61 SEPCO Transferred Account...................................10 2.62 Super-Top-Heavy Group.......................................10 2.63 Surviving Spouse............................................10 2.64 Top-Heavy Group.............................................10 2.65 Transferred ESOP Account....................................10 2.66 Trust or Trust Fund.........................................10 2.67 Trust Agreement.............................................10 2.68 Trustee.....................................................10 2.69 Valuation Date..............................................10 2.70 Voluntary Participant Contribution..........................11 2.71 Year of Service.............................................11 ARTICLE III PARTICIPATION....................................................12 3.1 Eligibility Requirements....................................12 3.2 Participation upon Reemployment.............................12 3.3 No Restoration of Previously Distributed Benefits...........12 3.4 Loss of Eligible Employee Status............................12 3.5 Military Leave..............................................12 ARTICLE IV ELECTIVE EMPLOYER CONTRIBUTIONS AND VOLUNTARY PARTICIPANT CONTRIBUTIONS........................................................13 4.1 Elective Employer Contributions.............................13 4.2 Maximum Amount of Elective Employer Contributions...........13 4.3 Distribution of Excess Deferral Amounts.....................13 4.4 Additional Rules Regarding Elective Employer Contributions...............................................14 4.5 Section 401(k) Nondiscrimination Tests......................15 4.6 Voluntary Participant Contributions.........................18 4.7 Manner and Time of Payment of Elective Employer Contributions and Voluntary Participant Contributions.......18 4.8 Change in Contribution Rate.................................18 4.9 Change in Contribution Amount...............................18 4.10 Rollover Contributions and Direct Transfers from the SEPCO and ECMC Plans........................................18 4.11 Rollovers from Other Plans..................................19 ARTICLE V EMPLOYER MATCHING CONTRIBUTIONS....................................20 5.1 Amount of Employer Matching Contributions...................20 5.2 Payment of Employer Matching Contributions..................20 5.3 Limitations on Employer Matching Contributions and Voluntary Participant Contributions.........................20 5.4 Multiple Use Limitation.....................................22 5.5 Reversion of Employing Company Contributions................23 5.6 Correction of Prior Incorrect Allocations and Distributions...............................................23 ARTICLE VI LIMITATIONS ON CONTRIBUTIONS......................................24 6.1 Section 415 Limitations.....................................24 6.2 Correction of Contributions in Excess of Section 415 Limits......................................................24 6.3 Combination of Plans........................................25 ARTICLE VII SUSPENSION OF CONTRIBUTIONS......................................26 7.1 Suspension of Contributions.................................26 7.2 Resumption of Contributions.................................26 ARTICLE VIII INVESTMENT OF CONTRIBUTIONS.....................................27 8.1 Investment Funds............................................27 8.2 Investment of Participant Contributions.....................27 8.3 Investment of Employer Matching Contributions...............27 8.4 Investment of Earnings......................................27 8.5 Transfer of Assets between Funds............................28 8.6 Change in Investment Direction..............................28 8.7 Section 404(c) Plan.........................................28 8.8 Mirant Stock Fund...........................................28 ARTICLE IX MAINTENANCE AND VALUATION OF PARTICIPANTS' ACCOUNTS...............29 9.1 Establishment of Accounts...................................29 9.2 Valuation of Investment Funds...............................30 9.3 Rights in Investment Funds..................................30 ARTICLE X VESTING............................................................31 10.1 Vesting.....................................................31 ARTICLE XI WITHDRAWALS AND LOANS.............................................32 11.1 Withdrawals by Participants.................................32 11.2 Notice of Withdrawal........................................33 11.3 Form of Withdrawal..........................................33 11.4 Minimum Withdrawal..........................................33 11.5 Source of Withdrawal........................................33 11.6 Requirement of Hardship.....................................33 11.7 Loans to Participants.......................................35 11.8 Special Waiver for Participants Employed in the United Kingdom..............................................37 ARTICLE XII DISTRIBUTION TO PARTICIPANTS.....................................38 12.1 Distribution upon Retirement................................38 12.2 Distribution upon Disability................................39 12.3 Distribution upon Death.....................................39 12.4 Designation of Beneficiary in the Event of Death............39 12.5 Distribution upon Termination of Employment.................40 12.6 Commencement of Benefits....................................40 12.7 Transfer between Employing Companies........................41 12.8 Distributions to Alternate Payees...........................41 12.9 Requirement for Direct Rollovers............................42 12.10 Consent and Notice Requirements.............................42 12.11 Form of Payment.............................................43 12.12 Partial Distribution upon Termination of Employment.........43 12.13 Distribution of Dividends Payable on Common Stock...........43 ARTICLE XIII ADMINISTRATION OF THE PLAN......................................45 13.1 Membership of Committee.....................................45 13.2 Acceptance and Resignation..................................45 13.3 Transaction of Business.....................................45 13.4 Responsibilities in General.................................45 13.5 Committee as Named Fiduciary................................45 13.6 Rules for Plan Administration...............................46 13.7 Employment of Agents........................................46 13.8 Co-Fiduciaries..............................................46 13.9 General Records.............................................46 13.10 Liability of the Committee..................................46 13.11 Reimbursement of Expenses and Compensation of Committee...................................................47 13.12 Expenses of Plan and Trust Fund.............................47 13.13 Responsibility for Funding Policy...........................47 13.14 Management of Assets........................................47 13.15 Notice and Claims Procedures................................48 13.16 Bonding.....................................................48 13.17 Multiple Fiduciary Capacities...............................48 13.18 Change in Administrative Procedures.........................48 ARTICLE XIV TRUSTEE OF THE PLAN..............................................49 14.1 Trustee.....................................................49 14.2 Purchase of Common Stock....................................49 14.3 Voting of Common Stock......................................49 14.4 Voting of Other Investment Fund Shares......................50 14.5 Uninvested Amounts..........................................50 14.6 Independent Accounting......................................50 ARTICLE XV AMENDMENT AND TERMINATION OF THE PLAN.............................51 15.1 Amendment of the Plan.......................................51 15.2 Termination of the Plan.....................................51 15.3 Merger or Consolidation of the Plan.........................52 15.4 Transfer of Plan Assets.....................................52 ARTICLE XVI TOP-HEAVY REQUIREMENTS...........................................53 16.1 Top-Heavy Plan Requirements.................................53 16.2 Determination of Top-Heavy Status...........................53 16.3 Minimum Allocation for Top-Heavy Plan Years.................54 ARTICLE XVII GENERAL PROVISIONS..............................................55 17.1 Plan Not an Employment Contract.............................55 17.2 No Right of Assignment or Alienation........................55 17.3 Payment to Minors and Others................................55 17.4 Source of Benefits..........................................56 17.5 Unclaimed Benefits..........................................56 17.6 Governing Law...............................................56 ARTICLE XVIII SPECIAL REQUIREMENTS FOR ACCOUNT BALANCES ATTRIBUTABLE TO ACCRUED BENEFITS TRANSFERRED FROM THE SEPCO PLAN..................57 18.1 SEPCO Transferred Accounts..................................57 18.2 In-Service Withdrawals from SEPCO Transferred Accounts....................................................57 18.3 Loans from SEPCO Transferred Accounts.......................57 18.4 Distribution of SEPCO Transferred Accounts..................57 18.5 Code Section 411(d)(6) Protected Benefits...................59 THE SOUTHERN COMPANY EMPLOYEE SAVINGS PLAN As Amended and Restated Effective January 1, 2002 ARTICLE I PURPOSE The purpose of the Plan is to encourage employee thrift, to create added employee interest in the affairs of The Southern Company, to provide a means for becoming a shareholder in The Southern Company, to supplement retirement and death benefits, and to create a competitive compensation program for employees through the establishment of a formal plan under which contributions by and on behalf of Participants are supplemented by contributions of Employing Companies. This Plan is intended to be a stock bonus plan, and all contributions made by an Employing Company to this Plan are expressly conditioned upon the deductibility of such contributions under Code Section 404. In addition, with the exception of the portion of the Plan that is invested in the common stock of Mirant Corporation, the Plan is also intended to be an employee stock ownership plan, as defined in Code Section 4975(e)(7) and ERISA Section 407(d)(6), and is designed to invest primarily in qualifying employer securities, as defined in Code Section 409(l). The Plan was originally effective March 1, 1976, and was most recently amended and restated effective as of January 1, 2002 to incorporate a variety of plan design and other changes. ARTICLE II DEFINITIONS All references to articles, sections, subsections, and paragraphs shall be to articles, sections, subsections, and paragraphs of this Plan unless another reference is expressly set forth in this Plan. Any words used in the masculine shall be read and be construed in the feminine where they would so apply. Words in the singular shall be read and construed in the plural, and all words in the plural shall be read and construed in the singular in all cases where they would so apply. For purposes of this Plan, unless otherwise required by the context, the following terms shall have the meanings set forth opposite such terms: 2.1 "Account" shall mean the total amount credited to the account of a Participant, as described in Section 9.1. 2.2 "Actual Contribution Percentage Test" shall mean the test described in Section 5.3(a). 2.3 "Actual Deferral Percentage" shall mean the ratio (expressed as a percentage) of Elective Employer Contributions on behalf of an Eligible Participant for the Plan Year to the Eligible Participant's compensation for the Plan Year. For the purpose of determining an Eligible Participant's Actual Deferral Percentage for a Plan Year, the Committee may elect to consider an Eligible Participant's compensation for (a) the entire Plan Year or (b) that portion of the Plan Year in which the Eligible Participant was eligible to have Elective Employer Contributions made on his behalf, provided that such election is applied uniformly to all Eligible Participants for the Plan Year. The Actual Deferral Percentage of an Eligible Participant who does not have Elective Employer Contributions made on his behalf shall be zero. 2.4 "Actual Deferral Percentage Test" shall mean the test described in Section 4.5(a). 2.5 "Affiliated Employer" shall mean an Employing Company and (a) any corporation which is a member of a controlled group of corporations (as defined in Section 414(b) of the Code) which includes such Employing Company, (b) any trade or business (whether or not incorporated) which is under common control (as defined in Section 414(c) of the Code) with such Employing Company, (c) any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Section 414(m) of the Code) which includes such Employing Company, and (d) any other entity required to be aggregated with such Employing Company pursuant to regulations under Section 414(o) of the Code. Notwithstanding the foregoing, for purposes of applying the limitations of Article VI, the term Affiliated Employer shall be adjusted as required by Code Section 415(h). 2.6 "Aggregate Account" shall mean with respect to a Participant as of the Determination Date, the sum of the following: (a) the Account balance of such Participant as of the most recent valuation occurring within a twelve-month period ending on the Determination Date; (b) an adjustment for any contributions due as of the Determination Date; (c) any Plan distributions, including unrelated rollovers and plan-to-plan transfers (ones which are both initiated by the Employee and made from a plan maintained by one employer to a plan maintained by another employer), but not related rollovers or plan-to-plan transfers (ones either not initiated by the Employee or made to a plan maintained by the same employer), made within the one-year period ending on the Determination Date. The preceding sentence shall also apply to distributions under a terminated plan which if it had not been terminated would have been required to be included in an Aggregation Group. In the case of a distribution made for a reason other than severance from employment (or separation from service), death or disability, this provision shall be applied by substituting "five-year period" for "one-year period"; (d) any Employee contributions, whether voluntary or mandatory; (e) unrelated rollovers and plan-to-plan transfers to this Plan accepted prior to January 1, 1984; and (f) related rollovers and plan-to-plan transfers to this Plan. 2.7 "Aggregation Group" shall mean either a Required Aggregation Group or a Permissive Aggregation Group. 2.8 "Annual Addition" shall mean the amount allocated to a Participant's Account and accounts under all defined contribution plans maintained by the Affiliated Employers during a Limitation Year that constitutes (a) Affiliated Employer contributions, (b) Voluntary Participant Contributions, (c) forfeitures, if any, allocated to a Participant's Account or accounts under all defined contribution plans maintained by the Affiliated Employers, and (d) amounts described in Sections 415(l)(1) and 419A(d)(2) of the Code. 2.9 "Average Actual Deferral Percentage" shall mean the average (expressed as a percentage) of the Actual Deferral Percentages of the Eligible Participants in a group. 2.10 "Average Contribution Percentage" shall mean the average (expressed as a percentage) of the Contribution Percentages of the Eligible Participants in a group. 2.11 "Beneficiary" shall mean any person(s) who, or estate(s), trust(s), or organization(s) which, in accordance with the provisions of Section 12.4, become entitled to receive benefits upon the death of a Participant. 2.12 "Board of Directors" shall mean the Board of Directors of Southern Company Services, Inc. 2.13 "Break-in-Service Date" means the earlier of: (a) the date on which an Employee terminates employment, is discharged, retires, or dies; or (b) the last day of an approved leave of absence including any extension. For purposes of subsection (a) above, an Employee who ceases to be eligible to participate in the Plan pursuant to paragraph (5) of Section 2.25 shall be deemed to have experienced a termination of employment as of the date as of which Section 2.25(5) first applies. In the case of an individual who is absent from work for maternity or paternity reasons, such individual shall not incur a Break-in-Service Date earlier than the expiration of the second anniversary of the first date of such absence; provided, however, that the twelve-consecutive-month period beginning on the first anniversary of the first date of such absence shall not constitute a Year of Service. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (a) by reason of the pregnancy of the Employee, (b) by reason of a birth of a child of the Employee, (c) by reason of the placement of a child with the Employee in connection with the adoption of such child by such Employee, or (d) for purposes of caring for such child for a period beginning immediately following such birth or placement. 2.14 "Code" shall mean the Internal Revenue Code of 1986, as amended, or any successor statute, and the rulings and regulations promulgated thereunder. In the event an amendment to the Code renumbers a section of the Code referred to in this Plan, any such reference automatically shall become a reference to such section as renumbered. 2.15 "Committee" shall mean the committee appointed pursuant to Section 13.1 to serve as plan administrator. 2.16 "Common Stock" shall mean the common stock of The Southern Company. 2.17 "Company" shall mean Southern Company Services, Inc., and its successors. 2.18 "Compensation" shall mean the salary or wages of a Participant, including all amounts contributed by an Employing Company to The Southern Company Flexible Benefits Plan on behalf of a Participant pursuant to a salary reduction arrangement under such plan, plus monthly shift and monthly seven-day schedule differentials, geographic premiums, monthly customer service premiums, monthly nuclear plant premiums, sales commissions paid under a sales commission payment program sponsored by an Employing Company for sales commissioned based employees, and overtime pay resulting from fluctuations in a Participant's weekly hours worked pursuant to a pre-determined flexible work schedule established or approved by an Employing Company that is intended to produce, on average, forty (40) hour work weeks, and before deduction of taxes, social security, etc., but excluding all awards under any incentive pay plans sponsored by the Employing Company, including but not limited to, The Southern Company Performance Pay Plan, The Southern Company Productivity Improvement Plan, and The Southern Company Executive Productivity Improvement Plan, overtime pay (except as specifically included above), any hourly shift differentials, substitution pay, such amounts which are reimbursements to a Participant paid by any Employing Company, including but not limited to, reimbursement for such items as moving expenses and travel and entertainment expenses, and imputed income for automobile expenses, tax preparation expenses and health and life insurance premiums paid by the Employing Company. The Compensation of each Participant taken into account for purposes of this Plan shall not exceed the applicable limit under Code Section 401(a)(17). 2.19 "Contribution Percentage" shall mean the ratio (expressed as a percentage), of the sum of the Voluntary Participant Contributions and Employer Matching Contributions under the Plan on behalf of the Eligible Participant for the Plan Year to the Eligible Participant's compensation for the Plan Year. For the purpose of determining an Eligible Participant's Contribution Percentage for a Plan Year, the Committee may elect to consider an Eligible Participant's compensation for (a) the entire Plan Year or (b) that portion of the Plan Year in which the individual is an Eligible Participant, provided that such election is applied uniformly to all Eligible Participants for the Plan Year. The Contribution Percentage of an Eligible Participant who does not make Voluntary Participant Contributions or have Employer Matching Contributions made on his behalf shall be zero. 2.20 "Determination Date" shall mean with respect to a Plan Year, the last day of the preceding Plan Year. 2.21 "Determination Year" shall mean the Plan Year being tested. 2.22 "Direct Rollover" shall mean a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. 2.23 "Distributee" shall include an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is an alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are Distributees with regard to the interest of the spouse or former spouse. 2.24 "Elective Employer Contribution" shall mean contributions made pursuant to Section 4.1 during the Plan Year by an Employing Company, at the election of the Participant, in lieu of cash compensation and shall include contributions made pursuant to a salary reduction agreement. 2.25 "Eligible Employee" shall mean an Employee who is employed by an Employing Company and (a) who was eligible to be included in the Plan on January 1, 1991, or (b) who is a regular full-time, regular part-time, or cooperative education employee other than: (1) an individual who is classified by an Employing Company as a leased employee, regardless of whether such classification is determined to be in error; (2) any Employee who is represented by a collective bargaining agent unless the representatives of his bargaining unit and the Employing Company mutually agree to participation in the Plan subject to its terms by members of his bargaining unit; (3) an individual who is a cooperative education employee and who first performs an Hour of Service on or after January 1, 1995; (4) an individual who is classified by the Employing Company as a temporary employee (who was not eligible to be included in the Plan on January 1, 1991) or an independent contractor, regardless of whether such classification is determined to be in error. Effective September 1, 1998, any individual classified by the Employing Company as a temporary employee shall be excluded from the Plan, regardless of any prior inclusion in the Plan and regardless of whether the "temporary employee" classification is determined to be in error; and (5) an individual who is employed by Mirant Services. 2.26 "Eligible Participant" shall mean an Eligible Employee who is authorized to have Elective Employer Contributions or Voluntary Participant Contributions allocated to his Account for the Plan Year. 2.27 "Eligible Retirement Plan" shall mean an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, a plan described in Section 403(b) of the Code, a plan described in Section 457(b) of the Code which is maintained by a state, an agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan, or a qualified trust described in Section 401(a) of the Code that accepts the Distributee's Eligible Rollover Distribution. This definition of Eligible Retirement Plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p). 2.28 "Eligible Rollover Distribution" shall mean any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: (a) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee, the joint lives (or joint life expectancies) of the Distributee and the Distributee's Beneficiary, or for a specified period of 10 years or more; (b) any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; (c) the portion of any distribution that is not includable in gross income (determined without regard to the exclusion from net unrealized appreciation with respect to employer securities); and (d) any hardship distribution described in Section 401(k)(2)(B)(i)(IV) of the Code. 2.29 "Employee" shall mean each individual who is employed by an Affiliated Employer under common law and each individual who is required to be treated as an employee pursuant to the "leased employee" rules of Code Section 414(n) other than a leased employee described in Code Section 414(n)(5). 2.30 "Employer Matching Contribution" shall mean a contribution made by an Employing Company pursuant to Section 5.1 with respect to Elective Employer Contributions and Voluntary Participant Contributions made on behalf of each Participant each payroll period. 2.31 "Employing Company" shall mean the Company and any affiliate or subsidiary of The Southern Company which the Board of Directors may from time to time determine to bring under the Plan and which shall adopt the Plan, and any successor of them. The Employing Companies are set forth on Appendix A to the Plan as updated from time to time. No such entity shall be treated as an Employing Company prior to the date it adopts the Plan. 2.32 "Enrollment Date" shall mean the first day of each payroll period. 2.33 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, or any successor statute, and the rulings and regulations promulgated thereunder. In the event an amendment to ERISA renumbers a section of ERISA referred to in this Plan, any such reference automatically shall become a reference to such section as renumbered. 2.34 "Excess Aggregate Contributions" shall mean the amount referred to in Code Section 401(m)(6)(B) with respect to a Participant. In no event may the Excess Aggregate Contributions for any Highly Compensated Employee exceed the amount of the Employer Matching Contributions or Voluntary Participant Contributions made on behalf of the Highly Compensated Employee for the Plan Year. 2.35 "Excess Deferral Amount" shall mean the amount of Elective Employer Contributions for a calendar year that exceed the Code Section 402(g) limits as allocated to this Plan pursuant to Section 4.3(b). 2.36 "Excess Deferral Contributions" shall mean the amount of Elective Employer Contributions on behalf of a Highly Compensated Employee referred to in Code Section 401(k)(8)(B). 2.37 "Highly Compensated Employee" shall mean (in accordance with and subject to Code Section 414(q) and any regulations, rulings, notices or procedures thereunder), with respect to any Plan Year: (1) any Employee who was a five percent (5%) owner of The Southern Company or an Affiliated Employer (as determined pursuant to Code Section 416) during the Plan Year or the immediately preceding Plan Year, or (2) any Employee who earned more than $80,000 in the preceding Plan Year. The $80,000 amount shall be adjusted for inflation and for short Plan Years, pursuant to Code Section 414(q). The Employer may, at its election, limit Employees earning more than $80,000 to only those Employees who fall within the "top-paid group," as defined in Code Section 414(q) excluding those employees described in Code Section 414(q)(8) for such purpose. In determining whether an Employee is a Highly Compensated Employee, the Committee may make any elections authorized under applicable regulations, rulings, notices, or revenue procedures. 2.38 "Hour of Service" shall mean each hour for which an Employee is paid, or entitled to payment, for the performance of duties for an Affiliated Employer. 2.39 "Investment Fund" shall mean any one of the funds described in Article VIII which constitutes part of the Trust Fund. 2.40 "Key Employee" shall mean any Employee or former Employee (and his Beneficiary) who is a key employee within the meaning of Code Section 416(i)(1). 2.41 "Limitation Year" shall mean the Plan Year. 2.42 "Look-Back Year" shall mean the Plan Year preceding the Determination Year. 2.43 "Mirant" shall mean Mirant Corporation, any subsidiary of Mirant Corporation, or any successor thereto. 2.44 "Mirant Services" shall mean Mirant Services, LLC. 2.45 "Mirant Stock" shall mean the common stock of Mirant. 2.46 "Mirant Stock Account" shall mean the total amount credited to the Account of a Participant as described in Section 9.1(c). 2.47 "Mirant Stock Fund" shall mean, effective April 2, 2001, the fund established to hold Mirant Stock as described in Section 8.8. 2.48 "Non-Highly Compensated Employee" shall mean an Employee who is not a Highly Compensated Employee. 2.49 "Normal Retirement Date" shall mean the first day of the month following a Participant's sixty-fifth (65th) birthday. 2.50 "One-Year Break in Service" shall mean each twelve-consecutive-month period within the period commencing with an Employee's Break-in-Service Date and ending on the date the Employee is again credited with an Hour of Service. 2.51 "Participant" shall mean (a) an Eligible Employee who has elected to participate in the Plan as provided in Article III and whose participation in the Plan at the time of reference has not been terminated as provided in the Plan, (b) an Employee or former Employee who has ceased to be a Participant under (a) above, but for whom an Account is maintained under the Plan, (c) an Eligible Employee who has made a Rollover Contribution to this Plan to the extent that the Provisions of the Plan apply to such Rollover Contribution of the Eligible Employee, and (d) an Employee or former Employee for whom a Transferred ESOP Account is maintained under the Plan. 2.52 "Permissive Aggregation Group" shall mean a group of plans consisting of the Required Aggregation Group and, at the election of the Affiliated Employers, such other plan or plans not required to be included in the Required Aggregation Group, provided the resulting group, taken as a whole, would continue to satisfy the provisions of Code Section 401(a)(4) or 410. 2.53 "Plan" shall mean The Southern Company Employee Savings Plan (known as the Employee Savings Plan for The Southern Company System prior to January 1, 1991), as described herein or as from time to time amended. 2.54 "Plan Year" shall mean the twelve-month period commencing January 1st and ending on the last day of December next following. 2.55 "Present Value of Accrued Retirement Income" shall mean an amount determined solely for the purpose of determining if the Plan, or any other plan included in a Required Aggregation Group of which the Plan is a part, is top heavy in accordance with Code Section 416. 2.56 "Required Aggregation Group" shall mean those plans that are required to be aggregated as determined under this Section 2.56. In determining a Required Aggregation Group hereunder, each plan of the Affiliated Employers in which a Key Employee is a participant and each other plan of the Affiliated Employers which enables any plan in which a Key Employee participates to meet the requirements of Code Section 410 or 401(a)(4) will be required to be aggregated. 2.57 "Rollover Contribution" shall mean that portion of an eligible rollover distribution that an Eligible Employee elects to contribute to this Plan in accordance with the requirements of Section 4.11. The Plan will accept a direct rollover of an eligible rollover distribution from (a) a qualified plan described in Code Section 401(a) or 403(a), (b) an annuity contract described in Code Section 403(b), or (c) an eligible plan under Code Section 457(b) In addition, the Plan will accept a Rollover Contribution from a conduit individual retirement account or annuity ("IRA"). However, in no event shall the Plan accept after-tax employee contributions as a Rollover Contribution. 2.58 "SCEM" shall mean Southern Company Energy Marketing, L.P. 2.59 "SEPCO" shall mean Savannah Electric and Power Company. 2.60 "SEPCO Plan" shall mean the Employee Savings Plan of Savannah Electric and Power Company as in effect December 31, 1992. 2.61 "SEPCO Transferred Account" shall mean the total amount credited to the account of a Participant as described in Section 9.1(b). 2.62 "Super-Top-Heavy Group" shall mean an Aggregation Group that would be a Top-Heavy Group if 90% were substituted for 60% in Section 2.64. 2.63 "Surviving Spouse" shall mean the person to whom the Participant is married on the date of his death, if such spouse is then living, provided that the Participant and such spouse shall have been married throughout the one (1) year period ending on the date of the Participant's death. 2.64 "Top-Heavy Group" shall mean an Aggregation Group in which, as of the Determination Date, the sum of: (a) the Present Value of Accrued Retirement Income of Key Employees under all defined benefit plans included in that group, and (b) the Aggregate Accounts of Key Employees under all defined contribution plans included in the group, exceeds 60% of a similar sum determined for all employees. 2.65 "Transferred ESOP Account" shall mean the total amount credited to the Account of a Participant as described in Section 9.1(d). 2.66 "Trust" or "Trust Fund" shall mean the trust established pursuant to the Trust Agreement. 2.67 "Trust Agreement" shall mean the trust agreement between the Company and the Trustee, as described in Article XIV. 2.68 "Trustee" shall mean the person or corporation designated as trustee under the Trust Agreement, including any successor or successors. 2.69 "Valuation Date" shall mean each business day of the New York Stock Exchange. 2.70 "Voluntary Participant Contribution" shall mean a contribution made pursuant to Section 4.6 during the Plan Year. 2.71 "Year of Service" shall mean a twelve-month period of employment as an Employee, including any fractions thereof. Calculation of the twelve-month periods shall commence with the Employee's first day of employment, which is the date on which an Employee first performs an Hour of Service, and shall terminate on his Break-in-Service Date. Thereafter, if he has more than one period of employment as an Employee, his Years of Service for any subsequent period shall commence with the Employee's reemployment date, which is the first date following a Break-in-Service Date on which the Employee performs an Hour of Service, and shall terminate on his next Break-in-Service Date. An Employee who has a Break-in-Service Date and resumes employment with the Affiliated Employers within twelve months of his Break-in-Service Date shall receive a fractional Year of Service for the period of such cessation of employment. Notwithstanding anything in this Section 2.71 to the contrary, an Employee shall not receive credit for more than one Year of Service with respect to any twelve-consecutive-month period. ARTICLE III PARTICIPATION 3.1 Eligibility Requirements. Each Eligible Employee who was an active Participant on December 31, 2001 shall continue to be an active Participant in the Plan on January 1, 2002, provided he remains an Eligible Employee. Each other Eligible Employee may elect to participate in the Plan as of any Enrollment Date after the Employee's first day of employment as an Eligible Employee or as soon as administratively practicable thereafter. An Eligible Employee shall make an election to participate by authorizing deductions from or reduction of his Compensation as contributions to the Plan in accordance with Article IV, and directing the investment of such contributions in accordance with Article VIII. Such Compensation deduction and/or reduction authorization and investment direction shall be made in accordance with the procedures established by the Committee. 3.2 Participation upon Reemployment. If an Employee terminates his employment with an Affiliated Employer and is subsequently reemployed as an Eligible Employee, he may elect to become an active Participant in the Plan as of the date of his reemployment or as soon as administratively practicable thereafter. 3.3 No Restoration of Previously Distributed Benefits. A Participant who has terminated his employment with the Affiliated Employers and who has received a distribution of the amount credited to his Account pursuant to Section 12.5 shall not be entitled to restore the amount of such distribution to his Account if he is reemployed and again becomes a Participant in the Plan. A Participant whose benefit under the Plan was transferred to a qualified plan maintained by Mirant Services as a result of the spin-off of Mirant from the Southern Company controlled group on April 2, 2001 shall not be entitled to restoration of the amount of such transfer upon his subsequent reemployment by an Affiliated Employer. 3.4 Loss of Eligible Employee Status. If a Participant loses his status as an Eligible Employee, but remains an Employee, such Participant shall be ineligible to participate and shall be deemed to have elected to suspend making Voluntary Participant Contributions or to have Elective Employer Contributions made on his behalf. 3.5 Military Leave. Notwithstanding any provision of the Plan to the contrary, contributions, benefits, and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code. Loan repayments will be suspended under the Plan as permitted under Section 414(u)(4) of the Code. ARTICLE IV ELECTIVE EMPLOYER CONTRIBUTIONS AND VOLUNTARY PARTICIPANT CONTRIBUTIONS 4.1 Elective Employer Contributions. An Eligible Employee who meets the participation requirements of Article III may elect on a form provided by the Employing Company to have his Compensation reduced by a whole percentage of his Compensation, which percentage shall not be less than one percent (1%) nor more than sixteen percent (16%) (eight percent (8%) for a Highly Compensated Employee) of his Compensation, such Elective Employer Contribution to be contributed to his Account under the Plan. 4.2 Maximum Amount of Elective Employer Contributions. The maximum amount of Elective Employer Contributions that may be made on behalf of a Participant during any Plan Year to this Plan or any other qualified plan maintained by an Employing Company shall not exceed the dollar limitation set forth in Section 402(g) of the Code in effect at the beginning of such Plan Year. 4.3 Distribution of Excess Deferral Amounts (a) In General. Notwithstanding any other provision of the Plan, Excess Deferral Amounts and income allocable thereto shall be distributed (and any corresponding Employer Matching Contributions shall be forfeited) no later than April 15, 2002, and each April 15 thereafter, to Participants who allocate (or are deemed to allocate) such amounts to this Plan pursuant to (b) below for the preceding calendar year. Excess Deferral Amounts that are distributed shall not be treated as an Annual Addition. Any Employer Matching Contributions forfeited pursuant to this subsection (a) shall be applied, subject to Section 6.1, toward funding Employing Company contributions (for the Plan Year immediately following the Plan Year to which such forfeited Employer Matching Contributions relate) or distributed, as directed by the Committee, to the extent permitted by applicable law. (b) Assignment. The Participant's allocation of amounts in excess of the Code Section 402(g) limits to this Plan shall be in writing; shall be submitted to the Committee no later than March 1; shall specify the Participant's Excess Deferral Amount for the preceding calendar year; and shall be accompanied by the Participant's written statement that if such amounts are not distributed, such Excess Deferral Amount, when added to amounts deferred under other plans or arrangements described in Section 401(k), 408(k), 408(p), 402(h)(1)(B), 457, 501(c)(18), or 403(b) of the Code, exceeds the limit imposed on the Participant by Section 402(g) of the Code for the year in which the deferral occurred. A Participant is deemed to notify the Committee of any Excess Deferral Amounts that arise by taking into account only those deferrals under this Plan and any other plans of an Affiliated Employer. (c) Determination of Income or Loss. The Excess Deferral Amount distributed to a Participant with respect to a calendar year shall be adjusted for income or loss through the last day of the Plan Year or the date of distribution, as determined by the Committee. The income or loss allocable to Excess Deferral Amounts is the sum of: (1) income or loss allocated to the Participant's Account for the taxable year multiplied by a fraction, the numerator of which is such Participant's Excess Deferral Amount for the year and the denominator is the Participant's Account balance attributable to Elective Employer Contributions, minus any income or plus any loss occurring during the Plan Year; and (2) if the Committee shall determine in its sole discretion, ten percent (10%) of the amount determined under (1) above multiplied by the number of whole calendar months between the end of the Plan Year and the date of the distribution, counting the month of distribution if distribution occurs after the 15th of the month. Notwithstanding the above, the Committee may designate any reasonable method for computing the income or loss allocable to Excess Deferral Amounts, provided that the method does not violate Section 401(a)(4) of the Code, is used consistently for all Participants and for all corrective distributions under the Plan for the Plan Year, and is used by the Plan for allocating income or loss to Participants' Accounts. (d) Maximum Distribution Amount. The Excess Deferral Amount, which would otherwise be distributed to the Participant, shall, if there is a loss allocable to such Excess Deferral Amount, in no event be less than the lesser of the Participant's Account under the Plan attributable to Elective Employer Contributions or the Participant's Elective Employer Contributions for the Plan Year. 4.4 Additional Rules Regarding Elective Employer Contributions. ---------------------------------------------------------- Salary reduction agreements shall be governed by the following: (a) A salary reduction agreement shall apply to payroll periods during which such salary reduction agreement is in effect. The Committee, in its discretion, may establish administrative procedures whereby the actual reduction in Compensation may be made to coincide with each payroll period of the Employing Company, or at such other times as the Committee may determine. (b) The Employing Company may amend or revoke its salary reduction agreement with any Participant at any time, if the Employing Company determines that such revocation or amendment is necessary to ensure that a Participant's additions for any Plan Year will not exceed the limitations of Sections 4.2 and 6.1 of the Plan or to ensure that the Actual Deferral Percentage Test is satisfied. (c) Except as required under (b) above, and under Section 4.5(b) below, no amounts attributable to Elective Employer Contributions may be distributed to a Participant or his Beneficiary from his Account prior to the earlier of: (1) the severance from employment, death or disability of the Participant; (2) the attainment of age 59 1/2 by the Participant; (3) the termination of the Plan without establishment of a successor plan; (4) a financial hardship of the Participant pursuant to Section 11.6 of the Plan; (5) the date of a sale by an Employing Company to an entity that is not an Affiliated Employer of substantially all of the assets (within the meaning of Code Section 409(d)(2)) with respect to a Participant who continues employment with the corporation acquiring such assets; or (6) the date of the sale by an Employing Company or an Affiliated Employer of its interest in a subsidiary (within the meaning of Code Section 409(d)(3)) to an entity which is not an Affiliated Employer with respect to the Participant who continues employment with such subsidiary. 4.5 Section 401(k) Nondiscrimination Tests. (a) Actual Deferral Percentage Test. The Plan shall satisfy the nondiscrimination test of Section 401(k)(3) of the Code, under which no Elective Employer Contributions shall be made that would cause the Actual Deferral Percentage for Eligible Participants who are Highly Compensated Employees to exceed the following: (1) The Average Actual Deferral Percentage for the Eligible Participants who are Highly Compensated Employees in the current Plan Year shall not exceed the Average Actual Deferral Percentage for the prior Plan Year for Eligible Participants who were Non-Highly Compensated Employees for the prior Plan Year multiplied by 1.25; or (2) The Average Actual Deferral Percentage for Eligible Participants who are Highly Compensated Employees in the current Plan Year shall not exceed the Average Actual Deferral Percentage for Eligible Participants who were Non-Highly Compensated Employees in the prior Plan Year multiplied by two (2), provided that the Average Actual Deferral Percentage for Eligible Participants who are Highly Compensated Employees in the current Plan Year does not exceed the Average Actual Deferral Percentage for the prior Plan Year for Eligible Participants who were Non-Highly Compensated Employees in the prior Plan Year by more than two (2) percentage points. (b) Distribution of Excess Deferral Contributions. --------------------------------------------- (1) In General. The Excess Deferral Contributions for a Highly Compensated Employee for a Plan Year which are to be distributed shall be distributed such that the Highly Compensated Employee with the highest amount of Elective Employer Contributions for the Plan Year shall be reduced to the extent required to: (A) distribute the total amount of Excess Deferral Contributions, or (B) cause the amount of such Highly Compensated Employee's Elective Employer Contributions to equal the amount of Elective Employer Contributions of the Highly Compensated Employee with the next highest amount of Elective Employer Contributions for the Plan Year. This process must be repeated until all Excess Deferral Contributions are distributed. Excess Deferral Contributions plus any income and minus any loss allocable thereto shall be distributed (and any corresponding Employer Matching Contribution shall be forfeited) to Participants on whose behalf such Excess Deferral Contributions were made within two and one-half (2-1/2) months after the last day of the Plan Year in which such excess amounts arose, and in any event not later than the last day of the Plan Year following the close of the Plan Year for which such contributions were made. Distribution of Excess Deferral Contributions shall be made to Highly Compensated Employees in accordance with this Section 4.5(b). Any Employer Matching Contributions forfeited pursuant to this Subsection (b)(1) shall be applied, subject to Section 6.1, toward funding Employing Company contributions (for the Plan Year immediately following the Plan Year to which such forfeited Employer Matching Contributions relate) or distributed, as directed by the Committee, to the extent permitted by applicable law. (2) Determination of Income or Loss. Excess Deferral Contributions to be distributed shall be adjusted for any income or loss through the last day of the Plan Year or the date of distribution, as determined by the Committee. The income or loss allocable to such Excess Deferral Contributions is the sum of: (A) income or loss allocated to the Participant's Account for the taxable year multiplied by a fraction, the numerator of which is the Participant's Excess Deferral Contributions to be distributed for the year and the denominator is the Participant's Account balance attributable to Elective Employer Contributions, minus any income or plus any loss occurring during the Plan Year; and (B) if the Committee shall determine in its sole discretion, ten percent (10%) of the amount determined under (A) above multiplied by the number of whole calendar months between the end of the Plan Year and the date of the distribution, counting the month of distribution if distribution occurs after the 15th of the month. Notwithstanding the above, the Committee may designate any reasonable method for computing the income or loss allocable to Excess Deferral Contributions, provided that the method does not violate Section 401(a)(4) of the Code, is used consistently for all Participants and for all corrective distributions under the Plan for the Plan Year, and is used by the Plan for allocating income or loss to Participants' Accounts. (3) Maximum Distribution Amount. The Excess Deferral Contributions which would otherwise be distributed to the Participant shall be adjusted for income; shall be reduced, in accordance with regulations, by the Excess Deferral Amount distributed to the Participant; and shall, if there is a loss allocable to the Excess Deferral Contributions, in no event be less than the lesser of the Participant's Account under the Plan attributable to Elective Employer Contributions or the Participant's Elective Employer Contributions for the Plan Year. (c) Special Rules. -------------- (1) For purposes of this Section 4.5, the Actual Deferral Percentage for any Eligible Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have deferral contributions allocated to his account under two (2) or more plans or arrangements described in Section 401(k) of the Code that are maintained by an Affiliated Employer shall be determined as if all such deferral contributions were made under a single arrangement. If a Highly Compensated Employee participates in two (2) or more cash or deferred arrangements that have different plan years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the foregoing, certain plans shall be treated as separate if mandatorily disaggregated under Code Section 401(k). (2) In the event that this Plan satisfies the requirements of Code Section 401(k), 401(a)(4), or 410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of Code Section 401(k), 401(a)(4), or 410(b) only if aggregated with this Plan, then the actual deferral percentages shall be determined as if all such plans were a single plan. 4.6 Voluntary Participant Contributions. An Eligible Employee who meets the participation requirements of Article III may elect in accordance with the procedures established by the Committee to contribute to his Account a Voluntary Participant Contribution consisting of any whole percentage of his Compensation, which percentage is not less than one percent (1%) nor more than sixteen percent (16%) of his Compensation. The maximum Voluntary Participant Contribution shall be reduced by the percent, if any, which is contributed as an Elective Employer Contribution on behalf of such Participant under Section 4.1. Notwithstanding the above, a Highly Compensated Employee may contribute not less than one percent (1%) nor more than three percent (3%) of his Compensation as a Voluntary Participant Contribution. 4.7 Manner and Time of Payment of Elective Employer Contributions and Voluntary Participant Contributions. Contributions made in accordance with Sections 4.1 and 4.6 will be made only through payroll deductions and will be effective as of the payroll period commencing as soon as practicable after the date on which the Participant elects to commence participation in the Plan. Contributions shall be remitted to the Trustee as of the earliest date on which such contributions can reasonably be segregated from each Employing Company's general assets, but in any event not later than the fifteenth (15th) business day of the month following the month during which such amounts would otherwise have been payable to the Participant in cash or such earlier time as may be prescribed by applicable law. 4.8 Change in Contribution Rate. A Participant may prospectively change the percentage of his Compensation that he has authorized as the Elective Employer Contribution to be made on his behalf or his Voluntary Participant Contribution to another permissible percentage in accordance with the procedures established by the Committee. Such election shall be effective as soon as practicable after it is made. 4.9 Change in Contribution Amount. In the event of a change in the Compensation of a Participant, the percentage of the Elective Employer Contribution made on his behalf or his Voluntary Participant Contribution currently in effect shall be applied as soon as practicable with respect to such changed Compensation without action by the Participant. 4.10 Rollover Contributions and Direct Transfers from the SEPCO and ECMC Plans. (a) A Participant shall be entitled to transfer (or cause to be transferred directly from the trustee) to the Trust to be held as part of his Account all or a portion of the fair market value of the cash or other property a Participant receives in the distribution of his accrued benefits under the Profit Sharing Plan for Electric City Merchandise Company, Inc. ("ECMC Plan"), reduced by any voluntary participant contributions under such plan. Such rollover contribution may only be made within sixty (60) days following the date the Participant receives the distribution (or within such additional period as may be provided under Section 408 of the Code if the Participant shall have made a timely deposit of the distribution in an individual retirement account). No such rollover contribution or trustee to Trustee transfer shall be made by a Participant (or on his behalf) if not otherwise permissible under the Code or if such rollover contribution or transfer would subject this Plan to the requirements of Section 401(a)(11)(A) of the Code. Notwithstanding the foregoing, the Trustee is specifically authorized to accept any rollover accounts under the terms of the SEPCO Plan as are necessary to reflect a Participant's interest in the Plan resulting from the merger of the SEPCO Plan into this Plan effective as of January 1, 1993. Any such rollover account shall be held as part of the Participant's Account and shall be subject to the requirements of Article XVIII. (b) Any amounts so transferred to the Trust shall be entitled to share in earnings or losses of the Trust in the same manner as other Employing Company contributions to the Trust. (c) The portion of a Participant's Account attributable to any rollover contribution or trustee to Trustee transfer shall be distributed with the balance of the Participant's Account pursuant to Article XII of the Plan. 4.11 Rollovers from Other Plans. An Eligible Employee who is hired or rehired and has received a distribution of his interest in a retirement plan of a former employer, or a distribution of the interest of his deceased spouse in a retirement plan of his spouse's former employer, under circumstances meeting the requirements of Section 402(c)(4) of the Code relating to eligible rollover distributions from qualified plans, including plans established under Code Section 403(b) or 457(b), may elect to deposit all or any portion (as designated by such Eligible Employee) of the amount of such distribution as a Rollover Contribution to this Plan. A Rollover Contribution may be made only within 60 days following the date the Eligible Employee receives the distribution from the plan of his former employer (or within such additional period as may be provided under Section 408 of the Code if the Eligible Employee shall have made a timely deposit of the distribution in an individual retirement account) and within 18 months after the date of his employment or reemployment with an Employing Company. However, the 18-month requirement shall not apply with respect to Rollover Contributions attributable to the distribution of the interest of an Eligible Employee's deceased spouse in a retirement plan of the spouse's former employer. The Committee shall establish rules and procedures to implement this Section 4.11, including without limitation, such procedures as may be appropriate to permit the Committee to verify the tax qualified status of the plan of the former employer and compliance with any applicable provisions of the Code relating to such contributions. The amount contributed to the Trustee pursuant to this Section 4.11 shall be placed in the Eligible Employee's Rollover Contribution subaccount for the benefit of the Eligible Employee pursuant to Section 9.1. The Eligible Employee shall have a fully vested interest in the balance of his Rollover Contribution subaccount at all times and such Rollover Contribution subaccount shall share in the earnings, gains, and losses of the Trust Fund as set forth in Article IX of the Plan. An Employee shall be entitled to a distribution of his Rollover Contribution subaccount pursuant to the applicable provisions of Articles XI and XII hereof. ARTICLE V EMPLOYER MATCHING CONTRIBUTIONS 5.1 Amount of Employer Matching Contributions. The Board of Directors, in its sole and absolute discretion, shall determine the amount of Employer Matching Contributions that shall be made by each Employing Company on behalf of each Participant in its employ. The amount of Employer Matching Contributions shall be fixed by resolutions of the Board of Directors and communicated to each Employing Company prior to the first day of each Plan Year. 5. 2 Payment of Employer Matching Contributions. Except as provided herein, Employer Matching Contributions shall be remitted to the Trustee as soon as practicable after the payroll period to which they relate. 5. 3 Limitations on Employer Matching Contributions and Voluntary Participant Contributions. (a) Actual Contribution Percentage Test. The Plan shall satisfy the nondiscrimination test of Section 401(m) of the Code, under which the Average Contribution Percentage for Eligible Participants shall not exceed (1) or (2) as follows: (1) The Average Contribution Percentage for Eligible Participants who are Highly Compensated Employees in the current Plan Year shall not exceed the Average Contribution Percentage for the prior Plan Year for Eligible Participants who were Non-Highly Compensated Employees in the prior Plan Year multiplied by 1.25; or (2) The Average Contribution Percentage for Eligible Participants who are Highly Compensated Employees in the current Plan Year shall not exceed the Average Contribution Percentage for Eligible Participants who were Non-Highly Compensated Employees in the prior Plan Year multiplied by two (2), provided that the Average Contribution Percentage for Eligible Participants who are Highly Compensated Employees in the current Plan Year does not exceed the Average Contribution Percentage for the prior Plan Year for Eligible Participants who were Non-Highly Compensated Employees in the prior Plan Year by more than two (2) percentage points. (b) Distribution of Excess Aggregate Contributions. ---------------------------------------------- (1) In General. The Excess Aggregate Contributions for a Highly Compensated Employee for a Plan Year which are to be distributed shall be distributed such that the Highly Compensated Employee with the highest amount of Matching Employer Contributions and Voluntary Participant Contributions shall be reduced to the extent required to: (A) distribute the total amount of Excess Aggregate Contributions, or (B) cause the amount of such Highly Compensated Employee's Employer Matching Contributions and Voluntary Participant Contributions to equal the amount of Employer Matching Contributions and Voluntary Participant Contributions of the Highly Compensated Employee with the next highest amount of Employer Matching Contributions and Voluntary Participant Contributions for the Plan Year. This process must be repeated until all Excess Aggregate Contributions are distributed. Excess Aggregate Contributions, plus any income and minus any loss allocable thereto, shall be distributed (or, if forfeitable, forfeited) within 2-1/2 months after the last day of the Plan Year in which such excess amounts arose, and in any event not later than the last day of the following Plan Year, to Participants to whose Accounts such Excess Aggregate Contributions were allocated for the Plan Year. Excess Aggregate Contributions shall be treated as Annual Additions. (2) Determination of Income or Loss. Excess Aggregate Contributions to be distributed shall be adjusted for any income or loss through the last day of the Plan Year or the date of distribution, as determined by the Committee. The income or loss allocable to such Excess Aggregate Contributions is the sum of: (A) income or loss allocated to the Participant's Account attributable to Voluntary Participant Contributions and Employer Matching Contributions to be distributed for the Plan Year multiplied by a fraction, the numerator of which is the Participant's Excess Aggregate Contributions for the year and the denominator is the Participant's Account balance attributable to Voluntary Participant Contributions and Employer Matching Contributions, minus any income or plus any loss occurring during the Plan Year; and (B) if the Committee shall determine in its sole discretion, ten percent (10%) of the amount determined under (1) above multiplied by the number of whole calendar months between the end of the Plan Year and the date of the distribution, counting the month of distribution if distribution occurs after the 15th of the month. Notwithstanding the above, the Committee may designate any reasonable method for computing the income or loss allocable to Excess Aggregate Contributions, provided that the method does not violate Section 401(a)(4) of the Code, is used consistently for all Participants and for all corrective distributions under the Plan for the Plan Year, and is used by the Plan for allocating income or loss to Participants' Accounts. (3) Accounting for Excess Aggregate Contributions. Excess Aggregate Contributions shall be distributed first from Voluntary Participant Contributions allocated to the Participant's Account and any corresponding Employer Matching Contribution shall also be forfeited and then, if necessary, distributed from the remaining Employer Matching Contribution allocated to the Participant's Account. (c) Special Rules. (1) The Contribution Percentage for any Eligible Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to make voluntary participant contributions, to receive employer matching contributions, or to make deferral contributions under two or more plans described in Section 401(a) of the Code or arrangements described in Section 401(k) of the Code that are maintained by an Affiliated Employer shall be determined as if all such contributions were made under a single plan. (2) In the event that this Plan satisfies the requirements of Code Section 401(m), 401(a)(4), or 410(b) only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of Code Section 401(m), 401(a)(4), or 410(b) only if aggregated with this Plan, then the contribution percentages shall be determined as if all such plans were a single plan. (3) The determination and treatment of the Contribution Percentage of any Eligible Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury. 5. 4 Multiple Use Limitation. If both the Average Actual Deferral Percentage and the Average Contribution Percentage of the Highly Compensated Employees exceed 1.25 of the Average Actual Deferral Percentage and the Average Contribution Percentage of the Non-Highly Compensated Employees and if one or more Highly Compensated Employees makes Elective Employer Contributions and receives Employer Matching Contributions, and the sum of the Actual Deferral Percentage and Actual Contribution Percentage of those Highly Compensated Employees subject to either or both tests exceed the aggregate limit as defined in Treasury Regulation Section 1.401(m)-2, then the Employer Matching Contribution of those Highly Compensated Employees who participate in the cash or deferred arrangement will be reduced (beginning with such Highly Compensated Employee whose Employer Matching Contribution is the highest) so that the aggregate limit is not exceeded. For purposes of determining if the aggregate limit has been exceeded, the Actual Deferral Percentage and the Contribution Percentage of the Highly Compensated Employees shall be determined after any corrections required to meet the Actual Deferral Percentage Test and the Actual Contribution Percentage Test. 5. 5 Reversion of Employing Company Contributions. Employing Company contributions computed in accordance with the provisions of this Plan shall revert to the Employing Company under the following circumstances: (a) In the case of an Employing Company contribution which is made by reason of a mistake of fact, such contribution upon written direction of the Employing Company shall be returned to the Employing Company within one year after the payment of the contribution. (b) If any Employing Company contribution is determined to be nondeductible under Section 404 of the Code, then such Employing Company contribution, to the extent that it is determined to be nondeductible, upon written direction of the Employing Company shall be returned to the Employing Company within one year after the disallowance of the deduction. The amount which may be returned to the Employing Company under this Section 5.7 is the excess of (1) the amount contributed over (2) the amount that would have been contributed had there not occurred a mistake of fact or disallowance of the deduction. Earnings attributable to the excess contribution shall not be returned to the Employing Company, but losses attributable thereto shall reduce the amount to be so returned. If the withdrawal of the amount attributable to the mistaken contribution would cause the balance of the Account of any Participant to be reduced to less than the balance which would have been in the Account had the mistaken amount not been contributed, then the amount to be returned to the Employing Company shall be limited so as to avoid such reduction. 5.6 Correction of Prior Incorrect Allocations and Distributions. Notwithstanding any provisions contained herein to the contrary, in the event that, as of any Valuation Date, adjustments are required in any Participants' Accounts to correct any incorrect allocation of contributions or investment earnings or losses, or such other discrepancies in Account balances that may have occurred previously, the Employing Companies may make additional contributions to the Plan to be applied to correct such incorrect allocations or discrepancies. The additional contributions shall be allocated by the Committee to adjust such Participants' Accounts to the value which would have existed on said Valuation Date had there been no prior incorrect allocation or discrepancies. The Committee shall also be authorized to take such other actions as it deems necessary to correct prior incorrect allocations or discrepancies in the Accounts of Participants under the Plan. ARTICLE VI LIMITATIONS ON CONTRIBUTIONS 6.1 Section 415 Limitations. Notwithstanding any provision of the Plan to the contrary, except to the extent permitted under Code Section 414(v), the total Annual Additions allocated to the Account (and the accounts under all defined contribution plans maintained by an Affiliated Employer) of any Participant for any Limitation Year in accordance with Code Section 415 and the regulations thereunder, which are incorporated herein by this reference, shall not exceed the lesser of the following amounts: (a) one hundred percent (100%) of the Participant's compensation (as defined in Code Section 415(c)(3) and any rulings and regulations thereunder) in the Limitation Year; or (b) $40,000 (as adjusted pursuant to Code Section 415(d)(1)(C)). The Annual Addition for any Plan Year beginning before January 1, 1987 shall not be recomputed to treat all Voluntary Participant Contributions as an Annual Addition. 6.2 Correction of Contributions in Excess of Section 415 Limits. If the Annual Additions for a Participant exceed the limits of Section 6.1 as a result of the allocation of forfeitures, if any, a reasonable error in estimating a Participant's annual compensation for purposes of the Plan, a reasonable error in determining the amount of elective deferrals (within the meaning of Section 402(g)(3) of the Code) that may be made with respect to any individual, or under other limited facts and circumstances that the Commissioner of the Treasury finds justify the availability of the rules set forth in this Section 6.2, the excess amounts shall not be deemed Annual Additions if they are treated in accordance with any one or more or any combination of the following: (a) distribute to the Participant that portion, or all, of his Elective Employer Contributions (as adjusted for income and loss) as is necessary to ensure compliance with Section 6.1; (b) return to the Participant that portion, or all, of his Voluntary Participant Contributions (as adjusted for income and loss) as is necessary to ensure compliance with Section 6.1; and (c) forfeiture of that portion, or all, of the Employer Matching Contributions (as adjusted for income and loss) and any forfeitures of Employer contributions that were allocated to the Participant's Account (as adjusted for income and loss), as is necessary to ensure compliance with Section 6.1. Any amounts distributed or returned to the Participant under (a) or (b) above shall be disregarded for purposes of the Actual Deferral Percentage Test and for purposes of the Actual Contribution Percentage Test. Any amounts forfeited under this Section 6.2 shall be held in a suspense account and shall be applied, subject to Section 6.1, toward funding the Employer Matching Contributions for the next succeeding Plan Year. Such application shall be made prior to any Employing Company contributions and prior to any Employer Matching Contributions that would constitute Annual Additions. No income or investment gains and losses shall be allocated to the suspense account provided for under this Section 6.2. If any amount remains in a suspense account provided for under this Section 6.2 upon termination of this Plan, such amount will revert to the Employing Companies notwithstanding any other provision of this Plan. 6.3 Combination of Plans. If an Employee participates in more than one defined contribution plan maintained by an Affiliated Employer and his Annual Additions exceed the limitations of Section 6.1, corrective adjustments shall be made first under this Plan and then, to the extent necessary, under The Southern Company Performance Sharing Plan and then, to the extent necessary, under The Southern Company Employee Stock Ownership Plan. ARTICLE VII SUSPENSION OF CONTRIBUTIONS 7.1 Suspension of Contributions. A Participant may (on a prospective basis) voluntarily suspend the Elective Employer Contributions made on his behalf and his Voluntary Participant Contributions in accordance with the procedures established by the Committee. Such suspension shall be effective as soon as practicable after it is made. Whenever Elective Employer Contributions made on a Participant's behalf and Voluntary Participant Contributions are suspended, Employer Matching Contributions shall also be suspended. 7.2 Resumption of Contributions. A Participant may terminate prospectively any such suspension in accordance with the procedures established by the Committee. Such resumption of contributions shall be effective as soon as practicable after the election to terminate prospectively the suspension is made. There shall be no make up of any contributions by a Participant or by an Employing Company with respect to a period of suspension. ARTICLE VIII INVESTMENT OF CONTRIBUTIONS 8.1 Investment Funds. The Investment Funds shall be selected from time to time by the Pension Fund Investment Review Committee of the Southern Company System. In addition to such other Investment Funds selected by the Pension Fund Investment Review Committee, the Investment Funds shall include the "Company Stock Fund". The Company Stock Fund shall be invested and, subject to Section 12.13 of the Plan, reinvested in Common Stock, provided that funds applicable to the purchase of Common Stock pending investment of such funds may be temporarily invested in short-term United States Government obligations, other obligations guaranteed by the United States Government, commercial paper, or certificates of deposit, and, if the Trustee so determines, may be transferred to money market funds utilized by the Trustee for qualified employee benefit trusts. 8.2 Investment of Participant Contributions. Each Participant shall direct, at the time he elects to participate in the Plan and at such other times as may be directed by the Committee or pursuant to Section 8.6, that his Elective Employer Contributions and Voluntary Participant Contributions be invested in one or more of the Investment Funds, provided such investments are made in one-percent (1%) increments. 8.3 Investment of Employer Matching Contributions. Employer Matching Contributions shall be invested entirely in the Company Stock Fund and shall remain invested in the Company Stock Fund except as follows: (a) Any Participant whose employment with the Affiliated Employers is terminated as a result of his retirement pursuant to the defined benefit pension plan of an Affiliated Employer may elect to invest the amount credited to his Employer Matching Contribution subaccount in any of the Investment Funds under this Plan as provided in Section 8.5; and (b) Any Participant may elect at any time on or after the fifth anniversary of the Enrollment Date on which he first became a Participant in this Plan to invest a portion of the amount credited to his Employer Matching Contribution subaccount in any of the Investment Funds under this Plan as provided in Section 8.5, except that the amount subject to such election attributable to Common Stock may not exceed fifty percent (50%) of the amount of Common Stock credited to his Employer Matching Contribution subaccount at the time the election is made. 8.4 Investment of Earnings. Except as provided in Section 12.13 of the Plan, interest, dividends, if any, and other distributions received by the Trustee with respect to an Investment Fund shall be invested in such Investment Fund. 8.5 Transfer of Assets between Funds. A Participant may direct in accordance with the provisions of this Section 8.5 and such procedures established by the Committee that all of his interest in an Investment Fund or Funds attributable to amounts in his Account (including Employer Matching Contributions other than those required to be invested in the Company Stock Fund pursuant to Section 8.3) or any portion of such amount (expressed in number of shares, whole dollar amounts, or one-percent (1%) increments) to the credit of his Account be transferred and invested by the Trustee as of such date in any other Investment Fund as designated by the Participant. Such direction shall be effective as soon as practicable after it is made. 8.6 Change in Investment Direction. Any investment direction given by a Participant shall continue in effect until changed by the Participant. A Participant may change his investment direction as to the future contributions and allocations to his Account (other than Employer Matching Contributions) in accordance with the procedures established by the Committee, and such direction shall be effective as soon as practicable after it is made. 8.7 Section 404(c) Plan. This Plan is intended to be a plan described in ERISA Section 404(c) and shall be interpreted in accordance with Department of Labor Regulations Section 1.404c-1, which is incorporated herein by this reference. The Committee shall take such actions as it deems necessary or appropriate in its discretion to cause the Plan to comply with such requirements, including, but not limited to, providing Participants with the right to request and receive written confirmation of their investment instructions. Further, the Committee shall take such actions as it deems necessary or appropriate in its discretion (a) to ensure that confidentiality procedures with respect to a Participant's ownership of Common Stock and the exercise of ownership rights with respect to such Common Stock are adequate and utilized, and (b) to appoint an independent fiduciary to carry out such actions as the Committee determines involve the potential for undue influence on Participants with regard to the direct or indirect exercise of shareholder rights with respect to Common Stock. 8.8 Mirant Stock Fund. All Mirant Stock received by the Plan pursuant to Sections 9.1(c) and 9.1(d) shall be held in a "Mirant Stock Fund." Participants may direct investments out of the Mirant Stock Fund and into the other Investment Funds in accordance with the procedures of this Article VIII. However, Participants may not direct investments into the Mirant Stock Fund and, should a Participant elect to direct investments out of the Mirant Stock Fund, he may not again direct any amount attributable to such investments back into the Mirant Stock Fund. In no event shall the Mirant Stock Fund remain as an Investment Fund under the Plan later than the end of the calendar quarter which includes the five-year anniversary of the date Mirant Stock is first held in the Mirant Stock Fund. The Mirant Stock Fund shall be treated as a portion of the Plan which is not an employee stock ownership plan in accordance with Treasury Regulation Section 1.410(b)-7(c)(2). ARTICLE IX MAINTENANCE AND VALUATION OF PARTICIPANTS' ACCOUNTS 9.1 Establishment of Accounts. (a) An Account shall be established for each Participant. In addition, subaccounts shall be established for each Participant to reflect all Elective Employer Contributions, Voluntary Participant Contributions, Employer Matching Contributions, Rollover Contributions, and rollover contributions from the SEPCO Plan (and the earnings and/or losses on each subaccount). Each Participant will be furnished a statement of his Account at least annually and upon any distribution. (b) The Committee shall also establish a subaccount known as a Participant's SEPCO Transferred Account to reflect the Participant's interest in the Plan resulting from the merger of the SEPCO Plan into this Plan effective as of January 1, 1993. To the extent that a Participant's Salary Deferral Account, Employer Contribution Account, and Rollover Account (as those terms were defined under the SEPCO Plan), were transferred to this Plan from the SEPCO Plan, such accounts shall retain their character as participant deferral, employer, or rollover contributions, respectively, and the Committee shall establish and maintain such bookkeeping accounts as it deems necessary to account for such contributions, and any subsequent earnings or losses attributable thereto, under this Plan. (c) Upon the distribution by the Southern Company to its shareholders of the Mirant Stock held by the Southern Company pursuant to a tax-free spin-off under Code Section 355 or such similar transaction, the Committee shall establish a subaccount known as a Participant's "Mirant Account" to reflect the Participant's interest in the Mirant Stock received by the Plan (other than Mirant Stock transferred to the Plan as described in Section 9.1(d)) pursuant to such transaction. To the extent that shares of Mirant Stock are attributable to Common Stock in a Participant's subaccounts which reflect Elective Employer Contributions, Voluntary Participant Contributions, Employer Matching Contributions, Rollover Contributions, and amounts in a Participant's SEPCO Transferred Account, the shares of Mirant Stock attributable to each shall retain their character as Elective Employer Contributions, Voluntary Participant Contributions, Employer Matching Contributions, Rollover Contributions, and amounts in a Participant's SEPCO Transferred Account, respectively, and the Committee shall establish and maintain such bookkeeping accounts as it deems necessary to account for such Mirant Stock, and any subsequent earnings or losses attributable thereto, under this Plan. (d) Upon the transfer to the Plan of the Mirant Stock distributed to The Southern Company Employee Stock Ownership Plan ("ESOP") in connection with a transaction described in Section 9.1(c), the Committee shall establish a subaccount known as a Participant's "Transferred ESOP Account" to reflect the Participant's interest in the Plan attributable to the Mirant Stock transferred to the Plan from the ESOP. The Committee shall establish and maintain separate bookkeeping accounts within the Transferred ESOP Account for amounts attributable to the Mirant Stock that was distributed on Common Stock which had been held in the ESOP for more than two years as of the date of transfer, amounts attributable to Mirant Stock that was distributed on Common Stock which had been held in the ESOP for more than one year but less than two years as of the date of transfer, and amounts attributable to Mirant Stock that was distributed on Common Stock which had been held in the ESOP for less than one year as of the date of transfer, respectively. 9.2 Valuation of Investment Funds. Except as provided in Section 12.13 of the Plan, a Participant's Account in respect of his interest in each Investment Fund shall be credited or charged, as the case may be, as of each Valuation Date with the dividends, income, gains, appreciation, losses, depreciation, forfeitures, expenses, and other transactions with respect to such Investment Fund for the Valuation Date as of which such credit or charge accrued. Such credits or charges to a Participant's Account shall be made in such proportions and by such method or formula as shall be deemed by the Committee to be necessary or appropriate to account for each Participant's proportionate beneficial interest in the Trust Fund in respect of his interest in each Investment Fund. Investments of each Investment Fund shall be valued at their fair market values as of each Valuation Date as determined by the Trustee, and such valuation shall conclusively establish such value. 9.3 Rights in Investment Funds. Nothing contained in this Article IX shall be deemed to give any Participant any interest in any specific property in any Investment Fund or any interest, other than the right to receive payments or distributions in accordance with the Plan or the right to instruct the Trustee how to vote Common Stock as provided in Section 14.3. ARTICLE X VESTING 10.1 Vesting. The amount to the credit of a Participant's Account shall at all times be fully vested and nonforfeitable. ARTICLE XI WITHDRAWALS AND LOANS 11.1 Withdrawals by Participants. --------------------------- (a) Subject to the provisions of Article XII, this Section 11.1, and Sections 11.2 through 11.6, a Participant may make withdrawals from his Account effective as of any Valuation Date in the order of priority listed below: (1) All or a portion of the value of his Account attributable to Voluntary Participant Contributions (not including any earnings or appreciation thereon) made prior to January 1, 1987; (2) All amounts described above, plus all or a portion of the value of his Account attributable to Voluntary Participant Contributions, plus a ratable portion of the earnings and/or appreciation on Voluntary Participant Contributions; (3) All amounts described above, plus effective April 1, 1997, all or a portion of the value of his Account attributable to Rollover Contributions (including earnings and appreciation thereon); (4) All amounts described above, plus the value of his Transferred ESOP Account as described in Section 9.1(d); provided, however, that the amount in his Transferred ESOP Account attributable to Mirant Stock that was distributed on Common Stock which had been held in the ESOP for less than two years as of the date of transfer may not be distributed until the first day of the month following the two-year anniversary of the date such Common Stock was contributed to the ESOP; (5) All amounts described above, plus up to fifty percent (50%) of the value of his Account attributable to Employer Matching Contributions (including earnings and appreciation thereon) allocated to his Account; provided, however, that said Participant shall have participated in the Plan for not less than sixty (60) months at the time of the withdrawal; (6)(A) For Participants who have not attained age 59 1/2 or separated from service with the Affiliated Employers (within the meaning of Code Section 401(k)(2)(B)(i)(I)), all amounts described above, plus all or a portion of the value of his Account attributable to Elective Employer Contributions (not including any earnings or appreciation thereon for Plan Years beginning after December 31, 1988); and (B) For Participants who have attained age 59 1/2 or separated from service with the Affiliated Employers (within the meaning of Code Section 401(k)(2)(B)(i)(I)), all amounts described above, plus all or a portion of the value of his Account attributable to any earnings or appreciation on Elective Employer Contributions. For purposes of this Section 11.1, any individual who becomes a Participant solely because a Transferred ESOP Account is established on behalf of such individual shall be treated as participating in the Plan as of the date such Transferred ESOP Account is established. (b) Notwithstanding the foregoing, withdrawals from a Participant's SEPCO Transferred Account shall be made in accordance with Article XVIII. 11.2 Notice of Withdrawal. Notice of withdrawal must be given by a Participant in accordance with the procedures established by the Committee, and if such withdrawal would constitute an eligible rollover distribution (within the meaning of Code Section 402(c)(4)), the consent and notice requirements of Section 12.10 must be satisfied. Payment of a withdrawal shall be made as soon as practicable and in accordance with Section 12.10, if applicable. 11.3 Form of Withdrawal. All distributions under this Article XI shall be made in the form of cash, provided that with respect to any distribution which is attributable to Common Stock the Participant shall have the right to demand that such portion of the distribution be made in the form of Common Stock to the extent of the whole number of shares of Common Stock in his Account. Such demand must be made in accordance with the procedures established by the Committee. 11.4 Minimum Withdrawal. No distribution under this Article XI shall be permitted in an amount which has a value of less than $300, unless the value of the amount available under the selected option is less than $300, in which case such available amount will be distributed. 11.5 Source of Withdrawal. Withdrawals shall be made in accordance with the instructions of the Participant from each of the Investment Funds in which the amount to be distributed is invested. The value of the amount to be distributed under any option listed in Section 11.1 shall be determined as soon as practicable in accordance with the procedures established by the Committee. 11.6 Requirement of Hardship. ----------------------- (a) Except as provided in (e) below, a withdrawal pursuant to Section 11.1(a)(6)(A), in addition to the other requirements of Article XI, shall be permitted only if the Committee determines that the withdrawal is to be made on account of an immediate and heavy financial need of the Participant, the amount of the withdrawal does not exceed such financial need, and the amount of the withdrawal is not reasonably available from other resources of the Participant. (b) For purposes of this Section 11.6, the following shall be deemed to be immediate and heavy financial needs: (1) Medical expenses described in Section 213(d) of the Code, including but not limited to, expenses for (i) The diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body; (ii) transportation primarily for and essential to such expenses referred to in (i) above; or (iii) insurance (including amounts paid as premiums under part B of Title XVIII of the Social Security Act) relating to medical expenses referred to in (i) or (ii) above, provided such expenses are incurred by the Participant, the Participant's spouse or any person whom the Participant may properly claim as a dependent on his federal income tax return or are necessary for such persons to obtain the medical care described above; or (2) Purchase (excluding mortgage payments) of a principal residence for the Participant; or (3) Payment of tuition, related educational fees, and room and board expenses, for the next twelve (12) months of post-secondary education for the Participant, the Participant's spouse or child or children, or any person the Participant may properly claim as a dependent on his federal income tax return; or (4) The need to prevent eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence; or (5) Any other need which the Commissioner of the Internal Revenue Service, through the publication of revenue rulings, notices, or other documents of general applicability, deems to be immediate and heavy. (c) For purposes of this Section 11.6, a withdrawal shall be deemed necessary to satisfy an immediate and heavy financial need if: (1) The distribution is not in excess of the amount of the immediate and heavy financial need of the Participant, including any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution; (2) The Participant has obtained all distributions and all nontaxable loans currently available to him under all plans maintained by an Affiliated Employer; (3) The Participant agrees to suspend all elective employer contributions and voluntary participant contributions to all plans of an Affiliated Employer for at least six (6) months after receipt of the distribution under this Section 11.6; and (4) The Participant agrees not to make elective contributions to this Plan or any other qualified or non-qualified deferred compensation plan sponsored by an Affiliated Employer (including stock purchase, stock option or similar plans) during the Participant's taxable year immediately following the taxable year of the hardship distribution in excess of the Participant's applicable elective deferral limits under Section 402(g) of the Code for such taxable year less the amount for the taxable year of the hardship distribution. (d) When all suspensions pursuant to this Section 11.6 are ended, Elective Employer Contributions and/or Voluntary Participant Contributions may be resumed by the Participant (if the Participant is then eligible and elects to resume such contributions) beginning with the Participant's first payroll period commencing after all suspensions are ended, and Employer Matching Contributions by his Employing Company also shall be resumed. There shall be no make up of any contributions by a Participant or by an Employing Company with respect to a period of suspension. (e) Notwithstanding (a) above, if a Participant has attained age 59 1/2 or severed from employment with the Affiliated Employers (within the meaning of Code Section 401(k)(2)(B)(i)(I)), he shall be permitted to make a withdrawal pursuant to Section 11.1(a)(6)(A), even if such withdrawal is not on account of hardship. 11.7 Loans to Participants. (a) The Committee may, in its sole discretion, direct the Trustee to make a loan or loans from the Trust Fund to any Participant (other than a Participant with an existing Plan loan in arrears) (1) who is an Employee on the active payroll of an Employing Company or is a cooperative education employee, (2) who is receiving long-term disability payments under a plan maintained by his Employing Company, (3) who is on a leave of absence authorized by his Employing Company, or (4) who is a party in interest as defined in Section 3(14) of ERISA. All loan applications shall be made in accordance with the procedures established by the Committee, which shall form a part of this Plan. Such procedures shall establish the terms and conditions of loans under the Plan, including the events constituting default, and shall be consistent with the provisions of this Section 11.7. (b) The total amount of all loans outstanding to any one Participant under all qualified plans maintained by an Affiliated Employer shall not exceed the lesser of (1) $50,000, reduced by the excess of the highest outstanding balance of loans from all qualified plans maintained by an Affiliated Employer during the twelve-month period ending on the day before a loan is made, over the outstanding balance of any loans to the Participant from all qualified plans maintained by an Affiliated Employer on the date the loan is made, or (2) fifty percent (50%) of such Participant's Account as of the Valuation Date coinciding with or next following the date the loan application is made. The minimum amount of any loan shall not equal less than $1,000. (c) The principal amount of a loan shall be obtained pro rata from each Investment Fund in which the Participant's Account is invested at that time such loan is obtained. (d) The Committee shall adopt and follow uniform and nondiscriminatory procedures in making loans under this Plan to make certain that such loans (1) are available to all Participants on a reasonably equivalent basis, (2) are not made available to Highly Compensated Employees, officers, or shareholders in an amount greater than the amount made available to other Participants, (3) bear a reasonable rate of interest, and (4) are adequately secured. The repayment of such loans by any Participant who is an Employee on the active payroll of an Employing Company shall be made through payroll deduction. The minimum amount of any loan repayment shall not equal less than $20.00, and such repayment shall extend for a period certain of at least twelve (12) months (unless repaid in full), but not to exceed fifty-eight (58) months, expressed in any number of whole months (including the month the loan is made). The term of any loan may be for a period certain of more than fifty-eight (58) months, but not to exceed fifteen (15) years, only if the proceeds of such loan are used to acquire any dwelling used or, within a reasonable period of time, to be used as the principal residence of the Participant. (e) The Committee shall direct the Trustee to obtain from the Participant such note and adequate security as it may require. All loans made pursuant to this Section 11.7 shall be secured by the Participant's Account, and no other types of collateral may be used to secure a loan from the Plan. Notwithstanding the provisions of Section 17.2, if a Participant defaults on a loan under the Plan or if the Participant's employment terminates prior to full repayment thereof, in addition to any other remedy provided in the loan instruments or by law, the Committee may direct the Trustee to charge against that portion of the Participant's Account which secures the loan the amount required to fully repay the loan. Under no circumstances, however, shall any unpaid loan be charged against a Participant's Account until permitted by applicable law. This Section authorizes only the making of bona fide loans and not distributions, and before resort is made against a Participant's Account for his failure to repay any loan, such other reasonable efforts to collect the same shall be made by the Committee as it deems reasonable and practical under the circumstances. (f) No distribution shall be made to any Participant unless and until all unpaid loans to such Participant have either been paid in full or deducted from the Participant's Account. (g) All loans made under this Section 11.7 shall be considered earmarked investments of the Participant's Account, and any repayment of principal and interest shall be reinvested in accordance with the Participant's investment direction in effect on the date of such repayment pursuant to Article VIII of the Plan. 11.8 Special Waiver for Participants Employed in the United Kingdom. A Participant shall be entitled to sign a waiver of his right to make withdrawals or loans from his Account under the provisions of this Article XI with respect to the Elective Employer Contributions and Employer Matching Contributions credited to his Account to the extent necessary to ensure that such contributions are not taxable in the United Kingdom. The purpose of such waiver is to meet the requirements of the Department of Inland Treasury of the United Kingdom for excluding such Elective Employer and Employer Matching Contributions from taxable income in the United Kingdom. Such waiver shall be made on a form prescribed by the Committee from time to time in accordance with the requirements of the Department of Inland Treasury of the United Kingdom. ARTICLE XII DISTRIBUTION TO PARTICIPANTS 12.1 Distribution upon Retirement. (a) Subject to the provisions of Article XVIII, if a Participant's employment with the Affiliated Employers is terminated as a result of his retirement pursuant to the defined benefit pension plan of an Affiliated Employer, in addition to the withdrawal options under Section 11.1, the entire balance credited to his Account shall be payable to him in the manner set forth in this Section 12.1 at such time requested by the Participant pursuant to Section 12.6 and in accordance with the procedures established by the Committee. The distribution shall commence as soon as practicable after the Valuation Date selected by the Participant in one of the following ways: (1) In a single lump sum distribution; or (2) In annual installments not to exceed twenty (20), as selected by the Participant, or the Participant's life expectancy. The amount of cash and/or the number of shares of Common Stock and/or Mirant Stock in each installment shall be equal to the proportionate value as of each Valuation Date immediately preceding payment of the balance then to the credit of the Participant in his Account determined by dividing the amount credited to his Account as of such Valuation Date by the number of payments remaining to be made. If a Participant who is receiving installment payments shall establish to the satisfaction of the Committee, in accordance with principles and procedures established by the Committee which are applicable to all persons similarly situated, that a financial emergency exists in his affairs, such as illness or accident to the Participant or a member of his immediate family or other similar contingency, the Committee may, for the purpose of alleviating such emergency, accelerate the time of payment of some or all of the remaining installments. If a Participant dies before receiving all of the amount to the credit of his Account in accordance with this paragraph (2), the amount remaining to the credit of his Account at his death shall be distributed to his Beneficiary as soon as practicable in accordance with Section 12.4. (b) Notwithstanding a Participant's election to defer the receipt of the benefits under (a) above, the Committee shall direct payment in a single lump sum to such Participant if the balance of his Account does not exceed $5,000 in accordance with the requirements of Code Section 411(a)(11). The Committee shall not cash-out any Participant whose Account balance exceeds $5,000 without the written consent of the Participant. 12.2 Distribution upon Disability. If a Participant's employment with the Affiliated Employers is terminated prior to his Normal Retirement Date by reason of his total and permanent disability, as determined by the Social Security Administration and evidenced in a writing provided to the Committee, such disabled Participant, in addition to the withdrawal options under Section 11.1, shall be entitled to receive the entire value credited to his Account at such time as requested by the Participant or such legal representative pursuant to Section 12.6 and in accordance with the procedures established by the Committee. Any distribution pursuant to this Section 12.2 shall be made in a single lump sum as soon as practicable after the selected Valuation Date. Notwithstanding the foregoing, the Committee shall direct payment in a single lump sum to such Participant or his legal representative if the balance of such Participant's Account does not exceed $5,000 in accordance with the requirements of Code Section 411(a)(11). 12.3 Distribution upon Death. If a Participant's employment with the Affiliated Employers is terminated by reason of death, the entire balance credited to the Participant's Account shall be distributed as soon as practicable to the Participant's surviving Beneficiary or Beneficiaries in a lump sum. 12.4 Designation of Beneficiary in the Event of Death. A Participant may designate a Beneficiary or Beneficiaries (who may be designated contingently) to receive all or part of the amount credited to his Account in case of his death before his receipt of all of his benefits under the Plan, provided that the Beneficiary of a married Participant shall be the Participant's Surviving Spouse, unless such Surviving Spouse shall consent in a writing witnessed by a notary public, which writing acknowledges the effect of the Participant's designation of a Beneficiary other than such Surviving Spouse. However, if such Participant establishes to the satisfaction of the Committee that such written consent may not be obtained because the Surviving Spouse cannot be located or because of such other circumstances as the Secretary of the Treasury may by regulations prescribe, a designation by such Participant without the consent of the Surviving Spouse shall be valid. Any consent necessary under this Section 12.4 shall be valid and effective only with respect to the Surviving Spouse who signs the consent or, in the event of a deemed consent, only with respect to a designated Surviving Spouse. A designation of Beneficiary may be revoked by the Participant without the consent of any Beneficiary (or the Participant's Surviving Spouse) at any time before the commencement of the distribution of benefits. A Beneficiary designation or change or revocation of a Beneficiary designation shall be made in accordance with the procedures established by the Committee. If no designated Beneficiary shall be living at the death of the Participant and/or such Participant's Beneficiary designation is not valid and enforceable under applicable law or the procedures of the Committee, such Participant's Beneficiary or Beneficiaries shall be the person or persons in the first of the following classes of successive preference, if then living: (a) the Participant's spouse on the date of his death, (b) the Participant's children, equally, (c) the Participant's parents, equally, (d) the Participant's brothers and sisters, equally, or (e) the Participant's executors or administrators. Payment to such one or more persons shall completely discharge the Plan and the Trustee with respect to the amount so paid. 12.5 Distribution upon Termination of Employment. ------------------------------------------- (a) If a Participant's employment with the Affiliated Employers is terminated for any reason other than in accordance with Sections 12.1, 12.2, and 12.3, the balance to the credit of the Participant's Account shall be payable in a single lump sum. Such lump sum distribution shall be made as soon as practicable after the Participant's termination of employment, provided that one of the following conditions is met: (1) the Participant's Account Balance does not exceed $5,000 in accordance with Code Section 411(a)(11), or (2) in accordance with Section 12.10, the Participant elects to receive a distribution of his Account. (b) A Participant who does not receive a distribution under Section 12.5(a)(1) may elect to defer the commencement of the distribution of his Account following the termination of his employment until a later Valuation Date, provided that such distribution shall commence not later than the date required under Section 12.6 of the Plan. In addition to the withdrawal options under Section 11.1, any deferred distribution shall commence as soon as practicable after the Valuation Date selected by the Participant. 12.6 Commencement of Benefits. ------------------------ (a) Notwithstanding any other provision of the Plan, and except as further provided in Section 12.6(b) below, if the Participant does not elect to defer commencement of his benefit payments, the payment of his benefits shall begin at the Participant's election no later than the sixtieth (60th) day after the close of the Plan Year in which the latest of the following events occurs: (1) the Participant attains the earlier of age sixty-five (65) or his Normal Retirement Date, (2) the Participant's tenth (10th) anniversary of participation under the Plan, or (3) the Participant's severance from employment with the Affiliated Employers. (b) In no event shall the distribution of amounts in a Participant's Account commence later than the April 1 of the calendar year following the later of the calendar year in which the Participant attains age 70 1/2 or terminates employment with the Affiliated Employers, in accordance with regulations prescribed by the Secretary of the Treasury. The foregoing requirements in this Section 12.6(b) shall not be applied to restrict the implementation of any written designation given to the Committee by a Participant prior to January 1, 1984, with regard to the method of distribution of his Account, if such method was permissible under the Plan and Code prior to January 1, 1984. Notwithstanding the foregoing, the payment of benefits to a Participant who is a five percent (5%) owner of The Southern Company or an Affiliated Employer (as determined pursuant to Code Section 416) with respect to the Plan Year ending in the calendar year in which the Participant attains age 70 1/2 shall begin not later than April 1, of the calendar year following the calendar year in which the Participant attains age 70 1/2 regardless of the Participant's termination from employment. In addition, any Participant who attains age 70 1/2 on or after January 1, 1996, but prior to January 1, 1999, may elect to have payment of his benefits begin no later than April 1 of the calendar year following the calendar year during which the Participant attains age 70 1/2, regardless of the Participant's termination of employment.] Any distribution made under this Plan shall be made in accordance with the minimum distribution requirements of Code Section 401(a)(9), including the incidental death benefits requirements under Code Section 401(a)(9)(G) and the Treasury Regulations thereunder. With respect to distributions under the Plan made in calendar years beginning on or after January 1, 2001, the Plan will apply the minimum distribution requirements of Code Section 401(a)(9) in accordance with the regulations under Code Section 401(a)(9) that were proposed in January 2001, notwithstanding any provision of the Plan to the contrary. This amendment shall continue in effect until the end of the last calendar year beginning before the effective date of final regulations under Code Section 401(a)(9) or such other date specified in guidance published by the Internal Revenue Service. 12.7 Transfer between Employing Companies. A transfer by a Participant from one Employing Company to another Employing Company shall not affect his participation in the Plan. A transfer by a Participant from an Employing Company to an Affiliated Employer that is not an Employing Company shall not be deemed to be a termination of employment with an Employing Company. 12.8 Distributions to Alternate Payees. If the Participant's Account under the Plan shall become subject to any domestic relations order which (a) is a qualified domestic relations order satisfying the requirements of Section 414(p) of the Code and (b) requires the immediate distribution in a single lump sum of the entire portion of the Participant's Account required to be segregated for the benefit of an alternate payee, then the entire interest of such alternate payee shall be distributed in a single lump sum within ninety (90) days following the Employing Company's notification to the Participant and the alternate payee that the domestic relations order is qualified under Section 414(p) of the Code, or as soon as practicable thereafter. Such distribution to an alternate payee shall be made even if the Participant has not separated from the service of the Affiliated Employers. Any other distribution pursuant to a qualified domestic relations order shall not be made earlier than the Participant's termination of service, or his attainment of age fifty (50), if earlier, and shall not commence later than the date the Participant's (or his Beneficiary's) benefit payments otherwise commence. Such distribution to an alternate payee shall be made only in a manner permitted under Articles XI or XII of the Plan and only to the extent the Participant would be eligible for such distribution option. 12.9 Requirement for Direct Rollovers. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Article XII, a Distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. 12.10 Consent and Notice Requirements. If the value of the vested portion of a Participant's Account derived from Employing Company and Employee contributions exceeds $5,000 determined in accordance with the requirements of Code Section 411(a)(11), the Participant must consent to any distribution of such vested account balance prior to his Normal Retirement Date. The consent of the Participant shall be obtained within the ninety-day period ending on the first day of the first period for which an amount is payable as an annuity or in any other form under this Plan. The Committee shall notify the Participant of the right to defer any distribution until the Participant's Account balance is no longer immediately distributable. Such notification shall include a general description of the material features and an explanation of the relative values of the operational forms of benefit available under the Plan in a manner that would satisfy the notice requirements of Section 417(a)(3) of the Code; such notification shall be provided no less than 30 days and no more than 90 days prior to the annuity starting date. Distributions may commence less than 30 days after the notice required under Section 1.411(a)-11(c) of the Treasury Regulations is given, provided that: (a) the Committee informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution and a particular distribution option, and (b) the Participant, after receiving the notice, affirmatively elects a distribution. 12.11 Form of Payment. All distributions under this Article XII shall be made in the form of cash, provided that the person entitled to such distribution may demand that the portion of any distribution which is attributable to Common Stock or Mirant Stock be distributed in the form of such Common Stock or Mirant Stock, respectively, to the extent of the whole number of shares in the Participant's Account, with a cash adjustment for any fractional shares. 12.12 Partial Distribution upon Termination of Employment. If a Participant's employment with the Affiliated Employers is terminated and such Participant is deemed not to have separated from service within the meaning of Code Section 401(k)(2)(B)(i)(I), such Participant, in addition to the withdrawal options available under Article XI, shall be entitled to elect a lump sum distribution of the entire balance to the credit of his Account less the amount credited to his Elective Employer Contribution subaccount. The amounts credited to his Elective Employer Contribution subaccount may be distributed in a lump sum distribution at such time permitted pursuant to Code Section 401(k)(2)(B)(i) and Section 4.4(c) hereof. Such lump sum distributions shall otherwise be subject to this Article XII. 12.13 Distribution of Dividends Payable on Common Stock. Each Participant may elect whether (i) to receive a cash distribution of all or a portion of the dividends payable on the shares of Common Stock credited to the Participant's Account as of the record date of the Common Stock or (ii) to have such dividends paid to the Plan and reinvested in Common Stock credited to the Participant's Account. The election of a Participant whether to receive a cash distribution of dividends shall remain in effect until such election is changed by the Participant. In the event a Participant fails to make an election with respect to the dividends payable on any shares of Common Stock credited to the Participant's Account, such Participant shall be deemed to have elected to have the dividends payable on such shares paid to the Plan and reinvested in Common Stock credited to the Participant's Account. Upon the death of a Participant, such Participant shall be deemed to have elected to have the dividends payable on all shares of Common Stock credited to the Participant's Account reinvested in Common Stock, notwithstanding any election in effect at the time of the Participant's death. A Participant may change his election whether to receive a cash distribution of dividends at any time. However, with respect to each dividend on Common Stock, the election, or deemed election, of a Participant which is in effect on the last day of the first month in the calendar quarter which includes the record date for such dividend (the "Election Deadline") shall apply with respect to the dividends payable on the shares of Common Stock credited to the Participant's Account on such record date. In any event, all elections and deemed elections shall be irrevocable as of the Election Deadline. Participants are 100% vested in dividends payable on Common Stock. Payment of cash distributions under this Section 12.13 shall be made to the Plan and to Participants, as the case may be, as soon as administratively practicable following the payable date of the dividends. The Committee may establish such administrative procedures as it deems necessary or appropriate to effect the elections under this Section 12.13. In addition to the foregoing, with respect to dividends paid in 2001 to the Plan on the shares of Common Stock credited to a Participant's Account as of any record date in 2001 which were not distributed in cash to such Participant ("Accumulated 2001 Dividends"), such Participant may elect in accordance with the requirements of this paragraph and procedures established by the Committee whether (i) to receive a cash distribution of all or a portion of his Accumulated 2001 Dividends or (ii) to have such Accumulated 2001 Dividends remain invested in the Participant's Account. In the event a Participant fails to make an election with respect to Accumulated 2001 Dividends, such Participant shall be deemed to have elected to have such dividends remain invested in the Participant's Account. Any election, or deemed election, whether to receive a cash distribution of Accumulated 2001 Dividends shall be irrevocable as of the deadline established by the Committee by which Participants must make an election with respect to Accumulated 2001 Dividends. The payment of cash distributions of Accumulated 2001 Dividends shall be made to Participants after a reasonable election period but in any event within ninety (90) days after the end of the Plan Year ending on December 31, 2001. The Committee may establish such administrative procedures as it deems necessary or appropriate to effect the distribution of Accumulated 2001 Dividends, including limiting the amount of Accumulated 2001 Dividends a Participant may receive in cash based on the balance of the various subaccounts in the Participant's Account (as described in Section 9.1) at the time the distribution is made and designating the Investment Funds from which such distributions are withdrawn. The provisions of this paragraph shall not apply to dividends paid to the Plan in 2001 which the Participant elected in 2001 to receive in cash. ARTICLE XIII ADMINISTRATION OF THE PLAN 13.1 Membership of Committee. The Plan shall be administered by the Committee, which shall consist of the individuals then serving in the positions of Vice President, System Compensation and Benefits of The Southern Company; Senior Vice-President, Human Resources of The Southern Company; and Comptroller of The Southern Company or any other position or positions that succeed to the duties of the foregoing positions. The Committee shall be chaired by the Senior Vice-President, Human Resources of The Southern Company and may select a Secretary (who may, but need not, be a member of the Committee) to keep its records or to assist it in the discharge of its duties. 13.2 Acceptance and Resignation. Any person appointed to be a member of the Committee shall signify his acceptance in writing to the Chairman of the Committee. Any member of the Committee may resign by delivering his written resignation to the Committee and such resignation shall become effective upon delivery or upon any later date specified therein. 13.3 Transaction of Business. A majority of the members of the Committee at the time in office shall constitute a quorum for the transaction of business at any meeting. Any determination or action of the Committee may be made or taken by a majority of the members present at any meeting thereof or without a meeting by a resolution or written memorandum concurred in by a majority of the members then in office. 13.4 Responsibilities in General. The Committee shall administer the Plan and shall have the discretionary authority, power, and the duty to take all actions and to make all decisions necessary or proper to carry out the Plan and to control and manage the operation and administration of the Plan. The Committee shall have the discretion to interpret the Plan, including any ambiguities herein, and to determine the eligibility for benefits under the Plan in its sole discretion. The determination of the Committee as to any question involving the general administration and interpretation of the Plan shall be final, conclusive, and binding on all persons, except as otherwise provided herein or by law, and may be relied upon by the Company, all Employing Companies, the Trustee, the Participants, and their Beneficiaries. Any discretionary actions to be taken under the Plan by the Committee with respect to Employees and Participants or with respect to benefits shall be uniform in their nature and applicable to all persons similarly situated. 13.5 Committee as Named Fiduciary. For the purpose of compliance with the provisions of ERISA, the Committee shall be deemed the administrator of the Plan as the term "administrator" is defined in ERISA, and the Committee shall be, with respect to the Plan, a named fiduciary as that term is defined in ERISA. For the purpose of carrying out its duties, the Committee may, in its discretion, allocate its responsibilities under the Plan among its members and may, in its discretion, designate persons (in writing or otherwise) other than members of the Committee to carry out such responsibilities of the Committee under the Plan as it may see fit. 13.6 Rules for Plan Administration. The Committee may make and enforce rules and regulations for the administration of the Plan consistent with the provisions thereof and may prescribe the use of such forms or procedures as it shall deem appropriate for the administration of the Plan. 13.7 Employment of Agents. The Committee may employ independent qualified public accountants, as such term is defined in ERISA, who may be accountants to The Southern Company and any Affiliated Employer, legal counsel who may be counsel to The Southern Company and any Affiliated Employer, other specialists, and other persons as the Committee deems necessary or desirable in connection with the administration of the Plan. The Committee and any person to whom it may delegate any duty or power in connection with the administration of the Plan, the Company and the officers and directors thereof shall be entitled to rely conclusively upon and shall be fully protected in any action omitted, taken, or suffered by them in good faith in reliance upon any independent qualified public accountant, counsel, or other specialist, or other person selected by the Committee, or in reliance upon any tables, evaluations, certificates, opinions, or reports which shall be furnished by any of them or by the Trustee. 13.8 Co-Fiduciaries. It is intended that to the maximum extent permitted by ERISA, each person who is a fiduciary (as that term is defined in ERISA) with respect to the Plan shall be responsible for the proper exercise of his own powers, duties, responsibilities, and obligations under the Plan and the Trust, as shall each person designated by any fiduciary to carry out any fiduciary responsibilities with respect to the Plan or the Trust. No fiduciary or other person to whom fiduciary responsibilities are allocated shall be liable for any act or omission of any other fiduciary or of any other person delegated to carry out any fiduciary or other responsibility under the Plan or the Trust. 13.9 General Records. The Committee shall maintain or cause to be maintained an Account (and any separate subaccount) which accurately reflects the interest of each Participant, as provided for in Section 9.1, and shall maintain or cause to be maintained all necessary books of account and records with respect to the administration of the Plan. The Committee shall mail or cause to be mailed to Participants reports to be furnished to Participants in accordance with the Plan or as may be required by ERISA. Any notices, reports, or statements to be given, furnished, made, or delivered to a Participant shall be deemed duly given, furnished, made, or delivered when addressed to the Participant and delivered to the Participant in person or mailed by ordinary mail to his address last communicated to the Committee (or its delegate) or of his Employing Company. 13.10 Liability of the Committee. In administering the Plan, except as may be prohibited by ERISA, neither the Committee nor any person to whom it may delegate any duty or power in connection with administering the Plan shall be liable for any action or failure to act except for its or his own gross negligence or willful misconduct; nor for the payment of any amount under the Plan; nor for any mistake of judgment made by him or on his behalf as a member of the Committee; nor for any action, failure to act, or loss unless resulting from his own gross negligence or willful misconduct; nor for the neglect, omission, or wrongdoing of any other member of the Committee. No member of the Committee shall be personally liable under any contract, agreement, bond, or other instrument made or executed by him or on his behalf as a member of the Committee. 13.11 Reimbursement of Expenses and Compensation of Committee. Members of the Committee shall be reimbursed by the Company for expenses they may individually or collectively incur in the performance of their duties. Each member of the Committee who is a full-time employee of the Company or of any Employing Company shall serve without compensation for his services as such member; each other member of the Committee shall receive such compensation, if any, for his services as the Board of Directors may fix from time to time. 13.12 Expenses of Plan and Trust Fund. The expenses of establishment and administration of the Plan and the Trust Fund, including all fees of the Trustee, auditors, and counsel, shall be paid by the Company or the Employing Companies. Notwithstanding the foregoing, to the extent provided in the Trust Agreement, certain administrative expenses may be paid from the Trust Fund either directly or through reimbursement of the Company or the Employing Companies. Any expenses directly related to the investments of the Trust Fund, such as stock transfer taxes, brokerage commissions, or other charges incurred in the acquisition or disposition of such investments, shall be paid from the Trust Fund (or from the particular Investment Fund to which such fees or expenses relate) and shall be deemed to be part of the cost of such securities or deducted in computing the proceeds therefrom, as the case may be. Investment management fees for the Investment Funds shall be paid from the particular Investment Fund to which they relate either directly or through reimbursement of the Company or the Employing Companies unless the Company or the Employing Companies do not elect to receive reimbursement for payment of such expenses. Taxes, if any, on any assets held or income received by the Trustee and transfer taxes on the transfer of Common Stock from the Trustee to a Participant or his Beneficiary shall be charged appropriately against the Accounts of Participants as the Committee shall determine. Any expenses paid by the Company pursuant to Section 13.11 and this section shall be subject to reimbursement by other Employing Companies of their proportionate shares of such expenses as determined by the Committee. 13.13 Responsibility for Funding Policy. The Pension Fund Investment Review Committee of The Southern Company System shall have responsibility for providing a procedure for establishing and carrying out a funding policy and method for the Plan consistent with the objectives of the Plan and the requirements of Title I of ERISA. 13.14 Management of Assets. The Committee shall not have responsibility with respect to control or management of the assets of the Plan. The Trustee shall have the sole responsibility for the administration of the assets of the Plan as provided in the Trust Agreement, except to the extent that an investment advisor (who qualifies as an Investment Manager as that term is defined in ERISA) who is appointed by the Pension Fund Investment Review Committee shall have responsibility for the management of the assets of the Plan, or some part thereof (including powers to acquire and dispose of the assets of the Plan, or some part thereof). 13.15 Notice and Claims Procedures. Consistent with the requirements of ERISA and the regulations thereunder of the Secretary of Labor from time to time in effect, the Committee shall: (a) provide adequate notice in writing to any Participant or Beneficiary whose claim for benefits under the Plan has been denied, setting forth specific reasons for such denial, written in a manner calculated to be understood by such Participant or Beneficiary, and (b) afford a reasonable opportunity to any Participant or Beneficiary whose claim for benefits has been denied for a full and fair review of the decision denying the claim. 13.16 Bonding. Unless otherwise determined by the Board of Directors or required by law, no member of the Committee shall be required to give any bond or other security in any jurisdiction. 13.17 Multiple Fiduciary Capacities. Any person or group of persons may serve in more than one fiduciary capacity with respect to the Plan, and any fiduciary with respect to the Plan may serve as a fiduciary with respect to the Plan in addition to being an officer, employee, agent, or other representative of a party in interest, as that term is defined in ERISA. 13.18 Change in Administrative Procedures. Notwithstanding any provision in the Plan to the contrary, the Committee shall be authorized to take whatever actions it deems necessary or appropriate in its discretion to implement administrative procedures, including, but not limited to, suspending plan participation (to the extent permitted by applicable law,) and suspending changes in investment directions and fund transfers, even though otherwise permitted or required under the Plan. ARTICLE XIV TRUSTEE OF THE PLAN 14.1 Trustee. The Company has entered into a Trust Agreement with the Trustee to hold the funds necessary to provide the benefits set forth in the Plan. If the Board of Directors so determines, the Company may enter into a Trust Agreement or Trust Agreements with additional trustees. Any Trust Agreement may be amended by the Company from time to time in accordance with its terms. Any Trust Agreement shall provide, among other things, that all funds received by the Trustee thereunder will be held, administered, invested, and distributed by the Trustee, and that no part of the corpus or income of the Trust held by the Trustee shall be used for or diverted to purposes other than for the exclusive benefit of Participants or their Beneficiaries, except as otherwise provided in the Plan. Any Trust Agreement may also provide that the investment and reinvestment of the Trust Fund, or any part thereof may be carried out in accordance with directions given to the Trustee by any Investment Manager or Investment Managers (as that term is defined in ERISA) who may be appointed by the Pension Fund Investment Review Committee. The Board of Directors may remove any Trustee or any successor Trustee, and any Trustee or any successor Trustee may resign. Upon removal or resignation of a Trustee, the Board of Directors shall appoint a successor Trustee. 14.2 Purchase of Common Stock. As soon as practicable after receipt of funds applicable to the purchase of Common Stock, the Trustee shall purchase Common Stock or cause Common Stock to be purchased. Such Common Stock may be purchased on the open market or by private purchase (including private purchases directly from The Southern Company); provided that (a) no private purchase may be made at any price greater than the last sale price or highest current independent bid price, whichever is higher, for Common Stock on the New York Stock Exchange, plus an amount equal to the commission payable in a stock exchange transaction; (b) if such private purchase shall be a purchase of Common Stock directly from The Southern Company, no commission shall be paid with respect thereto unless such commission satisfies the requirements of Prohibited Transaction Class Exemption 75-1; and (c) the Trustee may purchase Common Stock directly from The Southern Company under The Southern Investment Plan, as from time to time amended, or under any other similar plan made available to holders of record of shares of Common Stock which may be in effect from time to time, at the purchase price provided for in such plan. The Trustee may hold in cash, and may temporarily invest funds applicable to the purchase of Common Stock in short-term United States obligations, other obligations guaranteed by the United States Government, commercial paper, or certificates of deposit, and if the Trustee so determines, may transfer such funds to money market funds utilized by the Trustee for qualified employee benefit trusts. 14.3 Voting of Common Stock. Before each annual or special meeting of shareholders of The Southern Company, there shall be sent to each Participant a copy of the proxy soliciting material for the meeting, together with a form requesting instructions to the Trustee on how to vote the shares of Common Stock credited to such Participant's Account as of the record date of the Common Stock. If a Participant does not provide the Trustee or its designated agent with timely voting instructions for the Trustee, the Pension Fund Investment Review Committee of The Southern Company System or its delegate may direct the Trustee how to vote such Participant's shares. If the Pension Fund Investment Review Committee of The Southern Company System or its delegate does not provide the Trustee or its designated agent with timely voting instructions, the Trustee, if required to do so by applicable law, may vote such Participant's shares. The Pension Fund Investment Review Committee of The Southern Company System or its delegate may direct the Trustee with respect to voting unallocated shares of Common Stock, if any. If the Pension Fund Investment Review Committee of The Southern Company System or its delegate does not provide the Trustee or its designated agent with timely voting instructions, the Trustee, if required to do so by applicable law, may vote such unallocated shares. Procedures similar to those described above shall also apply to voting the Mirant Stock credited to each Participant's Account. 14.4 Voting of Other Investment Fund Shares. The Pension Fund Investment Review Committee or its delegate may direct the Trustee with respect to voting the shares in any Investment Fund other than the Company Stock Fund or Mirant Stock Fund. To the extent an Investment Manager has been designated with respect to an Investment Fund, such Investment Manager (and not the Pension Fund Investment Review Committee) shall direct the Trustee with respect to voting the shares in such Investment Fund. If the Investment Manager does not direct the Trustee with respect to voting such shares, the Pension Fund Investment Review Committee may direct the Trustee with respect to voting such shares. If the Pension Fund Investment Review Committee does not provide the Trustee or its designated agent with timely voting instructions, the Trustee, if required to do so by applicable law, may vote such shares. 14.5 Uninvested Amounts. The Trustee may keep uninvested an amount of cash sufficient in its opinion to enable it to carry out the purposes of the Plan. 14.6 Independent Accounting. The Board of Directors shall select a firm of independent public accountants to examine and report annually on the financial position and the results of operation of the Trust forming a part of the Plan. ARTICLE XV AMENDMENT AND TERMINATION OF THE PLAN 15.1 Amendment of the Plan. The Plan may be amended or modified by the Board of Directors pursuant to its written resolutions at any time and from time to time; provided, however, that no such amendment or modification shall make it possible for any part of the corpus or income of the Trust Fund to be used for or diverted to purposes other than for the exclusive benefit of Participants or their Beneficiaries under the Plan, including such part as is required to pay taxes and administration expenses of the Plan. The Plan may also be amended or modified by the Committee (a) if such amendment or modification does not involve a substantial increase in cost to any Employing Company, or (b) as may be necessary, proper, or desirable in order to comply with laws or regulations enacted or promulgated by any federal or state governmental authority and to maintain the qualification of the Plan under Sections 401(a) and 501(a) of the Code and the applicable provisions of ERISA as provided in regulations prescribed by the Secretary of the Treasury. No amendment to the Plan shall have the effect of decreasing a Participant's vested interest in his Account, determined without regard to such amendment, as of the later of the date such amendment is adopted or the date it becomes effective. In addition, if the vesting schedule of the Plan is amended, any Participant who has completed at least three (3) Years of Service and whose vested interest is at any time adversely affected by such amendment may elect to have his vested interest determined without regard to such amendment during the election period defined under Section 411(a)(10) of the Code. Finally, no amendment shall eliminate an optional form of benefit in violation of Code Section 411(d)(6). 15.2 Termination of the Plan. It is the intention of the Employing Companies to continue the Plan indefinitely. However, the Board of Directors pursuant to its written resolutions may at any time and for any reason suspend or terminate the Plan or suspend or discontinue the making of contributions of all Participants and of contributions by all Employing Companies. Any Employing Company may, by action of its board of directors and approval of the Board of Directors, suspend or terminate the making of contributions of Participants in the employ of such Employing Company and of contributions by such Employing Company. In the event of termination of the Plan or partial termination or upon complete discontinuance of contributions under the Plan by all Employing Companies or by any one Employing Company, the amount to the credit of the Account of each Participant whose Employing Company shall be affected by such termination or discontinuance shall be determined as of the next Valuation Date and shall be distributed to him or his Beneficiary thereafter at such time or times and in such nondiscriminatory manner as is determined by the Committee in compliance with the restrictions on distributions set forth in Code Section 401(k). 15.3 Merger or Consolidation of the Plan. The Plan shall not be merged or consolidated with nor shall any assets or liabilities thereof be transferred to any other plan unless each Participant of the Plan would (if the Plan then terminated) receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately prior to the merger, consolidation, or transfer (if the Plan had then terminated). 15.4 Transfer of Plan Assets. Notwithstanding any provision of the Plan to the contrary, upon the distribution by the Southern Company to its shareholders of the Mirant Stock held by the Southern Company pursuant to a tax-free spin-off under Code Section 355 or such similar transaction, the Accounts of certain Participants who shall be identified in accordance with the Employee Matters Agreement entered into between the Southern Company and Mirant ("Agreement") shall be transferred to a retirement plan established by Mirant which is intended to constitute a qualified retirement plan under Code Section 401(a). The Committee shall determine the time of such transfers and shall establish such rules and procedures as its deems necessary or appropriate to effect the transfers, except that all actions with respect to the transfers shall be taken in a manner consistent with the Agreement. ARTICLE XVI TOP-HEAVY REQUIREMENTS 16.1 Top-Heavy Plan Requirements. For any Plan Year the Plan shall be determined to be a top-heavy plan, the Plan shall provide the minimum allocation requirement of Section 16.3. 16.2 Determination of Top-Heavy Status. --------------------------------- (a) For any Plan Year commencing after December 31, 1983, the Plan shall be determined to be a top-heavy plan, if, as of the Determination Date, the sum of the Aggregate Accounts of Key Employees under this Plan exceeds 60% of the Aggregate Accounts of all Employees entitled to participate in this Plan. (b) For any Plan Year commencing after December 31, 1983, the Plan shall be determined to be a super-top-heavy plan, if, as of the Determination Date, the sum of the Aggregate Accounts of Key Employees under this Plan exceeds 90% of the Aggregate Accounts of all Employees entitled to participate in this Plan. (c) In the case of a Required Aggregation Group, each plan in the group will be considered a top-heavy plan if the Required Aggregation Group is a Top-Heavy Group. No plan in the Required Aggregation Group will be considered a top-heavy plan if the Aggregation Group is not a Top-Heavy Group. In the case of a Permissive Aggregation Group, only a plan that is part of the Required Aggregation Group will be considered a top-heavy plan if the Permissive Aggregation Group is a Top-Heavy Group. A plan that is not part of the Required Aggregation Group but that has nonetheless been aggregated as part of the Permissive Aggregation Group will not be considered a top-heavy plan even if the Permissive Aggregation Group is a Top-Heavy Group. (d) For purposes of this Article XVI, if any Employee is a non-Key Employee for any Plan Year, but such Employee was a Key Employee for any prior Plan Year, such Employee's Present Value of Accrued Retirement Income and/or Aggregate Account balance shall not be taken into account for purposes of determining whether this Plan is a top-heavy or super-top-heavy plan (or whether any Aggregation Group which includes this Plan is a Top-Heavy Group). In addition, if an Employee or former Employee has not performed any services for any Employing Company maintaining the Plan at any time during the one-year period ending on the Determination Date, the Aggregate Account and/or Present Value of Accrued Retirement Income shall be excluded in determining whether this Plan is a top-heavy or super-top-heavy plan. (e) Only those plans of the Affiliated Employers in which the Determination Dates fall within the same calendar year shall be aggregated in order to determine whether such plans are top-heavy plans. 16.3 Minimum Allocation for Top-Heavy Plan Years. ------------------------------------------- (a) Notwithstanding anything herein to the contrary, for any top-heavy Plan Year, the Employing Company contribution allocated to the Account of each non-Key Employee shall be an amount not less than the lesser of: (1) 3% of such Participant's compensation for that Plan Year, or (2) a percentage of that Participant's compensation not to exceed the percentage at which contributions are made under the Plan for the Key Employee for whom such percentage is highest for that Plan Year. (b) For purposes of the minimum allocation of Section 16.3(a), the percentage allocated to the Account of any Key Employee shall be equal to the ratio of the Employing Company contributions allocated on behalf of such Key Employee divided by the compensation of such Key Employee for that Plan Year. Employer Matching Contributions shall be taken into account for purposes of satisfying the minimum contribution allocation requirements under Code Section 416(c)(2) and the Plan. (c) For any top-heavy Plan Year, the minimum allocations of Section 16.3(a) shall be allocated to the Accounts of all non-Key Employees who are Participants and who are employed by the Affiliated Employers on the last day of the Plan Year. (d) Notwithstanding the foregoing, in any Plan Year in which a non-Key Employee is a Participant in both this Plan and a defined benefit plan, and both such plans are top-heavy plans, the Affiliated Employers shall not be required to provide a non-Key Employee with both the full separate minimum defined benefit and the full separate defined contribution plan allocations. Therefore, if a non-Key Employee is participating in a defined benefit plan maintained by the Affiliated Employers and the minimum benefit under Code Section 416(c)(1) is provided the non-Key Employee under such defined benefit plan, the minimum allocation provided for above shall not be applicable, and no minimum allocation shall be made on behalf of the non-Key Employee. Alternatively, the Employing Company may satisfy the minimum allocation requirement of Code Section 416(c)(2) for the non-Key Employee by providing any combination of benefits and/or contributions that satisfy the safe harbor rules of Treasury Regulation Section 1.416-1(M-12). ARTICLE XVII GENERAL PROVISIONS 17.1 Plan Not an Employment Contract. The Plan shall not be deemed to constitute a contract between an Affiliated Employer and any Employee, nor shall anything herein contained be deemed to give any Employee any right to be retained in the employ of an Employing Company or to interfere with the right of an Employing Company to discharge any Employee at any time and to treat him without regard to the effect which such treatment might have upon him as a Participant. 17.2 No Right of Assignment or Alienation. Except as may be otherwise permitted or required by law, no right or interest in the Plan of any Participant or Beneficiary and no distribution or payment under the Plan to any Participant or Beneficiary shall be subject in any manner to anticipation, alienation, sale, transfer (except by death), assignment (either at law or in equity), pledge, encumbrance, charge, attachment, garnishment, levy, execution, or other legal or equitable process, whether voluntary or involuntary, and any attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber, charge, attach, garnish, levy, or execute or enforce any other legal or equitable process against the same shall be void, nor shall any such right, interest, distribution, or payment be in any way liable for or subject to the debts, contracts, liabilities, engagements, or torts of any person entitled to such right, interest, distribution, or payment. If any Participant or Beneficiary is adjudicated bankrupt or purports to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge any such right, interest, distribution, or payment, voluntarily or involuntarily, or if any action shall be taken which is in violation of the provisions of the immediately preceding sentence, the Committee may hold or apply or cause to be held or applied such right, interest, distribution, or payment or any part thereof to or for the benefit of such Participant or Beneficiary in such manner as is in accordance with applicable law. In addition, a Participant's benefits may be offset pursuant to a judgment, order, or decree issued (or settlement agreement entered into) on or after August 5, 1997, if and to the extent that such offset is permissible or required under Code Section 401(a)(13). Notwithstanding the above, the Committee and the Trustee shall comply with any domestic relations order (as defined in Section 414(p)(1)(B) of the Code) which is a qualified domestic relations order satisfying the requirements of Section 414(p) of the Code. The Committee shall establish procedures for (a) notifying Participants and alternate payees who have or may have an interest in benefits which are the subject of domestic relations orders, (b) determining whether such domestic relations orders are qualified domestic relations orders under Section 414(p) of the Code, and (c) distributing benefits which are subject to qualified domestic relations orders. 17.3 Payment to Minors and Others. If the Committee determines that any person entitled to a distribution or payment from the Trust Fund is an infant or a minor, is incompetent, or is unable to care for his affairs by reason of physical or mental disability, it may cause all distributions or payments thereafter becoming due to such person to be made to any other person for his benefit, without responsibility to follow the application of payments so made. Payments made pursuant to this provision shall completely discharge the Company, the Trustee, and the Committee with respect to the amounts so paid. No person shall have any rights under the Plan with respect to the Trust Fund, or against the Trustee or any Employing Company, except as specifically provided herein. 17.4 Source of Benefits. The Trust Fund established under the Plan shall be the sole source of the payments or distributions to be made in accordance with the Plan. No person shall have any rights under the Plan with respect to the Trust Fund, or against the Trustee or any Employing Company, except as specifically provided herein. 17.5 Unclaimed Benefits. If the Committee is unable, within five (5) years after any distribution becomes payable to a Participant or Beneficiary, to make or direct payment to the person entitled thereto because the identity or whereabouts of such person cannot be ascertained, notwithstanding the mailing of due notice to such person at his last known address as indicated by the records of either the Committee or his Employing Company, then such benefit or distribution will be disposed of as follows: (a) If the whereabouts of the Participant is unknown to the Committee, distribution will be made to the Participant's Beneficiary or Beneficiaries. Payment to such one or more persons shall completely discharge the Company, the Trustee, and the Committee with respect to the amounts so paid. (b) If none of the persons described in (a) above, can be located, then the benefit payable under the Plan shall be forfeited and shall be applied to reduce future Employer Matching Contributions. Notwithstanding the foregoing sentence, such benefit shall be reinstated if a claim is made by the Participant or Beneficiary for the forfeited benefit. In the event the Committee makes or directs a payment to the person entitled thereto but the check for such payment remains un-cashed for a period of 180 days, the Committee shall take such actions as it deems reasonable to determine the whereabouts of such person. If the whereabouts of the person is unknown or the check remains un-cashed, the Committee shall direct that such check be cancelled. In the event the person entitled to such payment subsequently requests payment, the Committee shall direct such payment to such person in the amount of the previous check. 17.6 Governing Law. The provisions of the Plan and the Trust shall be construed, administered, and enforced in accordance with the laws of the State of Georgia, except to the extent such laws are preempted by the laws of the United States. ARTICLE XVIII SPECIAL REQUIREMENTS FOR ACCOUNT BALANCES ATTRIBUTABLE TO ACCRUED BENEFITS TRANSFERRED FROM THE SEPCO PLAN 18.1 SEPCO Transferred Accounts. Notwithstanding any other provisions of this Plan to the contrary, a Participant's SEPCO Transferred Account shall be subject to the requirements of this Article XVIII. 18.2 In-Service Withdrawals from SEPCO Transferred Accounts. Except as provided in this Section 18.2, a Participant shall be entitled to a distribution of his SEPCO Transferred Account at the same time he is entitled to a distribution of his Account under the applicable provisions of Article XII. (a) Age 59 1/2. A Participant who has attained age 59 1/2 shall have the right to withdraw all or a portion of his SEPCO Transferred Account in accordance with Section 11.6(e) provided that he shall have first withdrawn all other amounts available to him in accordance with the terms and order of priority set forth in Section 11.1. (b) Hardship. A Participant who meets the requirements for hardship set forth in Section 11.6 hereof shall be entitled to withdraw amounts determined necessary to relieve such hardship from his SEPCO Transferred Account, provided that he shall have first withdrawn all other amounts available to him in accordance with the terms and order of priority set forth in Section 11.1. 18.3 Loans from SEPCO Transferred Accounts. Subject to the provisions of Section 11.7, a Participant may request that a loan be made to him from his SEPCO Transferred Account, provided, however, that the Participant has first borrowed all other amounts available to him under the terms of the Plan. A Participant must obtain the consent of his or her spouse, if any, to use any portion of his SEPCO Transferred Account as security for a loan. Within the ninety-day period ending on the date on which a loan is made to a Participant who is married, the Participant shall obtain and deliver to the Committee the written consent of the Participant's spouse (1) to the loan, and (2) to the reduction of the Participant's Account if the Participant's Account is reduced because of nonpayment or other default with respect to the loan. No further spousal consent shall be required in the event the Participant's Account is subsequently reduced with respect to such loan, even if the Participant is then married to a different spouse. A new spousal consent shall be required for any subsequent loan to a Participant, if the Participant is then married. 18.4 Distribution of SEPCO Transferred Accounts. Notwithstanding any provisions of this Plan to the contrary, a Participant with a SEPCO Transferred Account shall be paid the vested benefits of the SEPCO Transferred Account upon retirement, death, total and permanent disability, or termination of employment as provided herein. (a) All benefits from a Participant's SEPCO Transferred Account shall be distributed in accordance with the distribution options available under Article XII, with applicable spousal consent as provided under the SEPCO Plan, unless a Participant elects payment of benefits in the form of a life annuity pursuant to a written election filed with the Committee prior to commencement of distribution of benefits. The provisions of this Section 18.4 shall take precedence over any conflicting provisions of the Plan and shall apply to any Participant who has a SEPCO Transferred Account and who elects to receive payment of his benefits from his SEPCO Transferred Account in the form of a life annuity. A married Participant electing to receive benefits in the form of a life annuity shall receive the value of his benefit in the form of a qualified joint and survivor annuity, which shall provide an annuity for the life of the Participant with a survivor annuity for the life of the Participant's spouse which is either 50% or 100%, as elected by the Participant, of the amount of the annuity which is payable during the joint lives of the Participant and the Participant's spouse, and which is the actuarial equivalent of a single life annuity for the life of the Participant. An unmarried Participant who elects a life annuity shall receive the value of his benefits from his SEPCO Transferred Account in the form of an annuity for his lifetime. (b) If the Participant's interest is to be distributed in other than a single sum, the amount required to be distributed for each calendar year, beginning with distributions for the first Distribution Calendar Year, must at least equal the quotient obtained by dividing the Participant's Benefit by the Applicable Life Expectancy. (c) The minimum distribution required for the Participant's first Distribution Calendar Year must be made on or before the Participant's Required Beginning Date. The minimum distribution for other calendar years, including the minimum distribution for the Distribution Calendar Year in which the Participant's Required Beginning Date occurs, must be made on or before December 31 of that Distribution Calendar Year. (d) If the Participant's benefit is distributed in the form of an annuity purchased from an insurance company, distributions thereunder shall be made in accordance with the requirements of Section 401(a)(9) of the Code and the proposed regulations thereunder. (e) Definitions. ----------- (1) "Applicable Life Expectancy" means the life expectancy calculated using the attained age of the Participant as of the Participant's birthday in the applicable calendar year reduced by one for each calendar year which has elapsed since the date life expectancy was first calculated. If life expectancy is being recalculated, the applicable life expectancy shall be the life expectancy as so recalculated. The applicable calendar year shall be the first Distribution Calendar Year, and if life expectancy is being recalculated such succeeding calendar year. (2) "Distribution Calendar Year" means a calendar year for which a minimum distribution is required. For distributions beginning before the Participant's death, the first Distribution Calendar Year is the calendar year immediately preceding the calendar year which contains the Participant's Required Beginning Date. (3) "Participant's Benefit" means the account balance as of the last valuation date in the calendar year immediately preceding the Distribution Calendar Year (valuation calendar year) increased by the amount of any contributions or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date. If any portion of the minimum distribution for the first Distribution Calendar Year is made in the second Distribution Calendar Year on or before the Required Beginning Date, the amount of the minimum distribution made in the second Distribution Calendar Year shall be treated as if it had been made in the immediately preceding Distribution Calendar Year. (4) "Required Beginning Date" means April 1st of the calendar year following the calendar year in which the Participant attains age 70-1/2, in accordance with regulations prescribed by the Secretary of the Treasury. (f) Notwithstanding anything contained herein to the contrary, the requirements of this Section shall apply to any distribution of a Participant's interest and will take precedence over any inconsistent provisions of this Plan. All distributions required under this Section shall be determined and made in accordance with the proposed regulations under Section 401(a)(9), including the minimum distribution incidental benefit requirement of Section 1.401(a)(9)-2 of the proposed regulations. 18.5 Code Section 411(d)(6) Protected Benefits. Notwithstanding any of the foregoing, the provisions of this Article XVIII to effectuate the merger of the SEPCO Plan into this Plan shall not decrease a Participant's accrued benefit, except to the extent permitted under Section 412(c)(8) of the Code, and shall not reduce or eliminate Code Section 411(d)(6) protected benefits determined immediately prior to the date of such merger. The Committee shall disregard any part of this Article XVIII or the Plan to the extent that application of such would fail to satisfy this paragraph. If the Committee disregards any portion of this Article XVIII or the Plan because it would eliminate a protected benefit, the Committee shall maintain a schedule of any such impacted early retirement option or other optional forms of benefit and the Plan shall continue such for the affected Participants. Notwithstanding the foregoing, any optional form of benefit provided under this Plan solely as a result of the merger of the SEPCO Plan into this Plan shall be eliminated to the extent permitted and in accordance with the regulations prescribed by the Secretary of the Treasury under Code Section 411(d)(6), provided that the elimination of such optional form of benefit shall not be effective before the earlier of (a) the 90th day after the Participant receives a summary of material modification describing the elimination of such optional form of benefit or (b) January 1, 2002. IN WITNESS WHEREOF, the Company has caused this amendment and restatement of The Southern Company Employee Savings Plan effective as of January 1, 2002, to be executed this _______ day of __________________, 2002. EMPLOYEE SAVINGS PLAN COMMITTEE ------------------------------------- ------------------------------------- APPENDIX A - EMPLOYING COMPANIES The Employing Companies as of January 1, 2002 are: Alabama Power Company Georgia Power Company Gulf Power Company Mississippi Power Company Savannah Electric and Power Company Southern Communications Services, Inc. Southern Company Energy Solutions, Inc. Southern Company Services, Inc. Southern Nuclear Operating Company, Inc. EX-10 10 x10a53.txt EMPLOYEE STOCK OWNERSHIP PLAN Exhibit 10(a)53 THE SOUTHERN COMPANY EMPLOYEE STOCK OWNERSHIP PLAN As Amended and Restated Effective January 1, 2002 TABLE OF CONTENTS PAGE ARTICLE I - PURPOSE OF THE PLAN...............................................1 ARTICLE II - DEFINITIONS......................................................2 2.1 Account.....................................................2 2.2 Affiliated Employer.........................................2 2.3 Aggregate Account...........................................2 2.4 Aggregation Group...........................................3 2.5 Annual Addition.............................................3 2.6 Beneficiary.................................................3 2.7 Board of Directors..........................................3 2.8 Break-in-Service Date.......................................3 2.9 Code........................................................4 2.10 Committee...................................................4 2.11 Common Stock................................................4 2.12 Company.....................................................4 2.13 Compensation................................................4 2.14 Determination Date..........................................5 2.15 Determination Year..........................................5 2.16 Distributee.................................................5 2.17 Direct Rollover.............................................5 2.18 Eligible Employee...........................................5 2.19 Eligible Retirement Plan....................................5 2.20 Eligible Rollover Distribution..............................6 2.21 Employee....................................................6 2.22 Employing Company...........................................6 2.23 Enrollment Date.............................................6 2.24 ERISA.......................................................6 2.25 Highly Compensated Employee.................................6 2.26 Hour of Service.............................................7 2.27 Key Employee................................................7 2.28 Limitation Year.............................................7 2.29 Look-Back Year..............................................7 2.30 Mirant......................................................7 2.31 Mirant Services.............................................7 2.32 Mirant Stock................................................7 2.33 Non-Highly Compensated Employee.............................7 2.34 Normal Retirement Date......................................7 2.35 One-Year Break in Service...................................7 2.36 Participant.................................................7 2.37 Permissive Aggregation Group................................7 2.38 Plan........................................................7 2.39 Plan Year...................................................8 2.40 Present Value of Accrued Retirement Income..................8 2.41 Qualified Election Period...................................8 2.42 Qualified Participant.......................................8 2.43 Required Aggregation Group..................................8 2.44 SCEM........................................................8 2.45 SEPCO.......................................................8 2.46 SEPCO ESOP..................................................8 2.47 Super-Top-Heavy Group.......................................8 2.48 Surviving Spouse............................................8 2.49 Top-Heavy Group.............................................8 2.50 Trust or Trust Fund.........................................9 2.51 Trust Agreement.............................................9 2.52 Trustee.....................................................9 2.53 Valuation Date..............................................9 2.54 Year of Service.............................................9 ARTICLE III - PARTICIPATION..................................................10 3.1 Eligibility Requirements...................................10 3.2 Duration of Participation..................................10 3.3 Participation upon Reemployment............................10 3.4 No Restoration of Previously Distributed Benefit...........11 3.5 Military Leave.............................................11 ARTICLE IV - EMPLOYING COMPANY CONTRIBUTION..................................12 4.1 Amount of Contribution.....................................12 4.2 Time of Payment............................................12 4.3 Purchases of Common Stock..................................12 4.4 Restrictions on Common Stock...............................12 4.5 Exclusive Benefit of Employees.............................12 ARTICLE V - PARTICIPANT CONTRIBUTION.........................................14 5.1 Participant Contributions Not Allowed......................14 ARTICLE VI - ACCOUNTS OF PARTICIPANTS........................................15 6.1 Separate Accounts..........................................15 6.2 Allocation of Common Stock.................................15 6.3 Section 415 Limitations....................................15 6.4 Correction of Contributions in Excess of Section 415 Limits.....................................................16 6.5 Combination of Plans.......................................16 6.6 Allocation of Dividends and other Distributions............16 6.7 Valuations.................................................17 6.8 Voting Company Stock.......................................17 6.9 Correction of Prior Incorrect Allocations and Distributions..............................................18 6.10 Transfer of Mirant Stock...................................18 ARTICLE VII - AUTHORIZED WITHDRAWALS.........................................19 7.1 In General.................................................19 7.2 Distributions in Lieu of Diversification of Investments Pursuant to Code Section 401(a)(28)(B).........19 7.3 In-Service Withdrawals.....................................19 ARTICLE VIII - DISTRIBUTIONS TO PARTICIPANTS.................................21 8.1 Vesting....................................................21 8.2 Distribution upon Retirement...............................21 8.3 Distribution upon Death....................................21 8.4 Designation of Beneficiary in the Event of Death...........21 8.5 Distribution upon Disability...............................22 8.6 Distribution upon Termination of Employment................22 8.7 Property Distributed/Method of Payment.....................23 8.8 Commencement of Benefits...................................23 8.9 Distribution upon Death....................................25 8.10 Adjustments for Deferred Accounts or Installment Payments...................................................25 8.11 Transfers between Employing Companies......................25 8.12 Distribution to Alternate Payees...........................25 8.13 Requirement for Direct Rollovers...........................25 8.14 Consent and Notice Requirements............................26 ARTICLE IX - ADMINSTRATION...................................................27 9.1 Membership of Committee....................................27 9.2 Acceptance and Resignation.................................27 9.3 Transaction of Business....................................27 9.4 Responsibilities in General................................27 9.5 Committee as Named Fiduciary...............................27 9.6 Rules for Plan Administration..............................28 9.7 Employment of Agents.......................................28 9.8 Co-Fiduciaries.............................................28 9.9 General Records............................................28 9.10 Liability of the Committee.................................28 9.11 Reimbursement of Expenses and Compensation of Committee....29 9.12 Expenses of Plan and Trust Fund............................29 9.13 Responsibility for Funding Policy..........................29 9.14 Code Section 411(d)(6) Protected Benefits..................29 9.15 Management of Assets.......................................29 9.16 Notice and Claims Procedure................................30 9.17 Bonding....................................................30 9.18 Multiple Fiduciary Capacities..............................30 ARTICLE X - THE TRUST FUND AND TRUSTEE.......................................31 10.1 Trustee....................................................31 10.2 Duties of the Trustee......................................31 10.3 Diversion..................................................31 ARTICLE XI - AMENDMENT AND TERMINATION.......................................32 11.1 Amendment of the Plan......................................32 11.2 Termination of the Plan....................................32 11.3 Merger or Consolidation of the Plan........................33 11.4 Transfer of Plan Assets....................................33 ARTICLE XII - TOP-HEAVY PROVISIONS...........................................34 12.1 Top-Heavy Plan Requirements................................34 12.2 Determination of Top-Heavy Status..........................34 12.3 Minimum Allocation for Top-Heavy Plan Years................35 ARTICLE XIII - GENERAL PROVISIONS............................................36 13.1 Plan Not an Employment Contract............................36 13.2 Non-Alienation or Assignment...............................36 13.3 Payments to Minors and Others..............................36 13.4 Source of Benefits.........................................37 13.5 Unclaimed Benefits.........................................37 13.6 Governing Law..............................................37 ARTICLE I PURPOSE OF THE PLAN The purpose of this Plan is to enable Participants to share in the future of The Southern Company, to provide Participants with an opportunity to accumulate capital for their future economic security, and to enable Participants to acquire stock ownership interests in The Southern Company. Consequently, Employing Company contributions to the Plan will be invested primarily in Common Stock of The Southern Company. The Plan is also designed to provide Participants with beneficial ownership of Common Stock of The Southern Company substantially in proportion to their relative Compensation without requiring any cash outlay, any reduction in pay or other benefits, or the surrender of any other rights on the part of Participants. The Plan was originally effective January 1, 1976, and was last amended and restated effective as of January 1, 1997. The Plan is hereby amended and restated effective January 1, 2002 in order to incorporate a variety of plan design and other changes. It is intended that this Plan, as amended and restated effective as of January 1, 2002, shall constitute an employee stock ownership plan under Section 4975(e)(7) of the Internal Revenue Code of 1986, as amended ("Code") and Section 407(d)(6) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The Plan is a stock bonus plan intended to be qualified under Section 401(a) of the Code. ARTICLE II - DEFINITIONS DEFINITIONS All references to articles, sections, subsections, and paragraphs shall be to articles, sections, subsections, and paragraphs of this Plan unless another reference is expressly set forth in this Plan. Any words used in the masculine shall be read and be construed in the feminine where they would so apply. Words in the singular shall be read and construed in the plural, and all words in the plural shall be read and construed in the singular in all cases where they would so apply. For purposes of this Plan, unless otherwise required by the context, the following terms shall have the meanings set forth opposite such terms: 2.1......"Account" shall mean the separate account maintained for each Participant in accordance with Section 6.1. 2.2......"Affiliated Employer" shall mean each Employing Company and (a) any corporation which is a member of a controlled group of corporations (as defined in Section 414(b) of the Code) which includes any Employing Company; (b) any trade or business (whether or not incorporated) which is under common control (as defined in Section 414(c) of the Code) with any Employing Company; (c) any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Section 414(m) of the Code) which includes any Employing Company; and (d) any other entity required to be aggregated with an Employing Company pursuant to regulations under Section 414(o) of the Code. Notwithstanding the foregoing, for purposes of applying the limitations of Section 6.3, the term Affiliated Employer shall be adjusted as required by Code Section 415(h). 2.3......"Aggregate Account" shall mean with respect to a Participant as of the Determination Date, the sum of the following: (a) the Account balance of such Participant as of the most recent valuation occurring within a twelve-month period ending on the Determination Date; (b) an adjustment for any contributions due as of the Determination Date; (c) any Plan distributions, including unrelated rollovers and plan-to-plan transfers (ones which are both initiated by the Employee and made from a plan maintained by one employer to a plan maintained by another employer), but not related rollovers or plan-to-plan transfers (ones either not initiated by the Employee or made to a plan maintained by the same employer), made within the one-year period ending on the Determination Date. The preceding sentence shall also apply to distributions under a terminated plan which, if it had not been terminated, would have been required to be included in an Aggregation Group. In the case of a distribution made for a reason other than severance from employment (or separation from service), death or disability, this provision shall be applied by substituting "five-year period" for "one-year period"; (d) any Employee contributions, whether voluntary or mandatory; (e) unrelated rollovers and plan-to-plan transfers to this Plan accepted prior to January 1, 1984; and (f) related rollovers and plan-to-plan transfers to this Plan. 2.4 "Aggregation Group" shall mean either a Required Aggregation Group or a Permissive Aggregation Group. 2.5......"Annual Addition" shall mean the amount allocated to a Participant's Account and accounts under all defined contribution plans maintained by the Affiliated Employers during a Limitation Year that constitutes: (a) Affiliated Employer contributions, (b) voluntary participant contributions, (c) forfeitures, if any, allocated to a Participant's Account and accounts under all defined contribution plans maintained by the Affiliated Employers, and (d) amounts described in Sections 415(l)(1) and 419A(d)(2) of the Code. 2.6 "Beneficiary" shall mean any person(s) who, or estate(s), trust(s), or organization(s) which, in accordance with the provisions of Section 8.4, become entitled to receive benefits upon the death of a Participant. 2.7 "Board of Directors" shall mean the Board of Directors of Southern Company Services, Inc. 2.8 "Break-in-Service Date" means the earlier of the following dates: (a) the date on which an Employee terminates employment, is discharged, retires, or dies; or (b) the last day of an approved leave of absence including any extension. For purposes of subsection (a) above, an Employee who ceases to be eligible to participate in the Plan pursuant to paragraph (5) of Section 2.18 shall be deemed to have experienced a termination of employment as of the date as of which Section 2.18(5) first applies. In the case of an individual who is absent from work for maternity or paternity reasons, such individual shall not incur a Break-in-Service Date earlier than the expiration of the second anniversary of the first date of such absence; provided, however, that the twelve-consecutive-month period beginning on the first anniversary of the first date of such absence shall not constitute a Year of Service. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (a) by reason of the pregnancy of the Employee, (b) by reason of a birth of a child of the Employee, (c) by reason of the placement of a child with the Employee in connection with the adoption of such child by such Employee, or (d) for purposes of caring for such child for a period beginning immediately following such birth or placement. 2.9......"Code" shall mean the Internal Revenue Code of 1986, as amended, or any successor statute, and the rulings and regulations promulgated thereunder. In the event an amendment to the Code renumbers a section of the Code referred to in this Plan, any such reference automatically shall become a reference to such section as renumbered. 2.10....."Committee" shall mean the Committee appointed pursuant to Section 9.1 to serve as plan administrator. 2.11....."Common Stock" shall mean the common stock of The Southern Company, which stock is a qualifying employer security within the meaning of Code Section 409(l)(1) and which stock is a registration-type class of securities as defined in Code Section 409(e)(4). 2.12 "Company" shall mean Southern Company Services, Inc., and its successors. 2.13....."Compensation" shall mean the total amount of a Participant's salary or wages, amounts received as sick pay and for leaves of absence with pay, overtime pay, any shift, nuclear, or other pay differentials, substitution pay, and other amounts received for personal services actually rendered, amounts paid by any Employing Company to The Southern Company Employee Savings Plan as Elective Employer Contributions (as defined therein) pursuant to the Participant's exercise of his deferral option made in accordance with Section 401(k) of the Code, all awards under any incentive pay plans sponsored by the Employing Company including, but not limited to, The Southern Company Performance Pay Plan, The Southern Company Productivity Improvement Plan, and The Southern Company Executive Productivity Improvement Plan, includable as gross income, and amounts contributed by an Employing Company to The Southern Company Flexible Benefits Plan on behalf of the Participant pursuant to his salary reduction election under either such plan, and before deduction of taxes, social security, etc. The term "Compensation" shall not include amounts which are reimbursement to a Participant paid by any Employing Company, including but not limited to, reimbursement for such items as moving expenses and travel and entertainment expenses, and imputed income for automobile expenses, tax preparation expenses, and health and life insurance premiums paid by an Employing Company. The Compensation of each Participant taken into account for purposes of this Plan shall not exceed the applicable limit under Code Section 401(a)(17). 2.14 "Determination Date" shall mean with respect to a Plan Year, the last day of the preceding Plan Year. 2.15 "Determination Year" shall mean the Plan Year being tested. 2.16....."Distributee" shall include an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is an alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are Distributees with regard to the interest of the spouse or former spouse. 2.17....."Direct Rollover" shall mean a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. 2.18....."Eligible Employee" shall mean an Employee who is employed by an Employing Company and (a) who was eligible to be included in the Plan on January 1, 1991, or (b) who is a regular full-time, regular part-time, or cooperative education employee other than: (1) an individual who is classified by an Employing Company as a leased employee, regardless of whether such classification is determined to be in error; (2) any Employee who is represented by a collective bargaining agent unless the representatives of his bargaining unit and the Employing Company mutually agree to participation in the Plan subject to its terms by members of his bargaining unit; (3) an individual who is a cooperative education employee and who first performs an Hour of Service on or after January 1, 1995; (4) an individual who is classified by the Employing Company as a temporary employee (who was not eligible to be included in the Plan on January 1, 1991) or an independent contractor, regardless of whether such classification is determined to be in error. Effective September 1, 1998, any individual classified by the Employing Company as a temporary employee shall be excluded from the Plan, regardless of any prior inclusion in the Plan and regardless of whether the "temporary employee" classification is determined to be in error; or (5) an individual who is employed by Mirant Services. 2.19 "Eligible Retirement Plan" shall mean an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, a plan described in Section 403(b) of the Code, a plan described in Section 457(b) of the Code which is maintained by a state, an agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan, or a qualified trust described in Section 401(a) of the Code that accepts the Distributee's Eligible Rollover Distribution. This definition of Eligible Retirement Plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p). 2.20 "Eligible Rollover Distribution" shall mean any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: (a) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee, the joint lives (or joint life expectancies) of the Distributee and the Distributee's Beneficiary, or for a specified period of 10 years or more; (b) any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and (c) the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). 2.21 "Employee" shall mean each individual who is employed by an Affiliated Employer under common law and each individual who is required to be treated as an employee pursuant to the "leased employee" rules of Code Section 414(n) other than a leased employee described in Code Section 414(n)(5). 2.22 "Employing Company" shall mean the Company and any affiliate or subsidiary of The Southern Company which the Board of Directors may from time to time determine to bring under the Plan and which shall adopt the Plan, and any successor of them. The Employing Companies are set forth on Appendix A to the Plan, as updated from time to time. No such entity shall be treated as an Employing Company prior to the date it adopts the Plan. 2.23 "Enrollment Date" shall mean the day on which the Eligible Employee meets the requirements for participation in this Plan under Article III. 2.24 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, or any successor statute, and the rulings and regulations promulgated thereunder. In the event an amendment to ERISA renumbers a section of ERISA referred to in this Plan, any such reference automatically shall become a reference to such section as renumbered. 2.25 "Highly Compensated Employee" shall mean (in accordance with and subject to Code Section 414(q) and any regulations, rulings, notices or procedures thereunder), with respect to any Plan Year: (1) any Employee who was a five percent (5%) owner of The Southern Company or an Affiliated Employer (as determined pursuant to Code Section 416)) during the Plan Year or the immediately preceding Plan Year, or (2) any Employee who earned more than $80,000 in the preceding Plan Year. The $80,000 amount shall be adjusted for inflation and for short Plan Years, pursuant to Code Section 414(q). The Employer may, at its election, limit Employees earning more than $80,000 to only those Employees who fall within the "top-paid group," as defined in Code Section 414(q) excluding those employees described in Code Section 414(q)(8) for such purpose. In determining whether an Employee is a Highly Compensated Employee, the Committee may make any elections authorized under applicable regulations, rulings, notices, or revenue procedures. 2.26 "Hour of Service" shall mean each hour for which an Employee is paid or entitled to payment for the performance of duties for an Affiliated Employer. 2.27 "Key Employee" shall mean any Employee or former Employee (and his Beneficiary) who is a key employee within the meaning of Code Section 416(i)(1). 2.28 "Limitation Year" shall mean the Plan Year. 2.29 "Look-Back Year" shall mean the Plan Year preceding the Determination Year. 2.30 "Mirant" shall mean Mirant Corporation, any subsidiary of Mirant Corporation, or any successor thereto. 2.31 "Mirant Services" shall mean Mirant Services, LLC. 2.32 "Mirant Stock" shall mean the common stock of Mirant. 2.33 "Non-Highly Compensated Employee" shall mean an Employee who is not a Highly Compensated Employee. 2.34 "Normal Retirement Date" shall mean the first day of the month following a Participant's sixty-fifth (65th) birthday. 2.35 "One-Year Break in Service" shall mean each twelve-consecutive-month period within the period commencing with an Employee's Break-in-Service Date and ending on the date the Employee is again credited with an Hour of Service. 2.36 "Participant" shall mean (a) an Eligible Employee who satisfied the eligibility requirements set forth in Section 3.1 of the Plan and whose participation in the Plan at the time of reference has not been terminated as provided in the Plan and (b) an Employee or former Employee who has ceased to be a Participant under (a) above, but for whom an Account is maintained under the Plan. 2.37 "Permissive Aggregation Group" shall mean a group of plans consisting of the Required Aggregation Group and, at the election of the Affiliated Employers, such other plan or plans not required to be included in the Required Aggregation Group, provided the resulting group, taken as a whole, would continue to satisfy the provisions of Code Section 401(a)(4) or 410. 2.38 "Plan" shall mean The Southern Company Employee Stock Ownership Plan, as described herein and as it may be amended from time to time. Prior to January 1, 1991, the Plan was named The Employee Stock Ownership Plan of The Southern Company System. 2.39 "Plan Year" shall mean the twelve-month period commencing January 1st and ending on the last day of December next following. 2.40 "Present Value of Accrued Retirement Income" shall mean an amount determined solely for the purpose of determining if the Plan or any other plan included in a Required Aggregation Group of which the Plan is a part is top heavy in accordance with Code Section 416. 2.41 "Qualified Election Period" shall mean the six-Plan-Year period beginning with the Plan Year in which the Participant first becomes a Qualified Participant. 2.42 "Qualified Participant" shall mean a Participant who has attained age 55 and who has completed at least 10 years of participation in the Plan, whether or not he remains an Employee. 2.43 "Required Aggregation Group" shall mean those plans that are required to be aggregated as determined under this Section 2.43. In determining a Required Aggregation Group hereunder, each plan of the Affiliated Employers in which a Key Employee is a participant and each other plan of the Affiliated Employers which enables any plan in which a Key Employee participates to meet the requirements of Code Section 401(a)(4) or 410 will be required to be aggregated. 2.44 "SCEM" shall mean Southern Company Energy Marketing, L.P. ---- 2.45 "SEPCO" shall mean Savannah Electric and Power Company. ----- 2.46 "SEPCO ESOP" shall mean the Employee Stock Ownership Plan of Savannah Electric and Power Company. 2.47 "Super-Top-Heavy Group" shall mean an Aggregation Group that would be a Top-Heavy Group if 90% were substituted for 60% in Section 2.49. 2.48 "Surviving Spouse" shall mean the person to whom the Participant is married on the date of his death, if such spouse is then living, provided that the Participant and such spouse shall have been married throughout the one (1) year period ending on the date of the Participant's death. 2.49 "Top-Heavy Group" shall mean an Aggregation Group in which, as of the Determination Date, the sum of: (a) the Present Value of Accrued Retirement Income of Key Employees under all defined benefit plans included in that group, and (b) the Aggregate Accounts of Key Employees under all defined contribution plans included in the group, exceeds 60% of a similar sum determined for all employees. 2.50 "Trust or Trust Fund" shall mean the trust established pursuant to the Trust Agreement. 2.51 "Trust Agreement" shall mean the trust agreement between the Company and the Trustee, as described in Article X. 2.52 "Trustee" shall mean the person or corporation designated as trustee under the Trust Agreement, including any successor or successors. 2.53 "Valuation Date" shall mean each business day of the New York Stock Exchange. 2.54 "Year of Service" shall mean a twelve-month period of employment as an Employee, including any fractions thereof. Calculation of the twelve-month periods shall commence with the Employee's first day of employment, which is the date on which an Employee first performs an Hour of Service, and shall terminate on his Break-in-Service Date. Thereafter, if he has more than one period of employment as an Employee, his Years of Service for any subsequent period shall commence with the Employee's reemployment date, which is the first date following a Break-in-Service Date on which the Employee performs an Hour of Service, and shall terminate on his next Break-in-Service Date. An Employee who has a Break-in-Service Date and resumes employment with the Affiliated Employers within twelve months of his Break-in-Service Date shall receive a fractional Year of Service for the period of such cessation of employment. For purposes of determining an Employee's eligibility to participate, the following years of service shall also be treated as Years of Service: (a) In respect of an Employee of an Employing Company who transfers to an Employing Company from Mirant Services following its adoption of a defined contribution plan under Section 401(a) of the Code, his credited years of service under such plan as of his date of transfer. (b) In respect of an Employee of an Employing Company who transfers to an Employing Company from SEPCO on or before December 31, 1992, his credited years of service under the SEPCO ESOP for actual service while employed at SEPCO as of his date of transfer. Notwithstanding anything in this Section 2.54 to the contrary, an Employee shall not receive credit for more than one Year of Service with respect to any twelve-consecutive-month period. ARTICLE III PARTICIPATION 3.1 Eligibility Requirements. Each Eligible Employee shall become a Participant on the later of January 1, 1997 or the Enrollment Date next following the date on which the Eligible Employee completes a Year of Service. 3.2 Duration of Participation. Once an Eligible Employee becomes a Participant in the Plan, he shall remain an active Participant during each Plan Year in which he is an Eligible Employee as of the last day of such Plan Year; provided, however, that an Eligible Employee whose employment terminates during a Plan Year by reason of death, retirement pursuant to his Affiliated Employer's pension plan, or total and permanent disability, as determined by the Social Security Administration, shall not cease to be an active Participant until the first day of the Plan Year next following the date such termination of employment occurs. In addition, a Participant in the Plan shall remain an active Participant during periods of authorized leaves of absence granted by an Employing Company under rules uniformly applicable to all persons similarly situated, during periods of sickness, disability leave, jury or military duty, or vacation or holiday leave. If the Employee does not return to work within the period of his authorized leave of absence (not including sickness or disability leave) or within the period provided by law in respect of absence for military duty, he shall cease to be an active Participant in the Plan as of the first day next following the date his authorized leave of absence or military duty is terminated. 3.3 Participation upon Reemployment. If an Employee terminates his employment with an Affiliated Employer and is subsequently reemployed as an Eligible Employee, the following rules shall apply in determining his eligibility to participate: (a) If the reemployed Eligible Employee had not completed the Year of Service requirement of Section 3.1 prior to his termination of employment and is reemployed following a One-Year Break in Service, he shall not receive credit for fractional periods of service completed prior to the One-Year Break in Service until he has completed a Year of Service after his return. A reemployed Employee who had not completed the Year of Service requirement and who is reemployed within 12 months of his Break-in-Service Date shall receive service credit for the period in which he performed no services in accordance with Section 2.54. (b) If the reemployed Eligible Employee had fulfilled the eligibility requirements of Section 3.1 prior to his termination of employment and is reemployed as an Eligible Employee, whether before or after he incurs a One-Year Break in Service, he shall again become a Participant in the Plan as of the date of his reemployment. For purposes of this Section 3.3, an Employee employed by Mirant on April 2, 2001 shall be considered to have terminated employment with an Affiliated Employer as of such date. 3.4 No Restoration of Previously Distributed Benefit. A Participant who had terminated his employment with the Affiliated Employers and who has received a distribution of the amount credited to his Account pursuant to Section 8.6 shall not be entitled to restore the amount of such distribution to his Account if he is reemployed and again becomes a Participant in the Plan. A Participant whose benefit under the Plan was transferred to a qualified plan maintained by Mirant Services as a result of the spin-off of Mirant from the Southern Company controlled group on April 2, 2001 shall not be entitled to restoration of the amount of such transfer upon his subsequent reemployment by an Affiliated Employer. 3.5 Military Leave. Notwithstanding any provision of the Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code. ARTICLE IV EMPLOYING COMPANY CONTRIBUTION 4.1 Amount of Contribution. An Employing Company may contribute to the Plan, in respect of each Plan Year, cash or Common Stock in an amount (or under such formula) as the Company, in its sole and absolute discretion, shall determine. If Common Stock is contributed to the Plan, the number of shares contributed shall be determined by the market value of such Common Stock, as determined by the Company. 4.2 Time of Payment. The Employing Company shall transfer the amount of cash or Common Stock described in Section 4.1 to the Plan on any date or dates consistent with the law, which the Employing Company may select, provided that the contributions for a Plan Year shall be transferred not later than the time (including extensions) for filing the consolidated federal income tax return for such Plan Year. 4.3 Purchases of Common Stock. If a contribution to the Plan under Section 4.1 is made in cash, the Trustee shall use such contribution to purchase Common Stock; provided, however, that the Plan may retain a cash reserve in an amount which does not exceed the value of fractional shares and declared cash dividends allocable to those Participants entitled to receive an immediate distribution of their Accounts at the time of the contribution of the cash. If Common Stock is purchased from The Southern Company, the price paid therefor by the Trustee shall be the market value of such Common Stock, as determined by the Company. 4.4 Restrictions on Common Stock. No Common Stock held by the Plan may be used to satisfy a loan made to the Plan, nor may any Common Stock held by the Plan be used as collateral for a loan made to the Plan. 4.5 Exclusive Benefit of Employees. All contributions made pursuant to the Plan shall be held by the Trustee in accordance with the terms of the Trust Agreement for the exclusive benefit of those Employees, including former Employees, who are Participants under the Plan, and their Beneficiaries, and shall be applied to provide benefits under the Plan and to pay expenses of administration of the Plan and the Trust, to the extent that such expenses are not otherwise paid. At no time prior to the satisfaction of all liabilities with respect to such Employees and their Beneficiaries shall any part of the Trust Fund be used for, or diverted to, purposes other than for the exclusive benefit of such Employees and their Beneficiaries. However, notwithstanding the provisions of this Section 4.5: (a) If any contribution under the Plan is conditioned on initial qualification of the Plan under Section 401(a) of the Code and if the Plan does not so qualify, the Trustee shall, upon written request of the Employing Company, return to the Employing Company the amount of such contribution (increased by earnings attributable thereto and reduced by losses attributable thereto) within one calendar year after the date that qualification of the Plan is denied; provided that the application for the determination is made by the time prescribed by law for filing the Employing Company's return for the taxable year in which the Plan is adopted or such later date as the Secretary of the Treasury may prescribe. (b) If a contribution is conditioned upon the deductibility of the contribution under Section 404 of the Code, then to the extent the deduction is disallowed the Trustee shall, upon written request of the Employing Company, return the contribution (to the extent disallowed) to the Employing Company within one year after the date the deduction is disallowed. (c) If a contribution or any portion thereof is made by the Employing Company by a mistake of fact, the Trustee shall, upon written request of the Employing Company, return the contribution or such portion to the Employing Company within one year after the date of payment to the Trustee. The amount which may be returned to the Employing Company under this Section 4.5 is the excess of (a) the amount contributed over (b) the amount that would have been contributed had there not occurred a mistake of fact or disallowance of the deduction. Earnings attributable to the excess contribution shall not be returned to the Employing Company, but losses attributable thereto shall reduce the amount to be so returned. If the withdrawal of the amount attributable to the mistaken contribution would cause the balance of the Account of any Participant to be reduced to less than the balance which would have been in the Account had the mistaken amount not been contributed, then the amount to be returned to the Employing Company shall be limited so as to avoid such reduction. ARTICLE V PARTICIPANT CONTRIBUTION 5.1 Participant Contributions Not Allowed. Participant contributions are neither required nor permitted under the Plan. Notwithstanding the foregoing, to the extent that Participant contributions were permitted under the terms of the Plan in effect prior to January 1, 1983, such contributions and/or pledges of contributions attributable to Plan Years beginning before January 1, 1983, may be made in accordance with the applicable provisions of the terms of the Plan as in effect prior to January 1, 1983. ARTICLE VI ACCOUNTS OF PARTICIPANTS 6.1 Separate Accounts. The Committee shall establish and maintain a separate Account for each Participant, with separate subaccounts as the Committee shall direct in its sole discretion. The subaccounts maintained in accordance with this Section 6.1 shall be for bookkeeping purposes only. Subaccounts, to the extent they were created under the Plan prior to January 1, 1983, shall be maintained, if necessary. The Committee shall also establish separate subaccounts for each Participant, as the Committee shall direct, as is necessary to reflect a Participant's interest in the Plan resulting from the transfer of his accounts from the SEPCO ESOP due to the merger of such plan into this Plan effective as of January 1, 1993. Any such subaccounts so established shall be subject to the terms and conditions of this Plan. 6.2 Allocation of Common Stock. All shares of Common Stock contributed or purchased with cash contributions for such Plan Year and all fractional rights to such shares shall be allocated as of the close of such Plan Year by the Committee to the Account of each Participant who was a Participant or deemed to be a Participant pursuant to Section 3.2 on the last day of such Plan Year. Such allocation shall be made in accordance with the ratio to which each eligible Participant's Compensation for such Plan Year bears to the total Compensation of all Participants eligible to share in the contribution for such Plan Year. Notwithstanding the foregoing, in no event shall a Participant who is employed by SCEM or Mirant Services on December 31, 2000 receive an allocation of Common Stock for the Plan Year ending on such date. 6.3 Section 415 Limitations. Notwithstanding any provision of the Plan to the contrary, except to the extent permitted under Code Section 414(v), the total Annual Additions allocated to the Account (and the accounts under all defined contribution plans maintained by an Affiliated Employer) of any Participant for any Limitation Year in accordance with Code Section 415 and the regulations thereunder, which are incorporated herein by this reference, shall not exceed the lesser of the following amounts: (a) one hundred percent (100%) of the Participant's compensation (as defined in Code Section 415(c)(3) and any rulings and regulations thereunder) in the Limitation Year; or (b) $40,000 (as adjusted pursuant to Code Section 415(d)(1)(C)). The Annual Addition for any Plan Year beginning before January 1, 1987 shall not be recomputed to treat all employee contributions as an Annual Addition. 6.4 Correction of Contributions in Excess of Section 415 Limits. If the Annual Additions for a Participant exceed the limits of Section 6.3 as a result of the allocation of forfeitures, if any, a reasonable error in estimating a Participant's annual compensation for purposes of the Plan, a reasonable error in determining the amount of elective deferrals (within the meaning of Section 402(g)(3) of the Code) that may be made with respect to any individual, or under other limited facts and circumstances that the Commissioner of the Treasury finds justify the availability of the rules set forth in this Section 6.4, the excess amounts shall not be deemed Annual Additions if they are corrected by forfeiture of that portion, or all, of the Employing Company contributions that were allocated to the Participant's Account, as is necessary to ensure compliance with Section 6.3. Any amounts forfeited under this Section 6.4 shall be held in a suspense account and shall be applied, subject to Section 6.3, toward funding the Employing Company contributions for the next succeeding Plan Year. Such application shall be made prior to any Employing Company contributions that would constitute Annual Additions. No income or investment gains and losses shall be allocated to the suspense account provided for under this Section 6.4. If any amount remains in a suspense account provided for under this Section 6.4 upon termination of this Plan, such amount will revert to the Employing Companies notwithstanding any other provision of this Plan. 6.5 Combination of Plans. If an Employee participates in more than one defined contribution plan maintained by an Affiliated Employer and his Annual Additions exceed the limitations of Section 6.3, corrective adjustments shall be made first under The Southern Company Employee Savings Plan and then, to the extent necessary, under The Southern Company Performance Sharing Plan and then, to the extent necessary, under this Plan. 6.6 Allocation of Dividends and other Distributions. ----------------------------------------------- (a) Any dividends or other distributions of cash on the Common Stock shall be allocated to a Participant's Account on the basis of Account balances. The amount of any cash dividends on Common Stock so allocated may be retained in the Participants' Accounts or paid to such Participants pursuant to (b) below. Any cash dividends retained in the Accounts of Participants and any other distributions of cash on the Common Stock so allocated shall be reinvested by the Trustee in Common Stock which shall be credited to each such Participant's Account. In reinvesting such dividends or other distributions of cash on the Common Stock, the Trustee may purchase Common Stock under The Southern Company's Dividend Reinvestment and Stock Purchase Plan, from The Southern Company, or on the open market. If a dividend or other distribution on the Common Stock allocated to a Participant's Account is of additional shares of Common Stock, the Trustee shall credit such shares to the Participant's Account. Except as provided in Section 6.10, if a dividend or other distribution on the Common Stock allocated to a Participant's Account is of property other than cash or additional shares of Common Stock, the Trustee shall sell such property for an amount not less than its fair market value as determined by the Trustee and reinvest the proceeds of such sale in shares of Common Stock pursuant to this Section 6.6. (b) Any cash dividends received by the Trustee on Common Stock allocated to the Accounts of Participants (or Beneficiaries) may be retained in the Participants' Accounts as provided in (a) above or may be paid to such Participants at the sole discretion of the Committee; provided that any current payment in cash must be made within two years of the date such dividends are received by the Trustee, or, if the Employing Company desires a tax deduction for the amount of such dividends pursuant to Code Section 404(k), such cash dividends shall be distributed in cash not later than 90 days after the close of the Plan Year in which such dividends were paid. (c) Notwithstanding (b) above, if during any Plan Year the Committee shall determine not to pay cash dividends received by the Trustee on Common Stock allocated to Accounts of Participants to such Participants, a Participant may elect to have such cash dividends (or other distributions) paid to him currently by the Trustee. Such an election shall be made in such time and manner as may be prescribed by the Committee and shall be effective only with respect to dividends which are payable by The Southern Company to the Trustee in the Plan Years which begin after the Plan Year in which the election is made. An election shall remain in full force until revoked by a Participant. Any revocation shall be made in accordance with procedures established by the Committee and shall become effective only with respect to dividends payable by The Southern Company to the Trustee in Plan Years which begin after the Plan Year in which the revocation is made. 6.7 Valuations. Each Participant shall be furnished a statement of his Account no less frequently than annually and upon any distribution, which statement shall reflect the balances of the subaccounts referred to in Section 6.1. Each Participant's Account shall be adjusted as of each Valuation Date to reflect any increase or decrease in the number of shares of Common Stock credited to his Account and to reflect the effect of income collected, realized and unrealized gains and losses, and expenses attributable thereto. 6.8 Voting Company Stock. Before each annual or special meeting of shareholders of The Southern Company, there shall be sent to each Participant a copy of the proxy soliciting material for the meeting, together with a form requesting instructions to the Trustee on how to vote the shares of Common Stock credited to such Participant's Account as of the record date of the Common Stock. Fractional shares shall be combined and voted by the Trustee to the extent possible to reflect the instructions of Participants credited with such shares. If a Participant does not provide the Trustee or its designated agent with timely voting instructions for the Trustee, the Pension Fund Investment Review Committee of The Southern Company System may direct the Trustee how to vote such Participant's shares. If the Pension Fund Investment Review Committee of The Southern Company System does not provide the Trustee or its designated agent with timely voting instructions, the Trustee, if required to do so by applicable law, may vote such Participant's shares. The Pension Fund Investment Review Committee of The Southern Company System may direct the Trustee with respect to voting unallocated shares of Common Stock, if any. If the Pension Fund Investment Review Committee of The Southern Company System does not provide the Trustee or its designated agent with timely voting instructions, the Trustee, if required to do so by applicable law, may vote such unallocated shares. 6.9 Correction of Prior Incorrect Allocations and Distributions. Notwithstanding any provisions contained herein to the contrary, in the event that, as of any Valuation Date, adjustments are required in any Participants' Accounts to correct any incorrect allocation of contributions or investment earnings or losses, or such other discrepancies in Account balances that may have occurred previously, the Employing Companies may make additional contributions to the Plan to be applied to correct such incorrect allocations or discrepancies. The additional contributions shall be allocated by the Committee to adjust such Participants' Accounts to the value which would have existed on said Valuation Date had there been no prior incorrect allocation or discrepancies. The Committee shall also be authorized to take such other actions as it deems necessary to correct prior incorrect allocations under the Plan or discrepancies in the Accounts of the Participants. 6.10 Transfer of Mirant Stock. Upon the distribution by the Southern Company to its shareholders of the Mirant Stock held by the Southern Company pursuant to a tax-free spin-off under Code Section 355 or such similar transaction, all Mirant Stock received by the Plan on behalf of a Participant shall be transferred to a "Transferred ESOP Account" established for such Participant under The Southern Company Employee Savings Plan. The transfer of Mirant Stock shall be made contemporaneously with or as soon as administratively practicable following such transaction. ARTICLE VII AUTHORIZED WITHDRAWALS 7.1 In General. Except as provided in this Article VII, shares of Common Stock allocated to the Account of a Participant may be distributed to him only in the event he ceases to be an Employee, whether by reason of retirement, total and permanent disability, as determined by the Social Security Administration, death, or other termination of employment. Distributions upon termination of employment for any of the above reasons, shall be made in accordance with Article VIII. 7.2 Distributions in Lieu of Diversification of Investments Pursuant to Code Section 401(a)(28)(B). (a) Each Qualified Participant shall be permitted to elect within 90 days after the last day of each Plan Year during the Participant's Qualified Election Period to receive a cash distribution from the Plan not to exceed 25% of the value of the Participant's Account balance attributable to Common Stock which was acquired by the Plan after December 31, 1986. Within 90 days after the close of the last Plan Year in the Participant's Qualified Election Period, a Qualified Participant may elect to receive a cash distribution from the Plan not to exceed 50% of the value of such Account balance. (b) The Participant's election shall be made in accordance with the procedures established by the Committee and shall be effective no later than 180 days after the close of the Plan Year to which the election applies. The Plan shall distribute (notwithstanding Section 409(d) of the Code) the portion of the Participant's Account that is covered by the election within 90 days after the last day of the period during which the election can be made. This Section 7.2 shall apply notwithstanding any other provision of the Plan other than such provisions as may require the consent of the Participant to a distribution with a present value in excess of $5,000. If the Participant does not consent to a distribution with a present value in excess of $5,000 under this Section 7.2, such amount shall be retained in the Plan and the Plan shall be deemed to have satisfied the diversification requirements of Section 401(a)(28)(B) of the Code. 7.3 In-Service Withdrawals. Subject to the requirements of Section 8.14, a Participant who is employed by an Affiliated Employer may at any time elect to have distributed to him the cash value of a specific number of whole shares of Common Stock, provided such Common Stock shall have been credited to the Participant's Account for a period of at least 84 months. Such shares of Common Stock shall be distributed not prior to the first day of the 85th month following the month in which any full shares of Common Stock shall have been credited to his Account. The election shall be made in accordance with the procedures established by the Committee. Any such withdrawal shall be subject to the following requirements: (a) a withdrawal must be for a specific number of whole shares or the value of a specific number of whole shares of Common Stock; (b) the specific number of shares requested must equal at least the lesser of 20 shares or the total number of whole shares available for withdrawal from the Participant's Account; and (c) a withdrawal shall be made in the form of cash, provided that with respect to any distribution which is attributable to full shares of Common Stock, the Participant shall have the right to demand that such portion of the distribution be made in the form of Common Stock. ARTICLE VIII DISTRIBUTIONS TO PARTICIPANTS 8.1 Vesting. All amounts credited to the Account of a Participant under the Plan shall at all times be fully vested and nonforfeitable. 8.2 Distribution upon Retirement. (a) If a Participant retires pursuant to his Affiliated Employer's pension plan, the entire balance credited to his Account shall be payable to him in the manner and time for commencement of benefits requested by the Participant pursuant to Sections 8.7 and 8.8. (b) Notwithstanding a Participant's election to defer receipt of benefits under (a) above, the Committee shall direct payment in a lump sum to such Participant if the balance of his Account (attributable to Employing Company and Employee contributions) does not exceed $5,000 in accordance with the requirements of Code Section 411(a)(11). The Committee shall not cash-out any Participant whose benefits exceed $5,000 without the written consent of the Participant. 8.3 Distribution upon Death. If a Participant's employment with the Affiliated Employers is terminated by reason of death, the entire balance credited to the Participant's Account shall be distributed as soon as practicable to the Participant's Beneficiary or Beneficiaries in a lump sum pursuant to Section 8.9(b). 8.4 Designation of Beneficiary in the Event of Death. A Participant may designate a Beneficiary or Beneficiaries (who may be designated contingently) to receive all or part of the amount credited to his Account in case of his death before his receipt of all of his benefits under the Plan, provided that the Beneficiary of a married Participant shall be the Participant's Surviving Spouse, unless such Surviving Spouse shall consent in a writing witnessed by a notary public, which writing acknowledges the effect of the Participant's designation of a Beneficiary other than such Surviving Spouse. However, if such Participant establishes to the satisfaction of the Committee that such written consent may not be obtained because the Surviving Spouse cannot be located or because of such other circumstances as the Secretary of the Treasury may by regulations prescribe, a designation by such Participant without the consent of the Surviving Spouse shall be valid. Any consent necessary under this Section 8.4 shall be valid and effective only with respect to the Surviving Spouse who signs the consent or, in the event of a deemed consent, only with respect to a designated Surviving Spouse. A designation of Beneficiary may be revoked by the Participant without the consent of any Beneficiary (or the Participant's Surviving Spouse) at any time before the commencement of the distribution of benefits. A Beneficiary designation or change or revocation of a Beneficiary designation shall be made in accordance with the procedures established by the Committee. If no designated Beneficiary shall be living at the death of the Participant and/or such Participant's Beneficiary designation is not valid and enforceable under applicable law or the procedures of the Committee, such Participant's Beneficiary of Beneficiaries shall be the person or persons in the first of the following classes of successive preference, if then living: (a) the Participant's spouse on the date of his death, (b) the Participant's children, equally, (c) the Participant's parents, equally, (d) the Participant's brothers and sisters, equally, or (e) the Participant's executors or administrators. Payment to such one or more persons shall completely discharge the Plan and the Trustee with respect to the amount so paid. 8.5 Distribution upon Disability. If a Participant's employment with the Affiliated Employers is terminated by reason of his total and permanent disability, as determined by the Social Security Administration, such disabled Participant shall be entitled to receive the full value of his Account immediately following the date the Social Security Administration determines the Participant is totally and permanently disabled, in a single lump sum payment. The Participant or his legal representative shall request the time for commencement of benefits pursuant to Section 8.8. Notwithstanding the foregoing, the Committee shall direct payment in a single lump sum to such Participant or his legal representative if the balance of the Participant's Account does not exceed $5,000 in accordance with the requirements of Code Section 411(a)(11). 8.6 Distribution upon Termination of Employment. ------------------------------------------- (a) If a Participant's employment with the Affiliated Employers is terminated for any reason other than in accordance with Sections 8.2, 8.3, or 8.5, he shall become entitled to payment of the full value of his Account as hereinafter provided. (b) Upon termination of employment with the Affiliated Employers, the Participant may request a distribution in a single lump sum of the full value of his Account. Alternatively, such Participant may elect to defer receipt of the full value of his Account until a time not later than the time specified in Section 8.8 below. Any deferred distribution shall commence as soon as practicable after the Valuation Date selected by the Participant. (c) Notwithstanding a Participant's election to defer receipt of benefits under (b) above, the Committee shall direct payment in a lump sum to such Participant if the balance of his Account (attributable to Employing Company and Employee contributions) as of the last Valuation Date in the month in which such Participant terminates employment with the Affiliated Employers does not exceed $5,000 in accordance with Code Section 411(a)(11). The Committee shall not cash-out any Participant whose benefits exceed $5,000 without the written consent of the Participant. 8.7 Property Distributed/Method of Payment. -------------------------------------- (a) A Participant separating from service in accordance with Section 8.2 shall elect the manner in which the Common Stock credited to his Account is distributed and a time for commencement of the distribution as provided hereinafter. The election by the Participant shall be made in accordance with the procedures established by the Committee. The Participant shall select one of the following alternative forms of distribution of his Account: (1) A lump sum distribution; or (2) Annual installments for a period not to exceed five years or, in the case of a Participant whose Account exceeds $500,000, five years plus one additional year (but not more than five additional years) for each $100,000 or fraction thereof by which such Account exceeds $500,000. The dollar amounts contained in this paragraph (2) shall be adjusted by the Secretary of the Treasury pursuant to Section 409(o)(2) of the Code. (b) All lump sum distributions under the Plan shall be made in cash, provided that a Participant shall have the right to request that such distribution be made in full shares of Common Stock, except that fractional shares shall be converted to and paid in cash, and declared but unpaid cash dividends shall be paid in cash. If any additional shares of Common Stock are subsequently allocated to the Participant's Account, such shares shall be distributed to the Participant or his Beneficiary within 60 days following the date on which such additional allocation is made. (c) All installment distributions under this Section 8.7 shall be made in cash, unless the Participant shall request that such distribution be made in full shares of Common Stock and cash for any fractional shares and declared but unpaid cash dividends. If a Participant elects installment payments, any additional shares of Common Stock allocated to his Account shall be added to the undistributed balance of such Account and be distributed thereafter in the manner the Participant has elected. 8.8 Commencement of Benefits. ------------------------ (a) Unless the Participant elects to have payment begin at a later date, payment of benefits to the Participant shall begin at the Participant's election, in accordance with the procedures established by the Committee, not later than 60 days after the last day of the Plan Year in which the latest of the following occurs: (1) the Participant attains the earlier of age 65 or his Normal Retirement Date; (2) the Participant's 10th anniversary of participation under the Plan; or (3) the Participant's separation from service. (b) In no event shall the distribution of amounts in a Participant's Account commence later than the April 1 of the calendar year following the later of the calendar year in which the Participant attains age 70 1/2 or terminates employment with the Affiliated Employers, in accordance with regulations prescribed by the Secretary of the Treasury. The foregoing requirements in this Section 8.8(b) shall not be applied to restrict the implementation of any written designation given to the Committee by a Participant prior to January 1, 1984, with regard to the method of distribution of his Account, if such method was permissible under the Plan and Code prior to January 1, 1984. Notwithstanding the foregoing, the payment of benefits to a Participant who is a five percent (5%) owner of The Southern Company or an Affiliated Employer (as determined pursuant to Code Section 416) with respect to the Plan Year ending in the calendar year in which the Participant attains age 70 1/2 shall begin not later than April 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2, regardless of the Participant's termination from employment. In addition, any Participant who attains age 70 1/2 on or after January 1, 1996, but prior to January 1, 1999, may elect to have payment of his benefits begin no later than April 1 of the calendar year following the calendar year during which the Participant attains age 70 1/2, regardless of the Participant's termination of employment. Any distribution made under this Plan shall be made in accordance with the minimum distribution requirements of Code Section 401(a)(9), including the incidental death benefits requirements under Code Section 401(a)(9)(G) and the Treasury Regulations thereunder. With respect to distributions under the Plan made in calendar years beginning on or after January 1, 2001, the Plan will apply the minimum distribution requirements of Code Section 401(a)(9) in accordance with the regulations under Code Section 401(a)(9) that were proposed in January 2001, notwithstanding any provision of the Plan to the contrary. This amendment shall continue in effect until the end of the last calendar year beginning before the effective date of final regulations under Code Section 401(a)(9) or such other date specified in guidance published by the Internal Revenue Service. 8.9 Distribution upon Death. ----------------------- (a) If the Participant dies before his entire nonforfeitable interest has been distributed to him, the remaining portion of such interest shall be distributed in a single lump sum to his Beneficiary. (b) If the Participant dies before the distribution of his nonforfeitable interest has begun, the entire interest shall be distributed in a single lump sum to his Beneficiary within 60 days following the Company's receipt of notification of the death of such Participant. 8.10 Adjustments for Deferred Accounts or Installment Payments. If the distribution of benefits to a Participant will either be paid in installments or the Participant elects to postpone distribution of his benefits payable in a lump sum, the Participant's Account shall remain in the Trust Fund and shall continue to participate in the valuations as provided in Sections 6.6 and 6.7 until fully distributed. 8.11 Transfers between Employing Companies. A transfer by a Participant from one Employing Company to another Employing Company shall not affect his participation in the Plan. A transfer by a Participant from an Employing Company to an Affiliated Employer that is not an Employing Company shall not be deemed to be a termination of employment with an Employing Company. 8.12 Distribution to Alternate Payees. If the Participant's Account under the Plan shall become subject to any domestic relations order which (a) is a qualified domestic relations order satisfying the requirements of Section 414(p) of the Code and (b) requires the immediate distribution in a single lump sum of the entire portion of the Participant's Account required to be segregated for the benefit of an alternate payee, then the entire interest of such alternate payee shall be distributed in a single lump sum within 90 days following the Employing Company's notification to the Participant and the alternate payee that the domestic relations order is qualified under Section 414(p) of the Code, or as soon as practicable thereafter. Such distribution to an alternate payee shall be made even if the Participant has not separated from the service of the Affiliated Employers. Any other distribution pursuant to a qualified domestic relations order shall not be made earlier than the Participant's termination of service or his attainment of age 50, if earlier, and shall not commence later than the date the Participant's (or his Beneficiary's) benefit payments otherwise commence. Such distribution to an alternate payee shall be made only in a manner permitted under Section 8.7 of the Plan and only to the extent the Participant would be eligible for such distribution option. 8.13 Requirement for Direct Rollovers. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Article VIII, a Distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. 8.14 Consent and Notice Requirements. If the value of the vested portion of a Participant's Account derived from Employing Company and Employee contributions exceeds $5,000 determined in accordance with the requirements of Code Section 411(a)(11), the Participant must consent to any distribution of such vested account balance prior to his Normal Retirement Date. The consent of the Participant shall be obtained within the ninety-day period ending on the first day of the first period for which an amount is payable as an annuity or in any other form under this Plan. The Committee shall notify the Participant of the right to defer any distribution until the Participant's Account balance is no longer immediately distributable. Such notification shall include a general description of the material features and an explanation of the relative values of the operational forms of benefit available under the Plan in a manner that would satisfy the notice requirements of Section 417(a)(3) of the Code; such notification shall be provided no less than 30 days and no more than 90 days prior to the annuity starting date. Distributions may commence less than 30 days after the notice required under Section 1.411(a)-11(c) of the Treasury Regulations is given, provided that: (a) the Committee informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution and a particular distribution option, and (b) the Participant, after receiving the notice, affirmatively elects a distribution. ARTICLE IX ADMINISTRATION 9.1 Membership of Committee. The Plan shall be administered by the Committee, which shall consist of the individuals then serving in the positions of Vice President, System Compensation and Benefits of The Southern Company; Senior Vice-President, Human Resources of The Southern Company; and Comptroller of The Southern Company or any other position or positions that succeed to the duties of the foregoing positions. The Committee shall be chaired by the Senior Vice-President, Human Resources of The Southern Company and may select a Secretary (who may, but need not, be a member of the Committee) to keep its records or to assist it in the discharge of its duties. 9.2 Acceptance and Resignation. Any person appointed to be a member of the Committee shall signify his acceptance in writing to the Chairman of the Committee. Any member of the Committee may resign by delivering his written resignation to the Committee and such resignation shall become effective upon delivery or upon any later date specified therein. 9.3 Transaction of Business. A majority of the members of the Committee at the time in office shall constitute a quorum for the transaction of business at any meeting. Any determination or action of the Committee may be made or taken by a majority of the members present at any meeting thereof or without a meeting by a resolution or written memorandum concurred in by a majority of the members then in office. 9.4 Responsibilities in General. The Committee shall administer the Plan and shall have the discretionary authority, power, and the duty to take all actions and to make all decisions necessary or proper to carry out the Plan and to control and manage the operation and administration of the Plan. The Committee shall have the discretion to interpret the Plan, including any ambiguities herein, and to determine the eligibility for benefits under the Plan. The determination of the Committee as to any question involving the general administration and interpretation of the Plan shall be final, conclusive, and binding on all persons, except as otherwise provided herein or by law, and may be relied upon by the Company, all Employing Companies, the Trustee, Participants, and their Beneficiaries. Any discretionary actions to be taken under the Plan by the Committee with respect to Employees and Participants and with respect to benefits shall be uniform in their nature and applicable to all persons similarly situated. 9.5 Committee as Named Fiduciary. For the purpose of compliance with the provisions of ERISA, the Committee shall be deemed the administrator of the Plan, as the term "administrator" is defined in ERISA, and the Committee shall be, with respect to the Plan, a named fiduciary as that term is defined in ERISA. For the purpose of carrying out its duties, the Committee may, in its discretion, allocate its responsibilities under the Plan among its members and may, in its discretion, designate (in writing or otherwise) persons other than members of the Committee to carry out such responsibilities of the Committee under the Plan as it may see fit. 9.6 Rules for Plan Administration. The Committee may make and enforce rules and regulations for the administration of the Plan consistent with the provisions thereof and may prescribe the use of such forms or procedures as it shall deem appropriate for the administration of the Plan. 9.7 Employment of Agents. The Committee may employ independent qualified public accountants, as such term is defined in ERISA, who may be accountants to The Southern Company and any Affiliated Employer, legal counsel who may be counsel to The Southern Company and any Affiliated Employer, other specialists, and other persons as the Committee deems necessary or desirable in connection with the administration of the Plan. The Committee and any person to whom it may delegate any duty or power in connection with the administration of the Plan, the Company and the officers and directors thereof shall be entitled to rely conclusively upon and shall be fully protected in any action omitted, taken, or suffered by them in good faith in reliance upon any independent qualified public accountant, counsel, or other specialist or other person selected by the Committee, or in reliance upon any tables, evaluations, certificates, opinions, or reports which shall be furnished by any of them or by the Trustee. 9.8 Co-Fiduciaries. It is intended that, to the maximum extent permitted by ERISA, each person who is a fiduciary (as that term is defined in ERISA) with respect to the Plan shall be responsible for the proper exercise of his own powers, duties, responsibilities, and obligations under the Plan and the Trust, as shall each person designated by any fiduciary to carry out any fiduciary responsibility with respect to the Plan or the Trust. No fiduciary or other person to whom fiduciary responsibilities are allocated shall be liable for any act or omission of any other fiduciary or of any other person delegated to carry out any fiduciary or other responsibility under the Plan or the Trust. 9.9 General Records. The Committee shall maintain or cause to be maintained separate Accounts (and any separate subaccounts) which accurately reflect the interests of the Participants as provided for in Section 6.1, and shall maintain or cause to be maintained all necessary books of account and records with respect to the administration of the Plan. The Committee shall mail or cause to be mailed to Participants reports to be furnished to Participants in accordance with the Plan or as may be required by ERISA. Any notices, reports, or statements to be given, furnished, made, or delivered to a Participant shall be deemed duly given, furnished, made, or delivered when addressed to the Participant and delivered to the Participant in person or mailed by ordinary mail to his address last communicated to the Committee (or its delegate) or of his Employing Company. 9.10 Liability of the Committee. In administering the Plan, except as may be prohibited by ERISA, neither the Committee nor any person to whom it may delegate any duty or power in connection with administering the Plan shall be liable for any action or failure to act except for its or his own gross negligence or willful misconduct, nor for the payment of any amount under the Plan, nor for any mistake of judgment made by him or on his behalf as a member of the Committee; nor for any action, failure to act, or loss unless resulting from his own gross negligence or willful misconduct, nor for the neglect, omission, or wrongdoing of any other member of the Committee. No member of the Committee shall be personally liable under any contract, agreement, bond, or other instrument made or executed by him or on his behalf as a member of the Committee. 9.11 Reimbursement of Expenses and Compensation of Committee. Members of the Committee shall be reimbursed by the Company for expenses they may individually or collectively incur in the performance of their duties. Each member of the Committee who is a full-time employee of the Company or of any Employing Company shall serve without compensation for his services as such member; each other member of the Committee shall receive such compensation, if any, for his services as the Board of Directors may fix from time to time. 9.12 Expenses of Plan and Trust Fund. The expenses of establishment and administration of the Plan and the Trust Fund shall be paid by the Company or the Employing Companies. Notwithstanding the foregoing, to the extent provided in the Trust Agreement, certain administrative expenses may be paid from the Trust Fund either directly or through reimbursement of the Company or the Employing Companies. All fees of the auditors related to the audit of the Plan or the Trust Fund shall be paid from the Trust Fund either directly or through reimbursement of the Company or the Employing Companies. Any expenses directly related to the investments of the Trust Fund, such as stock transfer taxes, brokerage commissions, or other charges incurred in the acquisition or disposition of such investments, shall be paid from the Trust Fund and shall be deemed to be part of the cost of such securities or deducted in computing the proceeds therefrom, as the case may be. Taxes, if any, on any assets held or income received by the Trustee and transfer taxes on the transfer of Common Stock from the Trustee to a Participant or his Beneficiary shall be charged appropriately against the Accounts of Participants as the Committee shall determine. Any expenses paid by the Company pursuant to Section 9.11 and this section shall be subject to reimbursement by other Employing Companies of their proportionate shares of such expenses as determined by the Committee. 9.13 Responsibility for Funding Policy. The Pension Fund Investment Review Committee of The Southern Company System shall have responsibility for providing a procedure for establishing and carrying out a funding policy and method for the Plan consistent with the objectives of the Plan and the requirements of Title I of ERISA. 9.14 Code Section 411(d)(6) Protected Benefits. Notwithstanding anything to the contrary in this Plan, any provisions added to this Plan to effectuate the merger of the SEPCO ESOP into this Plan shall not be interpreted so as to decrease a Participant's accrued benefit except to the extent permitted under Section 412(c)(8) of the Code, and such provisions shall not reduce or eliminate Code Section 411(d)(6) protected benefits determined immediately prior to January 1, 1993. The Committee shall disregard such provision in the Plan to the extent that application of such would fail to satisfy this paragraph. If the Committee disregards any portion of the Plan because it would eliminate a protected benefit, the Committee shall maintain a schedule of any such impacted early retirement option or other optional forms of benefit and the Plan must continue such for the affected Participants. 9.15 Management of Assets. The Committee shall not have responsibility with respect to the control or management of the assets of the Plan. The Trustee shall have the sole responsibility for the administration of the assets of the Plan as provided in the Trust Agreement. 9.16 Notice and Claims Procedure. Consistent with the requirements of ERISA and the regulations thereunder of the Secretary of Labor from time to time in effect, the Committee shall: (a) provide adequate notice in writing to any Participant or Beneficiary whose claim for benefits under the Plan has been denied, setting forth specific reasons for such denial, written in a manner calculated to be understood by such Participant or Beneficiary, and (b) afford a reasonable opportunity to any Participant or Beneficiary whose claim for benefits has been denied for a full and fair review of the decision denying the claim. 9.17 Bonding. Unless Otherwise determined by the Board of Directors or required by law, no member of the Committee shall be required to give any bond or other security in any jurisdiction. 9.18 Multiple Fiduciary Capacities. Any person or group of persons may serve in more than one fiduciary capacity with respect to the Plan, and any fiduciary with respect to the Plan may serve as a fiduciary with respect to the Plan in addition to being an officer, employee, agent, or other representative of a party in interest, as that term is defined in ERISA. ARTICLE X THE TRUST FUND AND TRUSTEE 10.1 Trustee. The Company has entered into a Trust Agreement with the Trustee to hold the funds necessary to provide the benefits set forth in the Plan. The Company may remove the Trustee or appoint a successor trustee at any time upon 60 days notice in writing to the Trustee and the Committee. Any Trust Agreement may be amended by the Company from time to time in accordance with its terms. Any Trust Agreement shall provide, among other things, for a Trust Fund. The Trust Fund shall be administered by the Trustee to receive contributions, to hold, invest, and reinvest all property and funds of the Trust Fund, and to distribute benefits to eligible Participants and Beneficiaries. 10.2 Duties of the Trustee. The Trustee shall have sole responsibility for the investment and safekeeping of the assets of the Trust Fund and shall have no responsibility for the operation or administration of the Plan, except as expressly provided herein. 10.3 Diversion. At no time shall any part of the corpus or income of the Trust Fund be used for or diverted to purposes other than for the exclusive benefit of Participants or their Beneficiaries; provided, however, that contributions may be returned to the Employing Company in accordance with the provisions of Section 4.5. ARTICLE XI AMENDMENT AND TERMINATION 11.1 Amendment of the Plan. The Plan may be amended or modified by the Board of Directors pursuant to its written resolutions at any time and from time to time; provided, however, that no such amendment or modification shall make it possible for any part of the corpus or income of the Trust Fund to be used for or diverted to purposes other than for the exclusive benefit of Participants or their Beneficiaries under the Plan, including such part as is required to pay taxes and administration expenses of the Plan. The Plan may also be amended or modified by the Committee (a) if such amendment or modification does not involve a substantial increase in cost to any Employing Company, or (b) as may be necessary, proper, or desirable in order to comply with laws or regulations enacted or promulgated by any federal or state governmental authority and to maintain the qualification of the Plan under Sections 401(a) and 501(a) of the Code and the applicable provisions of ERISA. Notwithstanding the foregoing, the formula in Section 6.2 of this Plan under which shares of Common Stock are allocated to the Accounts of Plan Participants shall not be amended more frequently than once every six months. No amendment to the Plan shall have the effect of decreasing a Participant's vested interest in his Account, determined without regard to such amendment, as of the later of the date such amendment is adopted or the date it becomes effective. In addition, if the vesting schedule of the Plan is amended, any Participant who has completed at least three (3) Years of Service and whose vested interest is at any time adversely affected by such amendment may elect to have his vested interest determined without regard to such amendment during the election period defined under Section 411(a)(10) of the Code. Finally, no amendment shall eliminate an optional form of benefit in violation of Code Section 411(d)(6), as provided in regulations prescribed by the Secretary of the Treasury. 11.2 Termination of the Plan. It is the intention of the Employing Companies to continue the Plan indefinitely. However, the Board of Directors pursuant to its written resolutions may at any time and for any reason suspend or terminate the Plan or suspend or discontinue the making of contributions to the Plan by all Employing Companies. Any Employing Company may, by action of its board of directors and approval by the Board of Directors suspend or terminate the making of contributions to the Plan by such Employing Company. In the event of termination of the Plan or partial termination or upon complete discontinuance of contributions under the Plan by all Employing Companies or by any one Employing Company, the amount to the credit of the Account of each Participant whose Employing Company shall be affected by such termination or discontinuance shall be determined as of the next Valuation Date and shall be distributed to him or his Beneficiary thereafter at such time or times and in such nondiscriminatory manner as is determined by the Committee. Notwithstanding the above, so long as a Participant continues to be an Employee, no distribution may be made of shares of Common Stock which have been allocated to the Participant's Account for a period of less than 84 months commencing after the month in which such allocation occurred, unless such distribution is pursuant to Section 7.2 of the Plan or on account of termination of the Plan after December 31, 1984. 11.3 Merger or Consolidation of the Plan. The Plan shall not be merged or consolidated with nor shall any assets or liabilities thereof be transferred to any other plan unless each Participant of the Plan would (if the Plan then terminated) receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately prior to the merger, consolidation, or transfer (if the Plan had then terminated). 11.4 Transfer of Plan Assets. Notwithstanding any provision of the Plan to the contrary, upon the distribution by the Southern Company to its shareholders of the Mirant Stock held by the Southern Company pursuant to a tax-free spin-off under Code Section 355 or such similar transaction, the Accounts of certain Participants may be transferred to a retirement plan established by Mirant which is intended to constitute a qualified retirement plan under Code Section 401(a) pursuant to the Employee Matters Agreement entered into between the Southern Company and Mirant ("Agreement"). The Participants whose Accounts shall be transferred, if any, shall be identified in accordance with the Agreement. The Committee shall determine the time of such transfers and shall establish such rules and procedures as its deems necessary or appropriate to effect the transfers, except that all actions with respect to the transfers shall be taken in a manner consistent with the Agreement. ARTICLE XII TOP-HEAVY PROVISIONS 12.1 Top-Heavy Plan Requirements. For any Plan Year the Plan shall be determined to be a top-heavy plan, the Plan shall provide the minimum allocation requirement of Section 12.3. 12.2 Determination of Top-Heavy Status. --------------------------------- (a) For any Plan Year commencing after December 31, 1983, the Plan shall be determined to be a top-heavy plan, if, as of the Determination Date, the sum of the Aggregate Accounts of Key Employees under this Plan exceeds 60% of the Aggregate Accounts of all Employees entitled to participate in this Plan. (b) For any Plan Year commencing after December 31, 1983, the Plan shall be determined to be a super-top-heavy plan, if, as of the Determination Date, the sum of the Aggregate Accounts of Key Employees under this Plan exceeds 90% of the Aggregate Accounts of all Employees entitled to participate in this Plan. (c) In the case of a Required Aggregation Group, each plan in the group will be considered a top-heavy plan if the Required Aggregation Group is a Top-Heavy Group. No plan in the Required Aggregation Group will be considered a top-heavy plan if the Aggregation Group is not a Top-Heavy Group. In the case of a Permissive Aggregation Group, only a plan that is part of the Required Aggregation Group will be considered a top-heavy plan if the Permissive Aggregation Group is a Top-Heavy Group. A plan that is not part of the Required Aggregation Group but that has nonetheless been aggregated as part of the Permissive Aggregation Group will not be considered a top-heavy plan even if the Permissive Aggregation Group is a Top-Heavy Group. (d) For purposes of this Article XII, if any Employee is a non-Key Employee for any Plan Year, but such Employee was a Key Employee for any prior Plan Year, such Employee's Present Value of Accrued Retirement Income and/or Aggregate Account balance shall not be taken into account for purposes of determining whether this Plan is a top-heavy or super-top-heavy plan (or whether any Aggregation Group which includes this Plan is a Top-Heavy Group). In addition, if an Employee or former Employee has not performed any services for any Employing Company maintaining the Plan at any time during the one-year period ending on the Determination Date, the Aggregate Account and/or Present Value of Accrued Retirement Income shall be excluded in determining whether this Plan is a top-heavy or super-top-heavy plan. (e) Only those plans of the Affiliated Employers in which the Determination Dates fall within the same calendar year shall be aggregated in order to determine whether such plans are top-heavy plans. 12.3 Minimum Allocation for Top-Heavy Plan Years. ------------------------------------------- (a) Notwithstanding anything herein to the contrary, for any top-heavy Plan Year, the Employing Company contribution allocated to the Account of each non-Key Employee shall be an amount not less than the lesser of: (1) 3% of such Participant's compensation for that Plan Year, or (2) a percentage of that Participant's compensation not to exceed the percentage at which contributions are made under the Plan for the Key Employee for whom such percentage is highest for that Plan Year. (b) For purposes of the minimum allocation of Section 12.3(a), the percentage allocated to the Account of any Key Employee shall be equal to the ratio of the Employing Company contributions allocated on behalf of such Key Employee divided by the compensation of such Key Employee for that Plan Year. (c) For any top-heavy Plan Year, the minimum allocations of Section 12.3(a) shall be allocated to the Accounts of all non-Key Employees who are Participants and who are employed by the Affiliated Employers on the last day of the Plan Year. (d) Notwithstanding the foregoing, in any Plan Year in which a non-Key Employee is a Participant in both this Plan and a defined benefit plan, and both such plans are top-heavy plans, the Affiliated Employers shall not be required to provide a non-Key Employee with both the full separate minimum defined benefit and the full separate defined contribution plan allocations. Therefore, if a non-Key Employee is participating in a defined benefit plan maintained by the Affiliated Employers and the minimum benefit under Code Section 416(c)(1) is provided the non-Key Employee under such defined benefit plan, the minimum allocation provided for above shall not be applicable, and no minimum allocation shall be made on behalf of the non-Key Employee. Alternatively, the Employing Company may satisfy the minimum allocation requirement of Code Section 416(c)(2) for the non-Key Employee by providing any combination of benefits and/or contributions that satisfy the safe harbor rules of Treasury Regulation Section 1.416-1(M-12). ARTICLE XIII GENERAL PROVISIONS 13.1 Plan Not an Employment Contract. The Plan shall not be deemed to constitute a contract between an Affiliated Employer and any Employee, nor shall anything herein contained be deemed to give any Employee any right to be retained in the employ of an Employing Company, or to interfere with the right of an Employing Company to discharge any Employee at any time and to treat him without regard to the effect which such treatment might have upon him as a Participant. 13.2 Non-Alienation or Assignment. Except as may be otherwise permitted or required by law, no right or interest in the Plan of any Participant or Beneficiary and no distribution or payment under the Plan to any Participant or Beneficiary of a deceased Participant shall be subject in any manner to anticipation, alienation, sale, transfer (except by death), assignment (either at law or in equity), pledge, encumbrance, charge, attachment, garnishment, levy, execution, or other legal or equitable process, whether voluntary or involuntary, and any attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber, charge, attach, garnish, levy, execute, or enforce any other legal or equitable process against the same shall be void, nor shall any such right, interest, distribution, or payment be in any way liable for or subject to the debts, contracts, liabilities, engagements, or torts of any person entitled to such right, interest, distribution, or payment. If any Participant or Beneficiary is adjudicated bankrupt or purports to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge any such right, interest, distribution, or payment, voluntarily or involuntarily, or if any action shall be taken which is in violation of the provisions of the immediately preceding sentence, the Committee may hold or apply or cause to be held or applied such right, interest, distribution, or payment or any part thereof to or for the benefit of such Participant or Beneficiary in such manner as is in accordance with applicable law. In addition, a Participant's benefits may be offset pursuant to a judgment, order, or decree issued (or settlement agreement entered into) on or after August 5, 1997, if and to the extent that such offset is permissible or required under Code Section 401(a)(13). Notwithstanding the above, the Committee and the Trustee shall comply with any domestic relations order (as defined in Section 414(p)(1)(B) of the Code) which is a qualified domestic relations order satisfying the requirements of Section 414(p) of the Code. The Committee shall establish procedures for (a) notifying Participants and alternate payees who have or may have an interest in benefits which are the subject of domestic relations orders, (b) determining whether such domestic relations orders are qualified domestic relations orders under Section 414(p) of the Code, and (c) distributing benefits which are subject to qualified domestic relations orders. 13.3 Payments to Minors and Others. If the Committee determines that any person entitled to a distribution or payment from the Trust Fund is an infant or a minor, is incompetent or is unable to care for his affairs by reason of physical or mental disability, it may cause all distributions or payments thereafter becoming due to such person to be made to any other person for his benefit, without responsibility to follow the application of payments so made. Payments made pursuant to this provision shall completely discharge the Company, the Trustee, and the Committee with respect to the amounts so paid. 13.4 Source of Benefits. The Trust Fund established under the Plan shall be the sole source of the payments or distributions to be made in accordance with the Plan. No persons shall have any rights under the Plan with respect to the Trust Fund, or against the Trustee or any Employing Company, except as specifically provided herein. 13.5 Unclaimed Benefits. If the Committee is unable, within five (5) years after any distribution becomes payable to a Participant or Beneficiary, to make or direct payment to the person entitled thereto because the identity or whereabouts of such person cannot be ascertained, notwithstanding the mailing of due notice to such person at his last known address as indicated by the records of either the Committee or his Employing Company, then such benefit or distribution will be disposed of as follows: (a) If the whereabouts of the Participant is unknown to the Committee, distribution will be made to the Participant's Beneficiary or Beneficiaries. Payment to such one or more persons shall completely discharge the Company, the Trustee, and the Committee with respect to the amounts so paid. (b) If none of the persons described in (a) above, can be located, then the benefit payable under the Plan shall be forfeited and shall be applied to reduce future Employing Company contributions. Notwithstanding the foregoing sentence, such benefit shall be reinstated if a claim is made by the Participant or Beneficiary for the forfeited benefit. In the event the Committee makes or directs a payment to the person entitled thereto but the check for such payment remains un-cashed for a period of 180 days, the Committee shall take such actions as it deems reasonable to determine the whereabouts of such person. If the whereabouts of the person is unknown or the check remains un-cashed, the Committee shall direct that such check be cancelled. In the event the person entitled to such payment subsequently requests payment, the Committee shall direct such payment to such person in the amount of the previous check. 13.6 Governing Law. The provisions of the Plan and the Trust shall be construed, administered, and enforced in accordance with the laws of the State of Georgia, except to the extent such laws are preempted by the laws of the United States. IN WITNESS WHEREOF, the Company has caused this amendment and restatement of the Plan to be executed this _____ day of _______________, 2002 to be effective as of January 1, 2002. EMPLOYEE STOCK OWNERSHIP PLAN COMMITTEE THE SOUTHERN COMPANY EMPLOYEE STOCK OWNERSHIP PLAN APPENDIX A The Employing Companies as of July 1, 1998 are: Alabama Power Company Georgia Power Company Gulf Power Company Mississippi Power Company Savannah Electric and Power Company Southern Communications Services, Inc. Southern Company Energy Solutions, Inc. Southern Company Services, Inc. Southern Nuclear Operating Company, Inc. EX-10 11 x10a61.txt SEVENTH AMENDMENT TO THE PENSION PLAN Exhibit 10(a)61 SEVENTH 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, 1997 (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 enhance the benefits of employees who are not covered by the terms of a collective bargaining agreement and employees who are covered by the terms of a collective bargaining agreement with OPEIU Local 455, IBEW Local 1208 or SPFPA Local 576; and WHEREAS, the Company desires to amend the Plan to enhance the benefits payable to retirees. NOW, THEREFORE, the Company hereby amends the Plan as follows, effective as of June 1, 2000, unless otherwise indicated below: 1. The first paragraph of Section 1.36, "Social Security Offset," shall be amended to read as follows: 1.36 "Social Security Offset" shall mean an amount equal to one-half (1/2) of the amount, if any, of the Federal primary Social Security benefit (primary old age insurance benefit) to which it is estimated that an Employee will become entitled in accordance with the Social Security Act in force as provided in subparagraphs (a) through (e) below which shall exceed: $168 per month on and after January 1, 1989; $250 per month on and after January 1, 1991; for Employees who (i) are not covered by the terms of a collective bargaining agreement or (ii) are covered by the terms of a collective bargaining agreement but where the bargaining unit representative and an Employing Company have mutually agreed to participation in the Plan as amended, $325 per month on and after January 1, 1996; for Employees who are covered by the terms of a collective bargaining agreement with IBEW Local 1208, $350 per month on and after January 1, 1998; and for Employees who perform an Hour of Service on or after May 1, 2000 and who (i) are not covered by the terms of a collective bargaining agreement or (ii) are covered by the terms of a collective bargaining agreement with OPEIU Local 455 or SPFPA Local 576, $350 per month on and after May 1, 2000, multiplied by a fraction not greater than one, the numerator of which shall be the Employee's total Accredited Service, and the denominator of which shall be such total Accredited Service plus the Accredited Service the Employee could have accumulated if he had continued his employment from the date he terminates service with any Affiliated Employer until his Normal Retirement Date. For purposes of determining the estimated Federal primary Social Security benefit used in the Social Security Offset, an Employee shall be deemed to be entitled to receive Federal primary Social Security benefits after retirement or death, if earlier, regardless of the fact that he may have disqualified himself to receive payment thereof. In addition to the foregoing, the calculation of the Social Security benefit shall be based on the salary history of the Employee as provided in Section 5.4 and shall be determined pursuant to the following, as applicable: 2. Section 2.4, "Employees reemployed," shall be deleted in its entirety and replaced with the following new Section 2.4, effective as of April 2, 2001: 2.4 Employees reemployed. -------------------- (a) With respect to an Employee not described in subsection (b), any Employee whose service terminates at any time and who is reemployed as an Employee, unless excluded under Section 2.6, will be included in the Plan as provided in Section 2.1 unless: (1) prior to termination of his service he had completed at least one Year of Service; and (2) upon his reemployment, to the extent provided in Section 8.3 without regard to Section 8.4, he is entitled to restoration of his Years of Service, in which case he will be included in the Plan as of the date of his reemployment. For purposes of determining Years of Service of an Employee who is reemployed by an Affiliated Employer subsequent to a One-Year Break in Service, a Year of Service subsequent to his reemployment shall be computed on the basis of the twelve (12) consecutive month period commencing on his date of reemployment or an anniversary thereof. (b) With respect to an Employee whose benefits transferred to the Mirant Services Pension Plan following Mirant Services (f/k/a Southern Energy Resources, Inc.) ceasing to be an Affiliated Employer on April 2, 2001 and who is later reemployed by an Employing Company, such Employee's Accredited Service shall not be restored following his reemployment, notwithstanding the provisions of Sections 8.3, 8.4 or any other provision of the Plan. However, such Employee's Eligibility Years of Service and Vesting Years of Service shall be restored to the extent provided in Section 8.3, without regard to Section 8.4 and subsection (a) above. 3. Subsection (e) of Section 4.2, "Accredited Service," shall be amended by adding the following sentence to the end: Notwithstanding the above, on and after May 1, 2000, for Employees who perform an Hour of Service on or after May 1, 2000 and who (i) are not covered by the terms of a collective bargaining agreement, or (ii) are covered by the terms of a collective bargaining agreement with OPEIU Local 455, IBEW Local 1208 or SPFPA Local 576, the above limit on years of Accredited Service shall no longer apply. With respect to the Employees described above, any references in the Plan or any Schedule to the limitation under Section 4.2(e) shall be disregarded. 4. Section 5.2, "Minimum Retirement Income payable upon retirement at Normal Retirement Date or Deferred Retirement Date," shall be amended by adding two new paragraphs immediately following the first paragraph. The current second paragraph shall become the fourth paragraph. The new paragraphs shall read as follows: The monthly Minimum Retirement Income to an Employee who performs an Hour of Service on or after May 1, 2000, who is not covered by the terms of a collective bargaining agreement or is covered by the terms of a collective bargaining agreement with OPEIU Local 455, IBEW Local 1208 or SPFPA Local 576, and who retires from the service of an Employing Company at his Normal Retirement Date or his Deferred Retirement Date (before adjustment for Provisional Payee designation, if any) shall receive the greater benefit of (i) the monthly Minimum Retirement Income calculated in the preceding paragraph, or (ii) monthly Minimum Retirement Income in an amount equal to 1.25% of his Average Monthly Earnings multiplied by his years (and fraction of a year) of Accredited Service to his Normal Retirement Date or Deferred Retirement Date, without a Social Security Offset. For purposes of item (ii) above, Average Monthly Earnings shall be calculated using the Employee's Earnings, as defined in Section 1.13, increased by any cash payments made during any given Plan Year from an annual group incentive plan. "Annual group incentive plan" shall mean each plan designated as such and approved and ratified for each Plan Year by the manager of the Southern Company Compensation Administration department pursuant to procedures established by the Retirement Board. The Executive Productivity Improvement Plan shall be considered an "annual group incentive plan" only with regard to amounts earned in 1999 or a prior Plan Year and/or with regard to amounts which became payable in 2000 or a prior Plan Year. 5. Section 5.3, "Minimum Retirement Income upon retirement at Early Retirement Date or upon termination of service by reason of death or otherwise prior to retirement," shall be deleted in its entirety and replaced with the following new Section 5.3: 5.3 Minimum Retirement Income upon retirement at Early Retirement Date or upon termination of service by reason of death or otherwise prior to retirement. The monthly Minimum Retirement Income payable to an Employee (or his Provisional Payee), if he shall retire on his Early Retirement Date, or if his service shall terminate by reason of death or otherwise prior to retirement, shall be determined in accordance with the following provisions: (a) Upon retirement at Early Retirement Date, his Minimum Retirement Income (before adjustment for Provisional Payee designation, if any) shall be an amount determined in the manner described in Section 5.2 as of the Employee's Early Retirement Date. (b) Upon termination of service by reason of the death of the Employee prior to retirement and after the effective date of his Provisional Payee designation or deemed designation, the Minimum Retirement Income for the purpose of determining the Employee's Accrued Retirement Income upon which payment to his Provisional Payee in accordance with Section 7.4 shall be based shall be an amount determined in the manner described in Section 5.2 as of the date of the Employee's death. (c) For an Employee who terminates his service with an Employing Company with entitlement to receive Retirement Income in accordance with Section 8.1, upon retirement at his Early Retirement Date or Normal Retirement Date, his Minimum Retirement Income (before adjustment for Provisional Payee designation, if any) shall be an amount determined in the manner described in Section 5.2 as of the date of the Employee's termination of service. (d) Upon termination of service by reason of disability (as defined in Section 4.4) of the Employee prior to retirement, provided such Employee does not return to the service of an Employing Company prior to his Retirement Date, his Minimum Retirement Income shall be an amount determined in the manner described in Section 5.2 as of the Employee's Retirement Date. 6. The second paragraph of Section 5.5, "Early Retirement Income," shall be amended by adding the following new sentence to the end: Notwithstanding the preceding sentence, Retirement Income for Employees other than Employees described in Section 15.1(c) who perform an Hour of Service on or after May 1, 2000 and who (i) are not covered by the terms of a collective bargaining agreement or (ii) are covered by the terms of a collective bargaining agreement with OPEIU Local 455, IBEW Local 1208 or SPFPA Local 576, the term three-tenths of one percent (0.3%) shall replace the term one-third of one percent ([OBJECT OMITTED]%) in the preceding sentence. 7. Subsection (d) of Section 5.9, "Required distributions," shall be deleted in its entirety and replaced with the following new subsection (d), effective as of January 1, 2001: (d) Determining required minimum distributions With respect to distributions under the Plan made in calendar years beginning on or after January 1, 2001, the Plan will apply the minimum distribution requirements of section 401(a)(9) of the Internal Revenue Code in accordance with the regulations under section 401(a)(9) that were proposed in January 2001, notwithstanding any provision of the Plan to the contrary. This amendment shall continue in effect until the end of the last calendar year beginning before the effective date of final regulations under section 401(a)(9) or such other date specified in guidance published by the Internal Revenue Service. 8. Effective January 1, 2001, Section 5.11, "Increase in Retirement Income of retired Employees," shall be deleted in its entirety and replaced with the following new Section 5.11: 5.11 Increase in Retirement Income of retired Employees (a) 1996 Increase. (1) Retirement Income payable on and after January 1, 1996 to an Employee (or to the Provisional Payee of an Employee) who retired under the Prior Plans at his Early Retirement Date, Normal Retirement Date, or Deferred Retirement Date on or before January 1, 1996 will be adjusted to increase the amount thereof by an amount ranging from a minimum of one and one-half percent (1.5%) to a maximum of seven and one-half percent (7.5%) in accordance with the following schedule: Year in which Percentage retirement occurred increase ------------------- ---------- 1995 1.5% 1994 3.0% 1993 4.5% 1992 6.0% 1991 and prior years 7.5% (2) A similar adjustment, based on the date of the commencement of Retirement Income payments to the Employee's Provisional Payee, rather than the Employee's Retirement Date, will be made in respect of Retirement Income which is payable on or after January 1, 1996 where a Provisional Payee election was in effect, or was deemed to be in effect, when an Employee died while in service prior to January 1, 1996 and prior to his retirement. (3) A similar adjustment will be made in respect of Retirement Income which is payable on or after January 1, 1996 for a former Employee who is not eligible to retire but who is vested in a benefit (or the Provisional Payee of such former Employee) for which payments have commenced on or before January 1, 1996 in accordance with the terms of the Prior Plans, except for Employees whose Retirement Income has been cashed-out pursuant to the terms of the Prior Plans. (4) For purposes of determining the applicable percentage increase under this Section 5.11(a), the year of retirement includes retirement where the last day of employment was December 31 of such year. An Employee whose Deferred Retirement Date is on or before January 1, 1988 and who did not retire at his Normal Retirement Date shall be deemed to have retired at his Normal Retirement Date for purposes of determining the increase in his Retirement Income payable at his Deferred Retirement Date. (5) This Section 5.11(a) shall not apply with respect to an Employee who has not retired, but for whom the distribution of Retirement Income has commenced pursuant to Section 5.9 of the Plan. (b) 2001 Increase. (1) Retirement Income payable on and after January 1, 2001 to an Employee (or to the Provisional Payee of an Employee) who retired under the Plan or the Prior Plans at his Early Retirement Date, Normal Retirement Date, or Deferred Retirement Date on or before January 1, 2001 will be adjusted to increase the amount thereof by an amount ranging from a minimum of one and one-half percent (1.5%) to a maximum of seven and one-half percent (7.5%) in accordance with the following schedule: Pension Benefit Commencement Dates Increase From Through Percentage February 1, 2000 January 1, 2001 1.5% February 1, 1999 January 1, 2000 3.0% February 1, 1998 January 1, 1999 4.5% February 1, 1997 January 1, 1998 6.0% Before February 1, 1997 7.5% An Employee whose Deferred Retirement Date is on or before January 1, 1988 and who did not retire at his Normal Retirement Date shall be deemed to have retired at his Normal Retirement Date for purposes of determining the increase in his Retirement Income payable at his Deferred Retirement Date. (2) (A) The adjustment provided in Section 5.11(b)(1) will be made in respect of Retirement Income which is payable on or after January 1, 2001 to a Provisional Payee, pursuant to Section 7.1 of the Plan, based on the Employee's pension benefit commencement date under the Plan or the Prior Plans. (B) The adjustment provided in Section 5.11(b)(1) will be made in respect of Retirement Income which is payable on or after January 1, 2001 to a Provisional Payee, pursuant to Section 7.4 of the Plan, due to the death of an Employee while in the service of an Employing Company based on the Provisional Payee's pension benefit commencement date under the Plan or the Prior Plans. (3) A similar adjustment will be made in respect of Retirement Income which is payable on or after January 1, 2001 for a former Employee who is not eligible to retire but who is vested in a benefit (or the Provisional Payee of such former Employee) for which payments have commenced on or before January 1, 2001 in accordance with the terms of the Plan or Prior Plans, except for Employees whose Retirement Income has been cashed-out pursuant to the terms of the Plan or Prior Plans. (4) Retirement Income payable to an Employee pursuant to the last paragraph of Section 5.5 (i.e., the Social Security level payment option) shall be adjusted for the increase provided in Section 5.11(b)(1) by applying the percentage increase separately to the portion of the Employee's Retirement Income payable before age 65, if still being paid, and his Retirement Income received or to be received after he attains age 65. (5) The increased benefits provided for in Section 5.11(b)(1) shall not apply to the portion of an Employee's Retirement Income payable as a Social Security bridge payment to an Employee who retired subject to the terms of an early retirement window and who is receiving Social Security "bridge" payments pursuant to such early retirement window. (6) This Section 5.11(b) shall not apply with respect to an Employee who has not retired, but for whom the distribution of Retirement Income has commenced pursuant to Section 5.9 of the Plan. (7) The adjustment provided in Section 5.11(b)(1) will be made in respect of an Allowance which is payable on or after January 1, 2001 to a SEPCO Employee or a former SEPCO Employee, as defined in the SEPCO Schedule to the Plan, based on the Employee's pension benefit commencement date under the Plan, the Prior Plans or the Employees' Retirement Plan of Savannah Electric and Power Company ("SEPCO Plan"). An Allowance payable to a SEPCO Employee or former SEPCO Employee pursuant to Section 5.04 of the SEPCO Schedule (i.e., the Social Security level payment option) shall be adjusted for the increase provided in Section 5.11(b)(1) by applying the percentage increase separately to the portion of the SEPCO Employee's Allowance payable before age 62 or 65 (whichever is applicable), if still being paid, and his allowance received or to be received after he attains age 62 or 65, whichever is applicable. A SEPCO Employee (or his Provisional Payee) whose Allowance consists entirely of an amount payable pursuant to Retirement Annuities described in Article 2 of the SEPCO Schedule or SEPCO Plan, whichever is applicable, shall not receive the adjustment provided in Section 5.11(b)(1). A SEPCO Employee (or his Provisional Payee) whose Allowance consists partially of an amount payable pursuant to Retirement Annuities described in Article 2 of the SEPCO Schedule or SEPCO Plan, whichever is applicable, and partially of amounts accrued pursuant to Article 5 of the SEPCO Schedule or SEPCO Plan, whichever is applicable, shall have his Allowance adjusted in accordance with Section 5.11(b)(1) based on his total Allowance under both such Articles with such adjustment being paid entirely from the Trust. (8) With respect to any Employee of an Employing Company who is described in Article XVI of the Plan, the adjustment provided in Section 5.11(b)(1) shall apply to such Employee's accrued benefit determined after applying any offset provided for in Article XVI (i.e., the adjustment in Section 5.11(b)(1) shall apply to such Employee's net accrued benefit, not his total service benefit). 9. Subsection (c) of Section 6.1, "Maximum Retirement Income," shall be amended by adding the following new paragraph immediately following subsection (4): For Limitation Years beginning on and after January 1, 2001, for purposes of applying the limitations described in Section 6.1 of the Plan, compensation paid or made available during such Limitation Years shall include elective amounts that are not includable in the gross income of the Employee by reason of Code Section 132(f)(4). 10. Subsection (e) of Section 15.1, "Eligibility," shall be deleted in its entirety, effective as of April 2, 2001. IN WITNESS WHEREOF, Southern Company Services, Inc. through its duly authorized officer, has adopted this Seventh Amendment to The Southern Company Pension Plan this ____ day of _________________, 2001, to be effective as stated herein. SOUTHERN COMPANY SERVICES, INC. By: ________________________________________ Title:______________________________________ ATTEST: By: _________________________________________________________ Title:________________________________________________________ EX-10 12 x10a62.txt SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Exhibit 10(a)62 THE SOUTHERN COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Troutman Sanders LLP 600 Peachtree Street, N.E. Suite 5200 Bank of America Plaza Atlanta, Georgia 30308-2216 (404) 885-3000 Amended and Restated Effective May 1, 2000 THE SOUTHERN COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ARTICLE I - PURPOSE AND ADOPTION OF PLAN 1.1 Adoption: Southern Company Services, Inc. hereby adopts The Southern Company Supplemental Executive Retirement Plan as amended and restated effective May 1, 2000 (the "Plan"). The Plan was initially established effective January 1, 1997, and was subsequently amended from time to time thereafter. The Plan shall be an unfunded deferred compensation arrangement under which benefits shall be paid solely from the general assets of the Company. 1.2 Purpose: The Plan provides deferred compensation primarily to a select group of management or highly compensated employees to supplement such employees' accrued benefits under The Southern Company Pension Plan ("Pension Plan"). The supplement under this Plan is generally intended to make up the difference, if any, between each such employee's actual accrued benefit under the Pension Plan and the benefit he would have accrued under such plan if certain incentive pay were included in Earnings when determining Average Monthly Earnings for all methods of calculating Retirement Income under the Pension Plan. The Plan, as amended and restated herein, is intended to benefit only employees who complete an Hour of Service on or after May 1, 2000. Any employees or former employees who ceased to participate in the Plan for any reason prior to May 1, 2000 shall be governed by the Plan as in effect on the date their participation ceased. ARTICLE II - DEFINITIONS 2.1 "Administrative Committee" shall mean the committee referred to in Section 3.1 hereof. 2.2 "Affiliated Employer" shall mean any corporation which is a member of the controlled group of corporations of which Southern Company is the common parent corporation which the Board of Directors may from time to time determine to bring under the Plan and which shall adopt the Plan, and any successor of any of them. The Affiliated Employers are set forth in Appendix A to the Plan, as amended from time to time. 2.3 "Beneficiary" shall mean any person, estate, trust or organization entitled to receive any payment under the Plan upon the death of a Participant. 2.4 "Board of Directors" shall mean the Board of Directors of the Company. 2.5 "Change in Control Benefit Plan Determination Policy" shall mean the Change in Control Benefit Plan Determination Policy, as approved by the Southern Board, as it may be amended from time to time in accordance with the provisions therein. 2.6 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. 2.7 "Company" shall mean Southern Company Services, Inc. 2.8 "Effective Date" of this amendment and restatement shall mean May 1, 2000. 2.9 "Employee" shall mean any person who is employed by an Affiliated Employer excluding any persons represented by a collective bargaining agent. 2.10 "Incentive Pay" shall mean all awards earned while an Employee under any annual group incentive plans, as defined in Section 5.2 of the Pension Plan, provided such incentive award was earned on or after January 1, 1994. Alternatively, if it produces a greater benefit to the Participant, Incentive Pay shall mean all awards paid or that would have been paid but for an election to defer such incentive award under The Southern Company Deferred Compensation Plan, under any annual group incentive plan, as defined in Section 5.2 of the Pension Plan, provided such incentive award was paid or deferred on or after January 1, 1995. If a person was formerly represented by a collective bargaining agent with respect to any corporation which is a member of the controlled group of corporations of which Southern Company is the common parent and such person subsequently becomes an Employee, incentive awards described in the preceding sentence shall include awards earned on and after January 1, 1994 while represented by such collective bargaining agent. 2.11 "Participant" shall mean an Employee or former Employee of an Affiliated Employer who is eligible and participates in the Plan pursuant to Sections 4.1 and 4.2. 2.12 "Pension Plan" shall mean The Southern Company Pension Plan, as amended from time to time. 2.13 "Plan" shall mean The Southern Company Supplemental Executive Retirement Plan, as amended from time to time. 2.14 "Plan Year" shall mean the calendar year. 2.15 "SERP Benefit" shall mean the benefit described in Section 5.1. 2.16 "Southern Board" shall mean the board of directors of Southern Company. 2.17 "Supplemental Pension Benefit" shall mean the pension benefit, if any, that is payable to a Participant under a group and/or individual supplemental benefit plan of an Affiliated Employer (as such term is defined therein). 2.18 "Trust" shall mean the Southern Company Deferred Compensation Trust. Where the context requires, the definitions of all terms set forth in the Pension Plan shall apply with equal force and effect for purposes of interpretation and administration of the Plan, unless said terms are otherwise specifically defined in the Plan. The masculine pronoun shall be construed to include the feminine pronoun and the singular shall include the plural, where the context so requires. ARTICLE III - ADMINISTRATION OF PLAN 3.1 Administrator. The general administration of the Plan shall be placed in the Administrative Committee. The Administrative Committee shall consist of the Senior Vice President, Human Resources of The Southern Company, the Vice President, System Compensation and Benefits of The Southern Company and the Comptroller of The Southern Company or any other position or positions that succeed to the duties of the foregoing positions. Any member may resign or may be removed by the Board of Directors and new members may be appointed by the Board of Directors at such time or times as the Board of Directors in its discretion shall determine. The Administrative Committee shall be chaired by the Senior Vice President, Human Resources of The Southern Company and may select a Secretary (who may, but need not, be a member of the Administrative Committee) to keep its records or to assist it in the discharge of its duties. A majority of the members of the Administrative Committee shall constitute a quorum for the transaction of business at any meeting. Any determination or action of the Administrative Committee may be made or taken by a majority of the members present at any meeting thereof, or without a meeting by resolution or written memorandum concurred in by a majority of the members. 3.2 Powers. The Administrative Committee shall administer the Plan in accordance with its terms and shall have all powers necessary to carry out the provisions of the Plan more particularly set forth herein. The Administrative Committee shall have the discretionary authority to interpret the Plan and shall determine all questions arising in the administration, interpretation and application of the Plan. Any such determination by it shall be conclusive and binding on all persons. It may adopt such regulations as it deems desirable for the conduct of its affairs. It may appoint such accountants, counsel, actuaries, specialists and other persons as it deems necessary or desirable in connection with the administration of this Plan, and shall be the agent for the service of process. 3.3 Duties of the Administrative Committee. -------------------------------------- (a) The Administrative Committee is responsible for the daily administration of the Plan. It may appoint other persons or entities to perform any of its fiduciary functions. The Administrative Committee and any such appointee may employ advisors and other persons necessary or convenient to help it carry out its duties, including its fiduciary duties. The Administrative Committee shall have the right to remove any such appointee from his position. Any person, group of persons or entity may serve in more than one fiduciary capacity. (b) The Administrative Committee shall maintain accurate and detailed records and accounts of Participants and of their rights under the Plan and of all receipts, disbursements, transfers and other transactions concerning the Plan. Such accounts, books and records relating thereto shall be open at all reasonable times to inspection and audit by persons designated by the Administrative Committee. (c) The Administrative Committee shall take all steps necessary to ensure that the Plan complies with the law at all times. These steps shall include such items as the preparation and filing of all documents and forms required by any governmental agency; maintaining adequate Participants' records; recording and transmission of all notices required to be given to Participants and their Beneficiaries; the receipt and dissemination, if required, of all reports and information received from an Affiliated Employer; securing of such fidelity bonds as may be required by law; and doing such other acts necessary for the proper administration of the Plan. The Administrative Committee shall keep a record of all of its proceedings and acts, and shall keep all such books of account, records and other data as may be necessary for proper administration of the Plan. 3.4 Indemnification. The Company shall indemnify the Administrative Committee against any and all claims, losses, damages, expenses and liability arising from an action or failure to act, except when the same is finally judicially determined to be due to gross negligence or willful misconduct. The Company may purchase at its own expense sufficient liability insurance for the Administrative Committee to cover any and all claims, losses, damages and expenses arising from any action or failure to act in connection with the execution of the duties as Administrative Committee. No member of the Administrative Committee shall receive any compensation from the Plan for his service as such. ARTICLE IV - ELIGIBILITY 4.1 Eligibility Requirements. All Employees who are determined to be eligible to participate in the Plan in accordance with Section 4.2 whose benefits under the Pension Plan are limited by the exclusion of Incentive Pay from Earnings when determining Average Monthly Earnings thereunder (or their spouses, as the case may be) shall be eligible to receive benefits under the Plan provided such Employees are (a) participating in the Plan at the time they terminate from an Affiliated Employer and are retirement eligible or (b) die while in active service while with an Affiliated Employer provided each such Employee's spouse is eligible to receive a survivor benefit under Article VII of the Pension Plan at each eligible Employee's death. Notwithstanding the foregoing sentence, any former Employee who is rehired by an Affiliated Employer on or after January 1, 1997, shall also be required to complete one (1) year of continuous paid service with an Affiliated Employer before being eligible to participate in the Plan. 4.2 Determination of Eligibility. The Administrative Committee shall determine which Employees are eligible to participate. Upon becoming a Participant, an Employee shall be deemed to have assented to the Plan and to any amendments hereafter adopted. The Administrative Committee shall be authorized to rescind the eligibility of any Participant if necessary to ensure that the Plan is maintained primarily for the purpose of providing deferred compensation to a select group of management or highly compensated employees under the Employee Retirement Income Security Act of 1974, as amended. If an Employee who was employed by Mirant Corporation (f/k/a Southern Energy, Inc.) ("Mirant") or an affiliate thereof on or after April 2, 2001 is employed by an Affiliated Employer, he shall be treated as a new hire and none of his service with Mirant shall be considered as Accredited Service under Article V. ARTICLE V - BENEFITS 5.1 SERP Benefit. (a) Subject to the terms of the Pension Plan, a Participant shall be entitled to a monthly SERP Benefit equal to: (1) the greater of (A) or (B) below, if applicable: (A) 1.70% of the Participant's Average Monthly Earnings multiplied by his years (and fraction of a year) of Accredited Service to his Retirement Date, death or other termination of service, including a Social Security Offset. However, if applicable under the Pension Plan, 1.70% shall be changed to 1.0% and no Social Security Offset shall apply. (B) 1.25% of the Participant's Average Monthly Earnings multiplied by his years (and fraction of a year) of Accredited Service to his Retirement Date, death or other termination of service. However, this paragraph (B) shall only apply to Participants who are subject to the 1.70% formula above; less (2) such Participant's Retirement Income that is payable under the Pension Plan; less (3) such Participant's Supplemental Pension Benefit. The benefit determined in subsection (1) above shall be adjusted, if necessary, under the terms of the Pension Plan for commencement prior to the Participant's Normal Retirement Date. This adjustment shall be made before the amounts described in subsections (2) and (3) are subtracted from such benefit. (b) For purposes of Section 5.1(a)(1), the Participant's Average Monthly Earnings shall be calculated based on the Participant's Earnings that are considered under the Pension Plan in calculating his Retirement Income, but without regard to the limitation of Section 401(a)(17) of the Code, and including the following additional amounts: (1) any portion of such Participant's base pay that he may have elected to defer under The Southern Company Deferred Compensation Plan, but excluding Incentive Pay he deferred under such plan; and (2) any Incentive Pay as of the applicable Plan Year in excess of 15% of the Participant's corresponding base pay for the applicable Plan Year determined under this Section 5.1(b). In addition, to determine the Plan Years which produce the highest monthly average to calculate Average Monthly Earnings under the Plan, a Participant's Earnings should include those additional amounts provided for in Section 5.1(b). (c) For purposes of Section 5.1(a)(1), the Participant's years of Accredited Service shall include any deemed Accredited Service provided under the terms of any agreement concerning supplemental pension payments between the Participant and an Affiliated Employer. (d) To the extent that a Participant's Retirement Income under the Pension Plan is recalculated as a result of an amendment to the Pension Plan, the Participant's SERP Benefit shall also be recalculated in order to properly reflect such adjustment under the Pension Plan in determining payments of the Participant's SERP Benefit made on or after the effective date of such Pension Plan recalculation. (e) To the extent that a Participant's Supplemental Pension Benefit is recalculated as a result of an amendment to the Pension Plan, the Participant's SERP Benefit shall also be recalculated in order to properly reflect such Supplemental Pension Benefit recalculation in determining payments of the Participant's SERP Benefit on or after the effective date of such Supplemental Pension Benefit recalculation. 5.2 Distribution of Benefits. ------------------------ (a) The SERP Benefit, as determined in accordance with Section 5.1, shall be payable in monthly increments on the first day of the month concurrently with the Participant's Retirement Income under the Pension Plan. The form in which the SERP Benefit is paid will be the same as elected by the Participant under the Pension Plan except that the amount of the monthly benefit will be modified at the appropriate time based on the commencement of payments as follows. Payments shall be adjusted to include three components: (1) The amount necessary to pay the tax due under the Federal Insurance Contributions Act with respect to the accrued SERP Benefit determined upon retirement (or such other appropriate "resolution date" as defined under Treasury Regulation Section 31.3121(v)-2) calculated in accordance with Section 5.1; (2) The amount estimated to pay the federal and state income tax withholding liability due on the amount paid under paragraph (1) above; and (3) An adjusted monthly benefit determined on an actuarially equivalent basis in accordance with the terms of the Pension Plan which takes into account the amounts paid under paragraph (1) and (2) above and taking into account the form of benefit elected by the Participant under the Pension Plan. Upon adjustment, the remaining monthly payments shall equal the amount described in paragraph (3) above. The Beneficiary of a Participant's Pension Benefit shall be the same as the Provisional Payee, if any, of the Participant's Retirement Income under the Pension Plan. 5.3 Allocation of SERP Benefit Liability. In the event that a Participant eligible to receive a SERP Benefit has been employed at more than one Affiliated Employer, the SERP Benefit liability shall be apportioned so that each such Affiliated Employer is obligated in accordance with Section 5.4 to cover the percentage of the total SERP Benefit as determined below. Each Affiliated Employer's share of the SERP Benefit liability shall be calculated by multiplying the SERP Benefit by a fraction where the numerator of such fraction is the base rate of pay, as defined by the Administrative Committee, received by the Participant at the respective Affiliated Employer on his date of termination of employment or transfer, as applicable, multiplied by the Accredited Service earned by the Participant at the respective Affiliated Employer and where the denominator of such fraction is the sum of all numerators calculated for each respective Affiliated Employer by which the Participant has been employed. In the event that a Participant receives additional Accredited Service in accordance with Section 5.1(c), for purposes of determining liability under this Section 5.3, such Accredited Service shall be allocated to each Affiliated Employer which has contracted with the Participant in accordance with such contract and this allocation will be utilized to adjust the appropriate components of the fraction in the preceding sentence in determining each Affiliated Employer's share of the SERP Benefit liability. Notwithstanding the preceding paragraph, the SERP Benefit liability attributable to any Participant employed on April 2, 2001 by Mirant or any affiliate thereof shall not be paid from this Plan, but rather shall be a liability of Mirant in accordance with the Employee Matters Agreement entered into by and between Mirant and Southern Company. However, the portion of any SERP Benefit payable to a Participant employed by an Affiliated Employer on April 2, 2001 which is attributable to service with Mirant prior to April 2, 2001 (as determined using the fraction described above) shall be a liability of Southern Company. 5.4 Funding of Benefits. Except as expressly limited under the terms of the Trust, the Company shall not reserve or otherwise set aside funds for the payment of its obligations under the Plan. In any event, such obligations shall be paid or deemed to be paid solely from the general assets of the Company. Participants shall only have the status of a general, unsecured creditor of the Company. When a Participant becomes entitled to payment of a SERP Benefit, the Company may, in its sole discretion, elect to purchase an annuity from a reputable third party annuity provider to secure payment of all or any portion of the Participant's SERP Benefit, pursuant to a uniform annuitization program adopted by the Administrative Committee. 5.5 Withholding. There shall be deducted from the payment of any SERP Benefit due under the Plan the amount of any tax required by any governmental authority to be withheld and paid over by the Company to such governmental authority for the account of the Participant or Beneficiary entitled to such payment. 5.6 Recourse Against Deferred Compensation Trust. In the event a Participant who is employed on or after January 1, 1999 with an "Employing Company" (as defined in the Change in Control Benefit Plan Determination Policy) disputes the calculation of his SERP Benefit, the Participant has recourse against the Company, the Employing Company by which the Participant is employed, if different, the Plan, and the Trust for payment of benefits to the extent the Trust so provides. 5.7 Change in Control. The provisions of the Change in Control Benefit Plan Determination Policy are incorporated herein by reference to determine the occurrence of a change in control or preliminary change in control of Southern Company or an Employing Company, the benefits to be provided hereunder and the funding of the Trust in the event of such a change in control. Any modifications to the Change in Control Benefit Plan Determination Policy are likewise incorporated herein. ARTICLE VI - MISCELLANEOUS 6.1 Assignment. Neither the Participant, his Beneficiary nor his legal representative shall have any rights to sell, assign, transfer or otherwise convey the right to receive the payment of any SERP Benefit due hereunder, which payment and the right thereto are expressly declared to be nonassignable and nontransferable. Any attempt to assign or transfer the right to payment under the Plan shall be null and void and of no effect. 6.2 Amendment and Termination. Except for the provisions of Section 5.7 hereof, which may not be amended following a "Southern Change in Control" or "Subsidiary Change in Control" (as defined in the Change in Control Benefit Plan Determination Policy), the Plan may be amended or terminated at any time by the Board of Directors, provided that no amendment or termination shall cause a forfeiture or reduction in any benefits accrued as of the date of such amendment or termination. 6.3 No Guarantee of Employment. Participation hereunder shall not be construed as creating any contract of employment between an Affiliated Employer and a Participant, nor shall it limit the right of an Affiliated Employer to suspend, terminate, alter or modify, whether or not for cause, the employment relationship between the Affiliated Employer and a Participant. 6.4 Construction. This Plan shall be construed in accordance with and governed by the laws of the State of Georgia, to the extent such laws are not otherwise superseded by the laws of the United States. IN WITNESS WHEREOF, the amended and restated Plan has been executed by duly authorized officers of Southern Company Services, Inc. pursuant to resolutions of the Board of Directors of Southern Company Services, Inc. this day of , 2001. SOUTHERN COMPANY SERVICES, INC. By:_____________________________ By:_____________________________ Its:____________________________ Attest: By: ______________________________ Its: ______________________________ APPENDIX A THE SOUTHERN COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AFFILIATED EMPLOYERS AS OF MAY 1, 2000 Alabama Power Company Georgia Power Company Gulf Power Company Mississippi Power Company Savannah Electric and Power Company Southern Communications Services, Inc. Southern Company Energy Solutions, Inc. Southern Company Services, Inc. Southern Energy Resources, Inc. (through April 1, 2001) Southern Nuclear Operating Company, Inc. EX-10 13 x10a63.txt PERFORMANCE SHARING PLAN Exhibit 10(a)63 THE SOUTHERN COMPANY PERFORMANCE SHARING PLAN Amended and Restated Effective January 1, 2002 THE SOUTHERN COMPANY PERFORMANCE SHARING PLAN TABLE OF CONTENTS ARTICLE I..............................................................1 ARTICLE II.............................................................2 2.1 "Account"............................................2 2.2 "Affiliated Employer"................................2 2.3 "Aggregate Account"..................................2 2.4 "Aggregation Group"..................................3 2.5 "Annual Addition"....................................3 2.6 "Beneficiary"........................................3 2.7 "Board of Directors".................................3 2.8 "Break-in-Service Date"..............................3 2.9 "Code"...............................................4 2.10 "Committee"..........................................4 2.11 "Company"............................................4 2.12 "Compensation".......................................4 2.13 "Determination Date".................................5 2.14 "Determination Year".................................5 2.15 "Distributee"........................................5 2.16 "Direct Rollover"....................................5 2.17 "Eligible Employee".................................5 2.18 "Eligible Retirement Plan"...........................7 2.19 "Eligible Rollover Distribution".....................7 2.20 "Employee"...........................................7 2.21 "Employer Contribution"..............................7 2.22 "Employing Company"..................................7 2.23 "Enrollment Date"....................................8 2.24 "ERISA" 8 2.25 "Forfeiture"........................................8 2.26 "Highly Compensated Employee"........................8 2.27 "Hour of Service"....................................8 2.28 "Investment Fund"....................................9 2.29 "Key Employee".......................................9 2.30 "Limitation Year"....................................9 2.31 "Look-Back Year".....................................9 2.32 "Mirant" 9 2.33 "Mirant Services"....................................9 2.34 "Non-Highly Compensated Employee"....................9 2.35 "Normal Retirement Date".............................9 2.36 "One-Year Break in Service"..........................9 2.37 "Participant"........................................9 2.38 "Permissive Aggregation Group".......................9 2.39 "Plan" 9 2.40 "Plan Year"..........................................9 2.41 "Present Value of Accrued Retirement Income" 10 2.42 "Required Aggregation Group"........................10 2.43 "SCEM" 10 2.44"Super-Top-Heavy Group"..................................10 2.45 "Surviving Spouse"..................................10 2.46 "Suspense Account"..................................10 2.47 "Top-Heavy Group"...................................10 2.48 "Trust" or "Trust Fund".............................11 2.49 "Trust Agreement"...................................11 2.50 "Trustee"...........................................11 2.51 "Valuation Date"....................................11 2.52 "Year of Service"...................................11 ARTICLE III...........................................................12 3.1 Eligibility Requirements............................12 3.2 Participation upon Reemployment.....................12 3.3 No Restoration of Previously Distributed Benefits............................................12 3.4 No Restoration of Previously Distributed Benefits Loss of Eligible Employee Status...........13 3.5 Military Leave......................................13 ARTICLE IV............................................................14 4.1 Amount of Employer Contributions....................14 4.2 Allocation of Employer Contributions................14 4.3 Reversion of Employer Contributions.................14 4.4 Correction of Prior Incorrect Allocations and Distributions...................................15 ARTICLE V.............................................................17 5.1 Section 415 Limitations.............................17 5.2 Correction of Contributions in Excess of Section 415 Limits..................................17 5.3 Combination of Plans................................18 ARTICLE VI............................................................19 6.1 Investment Funds....................................19 6.2 Investment of Contributions.........................19 6.3 Investment of Earnings..............................19 6.4 Transfer of Assets between Funds....................19 6.5 Change in Investment Direction......................19 6.6 Section 404(c) Plan.................................19 ARTICLE VII...........................................................21 7.1 Establishment of Account............................21 7.2 Valuation of Investment Funds.......................21 7.3 Rights in Investment Funds..........................21 ARTICLE VIII..........................................................22 8.1 Vesting.............................................22 8.2 Forfeitures.........................................22 8.3 Deemed Cash-out and Deemed Buy-back.................22 8.4 Vesting after One-Year Break in Service.............22 ARTICLE IX............................................................24 9.1 Distribution upon Retirement........................24 9.2 Distribution upon Disability........................24 9.3 Distribution upon Death.............................24 9.4 Designation of Beneficiary in the Event of Death...............................................25 9.5 Distribution upon Termination of Employment.........26 9.6 Method of Payment...................................26 9.7 Commencement of Benefits............................27 9.8 Transfer between Employing Companies................28 9.9 Distributions to Alternate Payees...................28 9.10 Requirement for Direct Rollovers....................28 9.11 Consent and Notice Requirements.....................28 9.12 Form of Payment.....................................29 ARTICLE X.............................................................30 10.1 Membership of Committee.............................30 10.2 Acceptance and Resignation..........................30 10.3 Transaction of Business.............................30 10.4 Responsibilities in General.........................30 10.5 Committee as Named Fiduciary........................31 10.6 Rules for Plan Administration.......................31 10.7 Employment of Agents................................31 10.8 Co-Fiduciaries......................................31 10.9 General Records.....................................31 10.10 Liability of the Committee..........................32 10.11 Reimbursement of Expenses and Compensation of Committee........................................32 10.12 Expenses of Plan and Trust Fund.....................32 10.13 Responsibility for Funding Policy...................33 10.14 Management of Assets................................33 10.15 Notice and Claims Procedures........................33 10.16 Bonding 34 10.17 Multiple Fiduciary Capacities.......................34 10.18 Change in Administrative Procedures.................34 ARTICLE XI............................................................35 11.1 Trustee 35 11.2 Voting of Other Investment Fund Shares..............35 11.3 Uninvested Amounts..................................35 11.4 Independent Accounting..............................36 ARTICLE XII...........................................................37 12.1 Amendment of the Plan...............................37 12.2 Termination of the Plan.............................38 12.3 Merger or Consolidation of the Plan.................38 ARTICLE XIII..........................................................39 13.1 Top-Heavy Plan Requirements.........................39 13.2 Determination of Top-Heavy Status...................39 13.3 Minimum Allocation for Top-Heavy Plan Years.........40 13.4 Minimum Vesting.....................................41 ARTICLE XIV...........................................................42 14.1 Plan Not an Employment Contract.....................42 14.2 No Right of Assignment or Alienation................42 14.3 Payment to Minors and Others........................43 14.4 Source of Benefits..................................43 14.5 Unclaimed Benefits..................................43 14.6 Transfer of Plan Assets.............................44 14.7 Governing Law.......................................44 ARTICLE I PURPOSE The purpose of the Plan is to create added employee interest in the affairs of The Southern Company, particularly with respect to its performance relative to peer companies, to supplement retirement and death benefits, and to create a competitive compensation program for employees through the establishment of a formal plan under which the Employing Companies shall contribute on behalf of eligible Participants. This Plan is intended to be a profit sharing plan, and all contributions made by an Employing Company to this Plan are expressly conditioned upon the qualification of the Plan under Code Section 401(a) and the deductibility of such contributions under Code Section 404. The Plan was originally effective as of January 1, 1997. The effective date of this amendment and restatement of the Plan is January 1, 2002. ARTICLE II DEFINITIONS All references to articles, sections, subsections, and paragraphs shall be to articles, sections, subsections, and paragraphs of this Plan unless another reference is expressly set forth in this Plan. Any words used in the masculine shall be read and be construed in the feminine where they would so apply. Words in the singular shall be read and construed in the plural, and all words in the plural shall be read and construed in the singular in all cases where they would so apply. For purposes of this Plan, unless otherwise required by the context, the following terms shall have the meanings set forth opposite such terms: 2.1 "Account" shall mean the total amount credited to the account of a Participant, as described in Section 7.1. 2.2 "Affiliated Employer" shall mean an Employing Company and (a) any corporation which is a member of a controlled group of corporations (as defined in Section 414(b) of the Code) which includes such Employing Company, (b) any trade or business (whether or not incorporated) which is under common control (as defined in Section 414(c) of the Code) with such Employing Company, (c) any organization (whether or not incorporated) which is a member of an affiliated service group (as defined in Section 414(m) of the Code) which includes such Employing Company, and (d) any other entity required to be aggregated with such Employing Company pursuant to regulations under Section 414(o) of the Code. Notwithstanding the foregoing, for purposes of applying the limitations of Article V, the term Affiliated Employer shall be adjusted as required by Code Section 415(h). 2.3 "Aggregate Account" shall mean with respect to a Participant as of the Determination Date, the sum of the following: (a) the Account balance of such Participant as of the most recent valuation occurring within a twelve-month period ending on the Determination Date; (b) an adjustment for any contributions due as of the Determination Date; (c) any Plan distributions, including unrelated rollovers and plan-to-plan transfers (ones which are both initiated by the Employee and made from a plan maintained by one employer to a plan maintained by another employer), but not related rollovers or plan-to-plan transfers (ones either not initiated by the Employee or made to a plan maintained by the same employer), made within the one-year period ending on the Determination Date. The preceding sentence shall also apply to distributions under a terminated plan which, if it had not been terminated, would have been required to be included in an Aggregation Group. In the case of a distribution made for reason other than severance from employment (or separation from service), death or disability, this provision shall be applied by substitution "five-year period" for "one-year period"; (d) any Employee contributions, whether voluntary or mandatory; (e) unrelated rollovers and plan-to-plan transfers to this Plan; and (f) related rollovers and plan-to-plan transfers to this Plan. 2.4 "Aggregation Group" shall mean either a Required Aggregation Group or a Permissive Aggregation Group. 2.5 "Annual Addition" shall mean the amount allocated to a Participant's Account and accounts under all defined contribution plans maintained by the Affiliated Employers during a Limitation Year that constitutes: (a) Affiliated Employer contributions, (b)......voluntary participant contributions, (c) Forfeitures, if any, allocated to a Participant's Account or accounts under all defined contribution plans maintained by the Affiliated Employers, and (d) amounts described in Sections 415(l)(1) and 419A(d)(2) of the Code. 2.6 "Beneficiary" shall mean any person(s) who, or estate(s), trust(s), or organization(s) which, in accordance with the provisions of Section 9.4, become entitled to receive benefits upon the death of a Participant. 2.7 "Board of Directors" shall mean the Board of Directors of Southern Company Services, Inc. 2.8 "Break-in-Service Date" means the earlier of: (a) the date on which an Employee terminates employment, is discharged, retires, or dies; or (b) the last day of an approved leave of absence including any extension. For purposes of subsection (a) above, an Employee who ceases to be eligible to participate in the Plan pursuant to paragraph (t) of Section 2.17 shall be deemed to have experienced a termination of employment as of the date as of which Section 2.17(t) first applies. In the case of an individual who is absent from work for maternity or paternity reasons, such individual shall not incur a Break-in-Service Date earlier than the expiration of the second anniversary of the first date of such absence; provided, however, that the twelve-consecutive-month period beginning on the first anniversary of the first date of such absence shall not constitute a Year of Service. For purposes of this paragraph, an absence from work for maternity or paternity reasons means an absence (a) by reason of the pregnancy of the Employee, (b) by reason of a birth of a child of the Employee, (c) by reason of the placement of a child with the Employee in connection with the adoption of such child by such Employee, or (d) for purposes of caring for such child for a period beginning immediately following such birth or placement. 2.9 "Code" shall mean the Internal Revenue Code of 1986, as amended, or any successor statute, and the rulings and regulations promulgated thereunder. In the event an amendment to the Code renumbers a section of the Code referred to in this Plan, any such reference automatically shall become a reference to such section as renumbered. 2.10 "Committee" shall mean the committee appointed pursuant to Section 10.1 to serve as plan administrator. 2.11 "Company" shall mean Southern Company Services, Inc., and its successors. 2.12 "Compensation" shall mean the salary or wages paid to a Participant by an Affiliated Employer for the Plan Year during which he is eligible to participate, including all amounts contributed by an Affiliated Employer to The Southern Company Employee Savings Plan and/or The Southern Company Flexible Benefits Plan on behalf of a Participant pursuant to a salary reduction arrangement under such plans. Compensation shall also include all awards under any incentive pay plans sponsored by an Affiliated Employer as shall be determined by the Committee from time to time and set forth in Appendix B attached hereto, monthly shift and monthly seven-day schedule differentials, scheduled shift pay, geographic premiums, monthly nuclear plant premiums, monthly customer service premiums, sales commissions paid under a sales commission payment program sponsored by an Affiliated Employer for sales commission-based employees, and, for appliance salespersons, certain nonproductive pay earnings types as determined from time to time by the Committee and set forth on Appendix C to the Plan, which Appendix may be updated from time to time. Compensation shall exclude regular overtime pay, any hourly shift differentials, substitution pay, such amounts which are reimbursements to a Participant paid by any Affiliated Employer including, but not limited to, reimbursement for such items as moving expenses and travel and entertainment expenses, and imputed income for automobile expenses, tax preparation expenses and health and life insurance premiums paid by the Affiliated Employer. The Compensation of each Participant taken into account for purposes of this Plan shall not exceed the applicable limit under Code Section 401(a)(17). 2.13 "Determination Date" shall mean with respect to a Plan Year, the last day of the preceding Plan Year, or in the case of the first Plan Year, the last day of such Plan Year. 2.14 "Determination Year" shall mean the Plan Year being tested. 2.15 "Distributee" shall include an Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is an alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are Distributees with regard to the interest of the spouse or former spouse. 2.16 "Direct Rollover" shall mean a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. 2.17 "Eligible Employee" shall mean an Employee who is employed by an Employing Company and who is classified by the Employing Company as a regular full-time, regular part-time or cooperative education employee who: (a) was actively employed on December 31, 1996 but who will not attain his fortieth (40th) birthday on or before January 1, 2002 or who was not a member of an eligible class of employees under a pension plan of an Employing Company on December 31, 1996 and has not previously participated in any such pension plan; (b) was actively employed on December 31, 1996 and properly elects to participate in this Plan pursuant to the procedures established under the Plan for making such election; or (c) was employed or reemployed on or after January 1, 1997 or who rescinded a waiver of participation in The Southern Company Pension Plan pursuant to Section 2.7 thereof on or after January 1, 1997 that was in effect on December 31, 1996. "Eligible Employee" shall not include: (t) an individual who is employed by Mirant Services on or after April 2, 2001 (u) an Employee who has been previously employed by an Employing Company, transferred to Southern Company Energy Marketing, L.P., subsequently transfers back to an Employing Company, and is not described in paragraph (a) of Section 15.1 of The Southern Company Pension Plan, or any successor section thereto; (v) an individual who is classified by an Employing Company as a leased employee, regardless of whether such classification is determined to be in error; (w) any Employee who is represented by a collective bargaining agent unless the representatives of his bargaining unit and the Employing Company mutually agree to participation in the Plan subject to its terms by members of his bargaining unit; (x) any individual or Employee who is classified by the Employing Company as a temporary employee or as an independent contractor, regardless of prior inclusion under the Plan or whether such classification is determined to be in error; or (y) any individual or Employee who has voluntarily waived participation in the Plan for any reason, including any individual or Employee who has waived benefits upon employment by the Employing Company. 2.18 "Eligible Retirement Plan" shall mean an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, a plan described in Section 403(b) of the Code, a plan described in Section 457(b) of the Code which is maintained by a state, an agency or instrumentality of a state, or a political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan, or a qualified trust described in Section 401(a) of the Code that accepts the Distributee's Eligible Rollover Distribution. This definition of Eligible Rollover Distribution shall also apply to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relations order as defined in Code Section 414(p). 2.19 "Eligible Rollover Distribution" shall mean any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: (a) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee, the joint lives (or joint life expectancies) of the Distributee and the Distributee's Beneficiary, or for a specified period of 10 years or more; (b) any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and (c) the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). 2.20 "Employee" shall mean each individual who is employed by an Affiliated Employer under common law and each individual who is required to be treated as an employee pursuant to the "leased employee" rules of Code Section 414(n) other than a leased employee described in Code Section 414(n)(5). 2.21 "Employer Contribution" shall mean a contribution made by an Employing Company pursuant to Section 4.1. 2.22 "Employing Company" shall mean the Company and any affiliate or subsidiary of The Southern Company which the Board of Directors may from time to time determine to bring under the Plan and which shall adopt the Plan, and any successor of them. The Employing Companies are set forth on Appendix A to the Plan as updated from time to time. No such entity shall be treated as an Employing Company prior to the date it adopts the Plan. 2.23 "Enrollment Date" shall mean the day on which the Eligible Employee meets the requirements for participation in this Plan under Article III. 2.24 "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, or any successor statute, and the rulings and regulations promulgated thereunder. In the event an amendment to ERISA renumbers a section of ERISA referred to in this Plan, any such reference automatically shall become a reference to such section as renumbered. 2.25 "Forfeiture" shall mean that portion of a Participant's Account that is forfeitable as determined under the vesting schedule set forth in Article VIII hereof. Forfeitures shall be used to pay Plan administrative expenses, to offset future Employer Contributions or for such other purposes as are provided for in Section 8.2 of the Plan. Forfeitures shall not be used until the last day of the month immediately following the month in which occurs the termination of employment of a Participant with zero percent (0%) vesting. Therefore, a Forfeiture will only occur in the event of an occurrence described in the preceding sentence, and only then shall the non-vested portion of a Participant's Account be used as described above. 2.26 "Highly Compensated Employee" shall mean (in accordance with and subject to Code Section 414(q) and any regulations, rulings, notices or procedures thereunder), with respect to any Plan Year: (1) any Employee who was a five percent (5%) or greater owner during the Plan Year or the immediately preceding Plan Year, or (2) any Employee who earned more than $80,000 in the preceding Plan Year. The $80,000 amount shall be adjusted for inflation and for short Plan Years, pursuant to Code Section 414(q). The Employer may, at its election, limit Employees earning $80,000 or more to only those Employees who fall within the "top-paid group," as defined in Code Section 414(q) excluding those employees described in Code Section 414(q)(8) for such purpose. In determining whether an Employee is a Highly Compensated Employee, the Committee may make any elections authorized under applicable regulations, rulings, notices, or procedures. 2.27 "Hour of Service" shall mean each hour for which an Employee is paid, or entitled to payment, for the performance of duties for an Affiliated Employer. 2.28 "Investment Fund" shall mean any one of the funds described in Article VI which constitutes part of the Trust Fund. 2.29 "Key Employee" shall mean any Employee or former Employee (and his Beneficiary) who is a key employee within the meaning of Code Section 416(i)(1). 2.30 "Limitation Year" shall mean the Plan Year. 2.31 "Look-Back Year" shall mean the Plan Year preceding the Determination Year. 2.32 "Mirant" shall mean Mirant Corporation, any subsidiary of Mirant Corporation, or any successor thereto. 2.33 "Mirant Services" shall mean Mirant Services, LLC. 2.34 "Non-Highly Compensated Employee" shall mean an Employee who is not a Highly Compensated Employee. 2.35 "Normal Retirement Date" shall mean the later of a Participant's sixty-fifth (65th) birthday or the fifth anniversary of the Participant's date of initial participation in the Plan. 2.36 "One-Year Break in Service" shall mean each twelve-consecutive-month period within the period commencing with an Employee's Break-in-Service Date and ending on the date the Employee is again credited with an Hour of Service. 2.37 "Participant" shall mean (a) an Eligible Employee who has met the eligibility requirements for participation in the Plan as provided in Article III and whose participation in the Plan at the time of reference has not been terminated as provided in the Plan and (b) an Employee or former Employee who has ceased to be a Participant under (a) above, but for whom an Account is maintained under the Plan. 2.38 "Permissive Aggregation Group" shall mean a group of plans consisting of the Required Aggregation Group and, at the election of the Affiliated Employers, such other plan or plans not required to be included in the Required Aggregation Group, provided the resulting group, taken as a whole, would continue to satisfy the provisions of Code Section 401(a)(4) or 410. 2.39 "Plan" shall mean The Southern Company Performance Sharing Plan as described herein or as from time to time amended. 2.40 "Plan Year" shall mean the twelve-month period commencing January 1st and ending on the last day of December next following. 2.41 "Present Value of Accrued Retirement Income" shall mean an amount determined solely for the purpose of determining if the Plan, or any other plan included in a Required Aggregation Group of which the Plan is a part, is top heavy in accordance with Code Section 416. 2.42 "Required Aggregation Group" shall mean those plans that are required to be aggregated as determined under this Section 2.42. In determining a Required Aggregation Group hereunder, each plan of the Affiliated Employers in which a Key Employee is a participant and each other plan of the Affiliated Employers which enables any plan in which a Key Employee participates to meet requirements of Code Section 401(a)(4) or 410 will be required to be aggregated. 2.43 "SCEM" shall mean Southern Company Energy Marketing, L.P. 2.44 "Super-Top-Heavy Group" shall mean an Aggregation Group that would be a Top-Heavy Group if 90% were substituted for 60% in Section 2.47. 2.45 "Surviving Spouse" shall mean the person to whom the Participant is married on the date of his death, if such spouse is then living, provided that the Participant and such spouse shall have been married throughout the one (1) year period ending on the date of the Participant's death. 2.46 "Suspense Account" shall mean the total forfeitable portion of all terminated or former Participants' Accounts which have not yet become available to offset future Employer Contributions. The Suspense Account shall represent the total of separate bookkeeping accounts established in the name of each terminated or former Participant to represent his forfeitable percentage. (This account shall be separate from the Code Section 415 suspense account referenced in Section 5.2 hereof.) The Suspense Account shall always share in earnings or losses of the Trust Fund and at the appropriate time shall be used to offset future Employer Contributions. Forfeitures shall only remain in the Suspense Account until such time as they become available to reduce future Employer Contributions in accordance with Sections 2.25 and 8.2 hereof. 2.47 "Top-Heavy Group" shall mean an Aggregation Group in which, as of the Determination Date, the sum of: (a) the Present Value of Accrued Retirement Income of Key Employees under all defined benefit plans included in that group, and (b) the Aggregate Accounts of Key Employees under all defined contribution plans included in the group, exceeds 60% of a similar sum determined for all employees. 2.48 "Trust" or "Trust Fund" shall mean the trust established pursuant to the Trust Agreement. 2.49 "Trust Agreement" shall mean the trust agreement between the Company and the Trustee, as described in Article XI. 2.50 "Trustee" shall mean the person or corporation designated as trustee under the Trust Agreement, including any successor or successors. 2.51 "Valuation Date" shall mean each business day of the New York Stock Exchange. 2.52 "Year of Service" shall mean a twelve-month period of employment as an Employee, including any fractions thereof. Calculation of the twelve-month periods shall commence with the Employee's first day of employment, which is the date on which an Employee first performs an Hour of Service, and shall terminate on his Break-in-Service Date. Thereafter, if he has more than one period of employment as an Employee, his Years of Service for any subsequent period shall commence with the Employee's reemployment date, which is the first date following a Break-in-Service Date on which the Employee performs an Hour of Service, and shall terminate on his next Break-in-Service Date. An Employee who has a Break-in-Service Date and resumes employment with the Affiliated Employers within twelve months of his Break-in-Service Date shall receive a fractional Year of Service for the period of such cessation of employment. For purposes of determining an Employee's eligibility to participate, all Years of Service with an Affiliated Company shall be counted. For purposes of determining an Employee's Years of Service for vesting credit, all Years of Service with an Affiliated Company shall be counted provided that such Years of Service are credited on or after the later of (i) January 1, 1997 or (ii) the Employee's date of hire. Notwithstanding anything in this Section 2.52 to the contrary, an Employee shall not receive credit for more than one Year of Service with respect to any twelve-consecutive-month period. ARTICLE III PARTICIPATION 3.1 Eligibility Requirements. Each Eligible Employee who has completed one (1) Year of Service for eligibility purposes on or before January 1, 1997 shall become a Participant in the Plan on January 1, 1997. Each other Eligible Employee shall become a Participant in the Plan as of the Enrollment Date on which he has completed one (1) Year of Service. Each Eligible Employee shall direct the investment of his Account in accordance with Article VI and the procedures established by the Committee. 3.2 Participation upon Reemployment. If an Employee terminates his employment with an Affiliated Employer and is subsequently reemployed as an Eligible Employee, he shall become a Participant in the Plan as of the date of his reemployment. Notwithstanding the foregoing, if such Eligible Employee did not have a vested right to any portion of his Account balance at the time of his termination from employment and at the time of his reemployment his consecutive One-Year Breaks in Service exceed the greater of five (5) or his aggregate Years of Service earned prior to his One-Year Break in Service, he shall be treated as a new Employee for eligibility purposes. For purposes of this Section 3.2, an Employee employed by Mirant or Mirant Services on April 2, 2001 shall be considered to have terminated employment with an Affiliated Employer as of such date. 3.3 No Restoration of Previously Distributed Benefits. A Participant who has terminated his employment with the Affiliated Employers at a time when he is 100% vested in his Account and has received a full distribution of his vested benefits pursuant to Section 9.5 hereof shall not be entitled to restore the amount of such distribution to his Account if he is reemployed and again becomes a Participant in the Plan. Notwithstanding the foregoing, a Participant who terminates employment at a time when he is zero percent (0%) vested in his Account and is deemed cashed-out of the Plan pursuant to Section 8.3 hereof, and who returns to the employ of an Affiliated Employer before incurring five (5) consecutive One-Year Breaks in Service shall be deemed to have bought back into the Plan and shall be entitled to a restoration of his benefits as provided under Section 8.3 hereof. A Participant whose benefit under the Plan was transferred to a qualified plan maintained by Mirant Services as a result of the spin-off of Mirant from the Southern Company controlled group on April 2, 2001 shall not be entitled to restoration of the amount of such transfer upon his subsequent reemployment by an Affiliated Employer. 3.4 Loss of Eligible Employee Status. If a Participant loses his status as an Eligible Employee, but remains an Employee, such Participant shall be ineligible to participate until the Enrollment Date coinciding with or next following the date such Employee again becomes an Eligible Employee. 3.5 Military Leave. Notwithstanding any provision of the Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code. ARTICLE IV EMPLOYER CONTRIBUTIONS 4.1 Amount of Employer Contributions. The Board of Directors, in its sole and absolute discretion, shall determine the amount of Employer Contributions, if any, that shall be made by each Employing Company on behalf of each Participant in its employ. The amount of Employer Contributions may be determined based upon the performance of The Southern Company for the Plan Year in question or by any other method determined by the Board of Directors that provides for a definitely determinable benefit. The amount of Employer Contributions shall be fixed by resolutions of the Board of Directors and communicated to each Employing Company prior to the date such contribution, if any, is required to be made. Contributions made pursuant to this Section 4.1 shall be paid to the Trustee no later than the time prescribed by law for filing the Federal income tax return of the Employing Company, including any extensions which have been granted for the filing of such tax return. The Employing Companies may make contributions to the Plan without regard to current or accumulated net profits for the taxable year ending with the Plan Year in question. Notwithstanding the foregoing, the Plan shall be operated in a manner so as to qualify as a profit sharing plan for purposes of Sections 401(a), 402, 412 and 417 of the Code. 4.2 Allocation of Employer Contributions. The amount of the Employer Contributions for a Plan Year shall be allocated as of the Valuation Date coincident with the close of the Plan Year for which such contributions are made. Notwithstanding the foregoing, such contributions shall not share in the earnings or losses of the Trust Fund until the amounts are actually contributed to the Trust Fund. Only those Participants who (i) are employed by an Employing Company as an Eligible Employee on the last day of the Plan Year or (ii) were employed by an Employing Company as an Eligible Employee during the Plan Year, but retired, became disabled or died as an Eligible Employee during the Plan Year shall be eligible to share in the allocation. Employer Contributions shall be allocated to each eligible Participant's Account in proportion to the ratio which his Compensation for such Plan Year bears to the Compensation of all Participants eligible to share in the allocation. 4.3 Reversion of Employer Contributions. Employer Contributions computed in accordance with the provisions of this Plan shall revert to the Employing Company under the following circumstances: (a) Mistake. In the case of an Employing Company contribution which is made by reason of a mistake of fact, such contribution shall be returned to the Employing Company within one (1) year after the payment of the contribution. (b) Qualification. In the event that the Commissioner of Internal Revenue determines that the Plan is not initially qualified under the Internal Revenue Code, any Employing Company contributions made incident to that initial qualification shall be returned to the Employing Company within one (1) year after the date the initial qualification is denied, but only if the application for qualification is made by the time prescribed by law for filing the Employing Company's return for the taxable year in which the Plan is adopted, or such later date as the Secretary of the Treasury may prescribe. (c) Deductibility. If any Employing Company contribution is determined to be nondeductible under Section 404 of the Code, then such Employing Company contribution, to the extent that it is determined to be nondeductible, shall be returned to the Employing Company within one (1) year after the disallowance of the deduction. The amount which may be returned to the Employing Company under this Section 4.3 is the excess of (a) the amount contributed over (b) the amount that would have been contributed had there not occurred a mistake of fact or a mistake in determining the deduction. Earnings attributable to the excess contribution shall not be returned to the Employing Company, but losses attributable thereto shall reduce the amount to be so returned. If the withdrawal of the amount attributable to the mistaken contribution would cause the balance of the Account of any Participant to be reduced to less than the balance which would have been in the Account had the mistaken amount not been contributed, then the amount to be returned to the Employing Company shall be limited so as to avoid such reduction. 4.4 Correction of Prior Incorrect Allocations and Distributions. Notwithstanding any provisions contained herein to the contrary, in the event that, as of any Valuation Date, adjustments are required in any Participants' Account to correct any incorrect allocation of contributions or investment earnings or losses, or such other discrepancies in Account balances that may have occurred previously, the Employing Companies may make additional contributions to the Plan to be applied to correct such incorrect allocations or discrepancies. The additional contributions shall be allocated by the Committee to adjust such Participants' Accounts to the value which would have existed on said Valuation Date had there been no prior incorrect allocation or discrepancies. The Committee shall also be authorized to take such other actions as it deems necessary to correct prior incorrect allocations or discrepancies in the Accounts of Participants under the Plan. ARTICLE V LIMITATIONS ON CONTRIBUTIONS 5.1 Section 415 Limitations. (a) Notwithstanding any provision of the Plan to the contrary, except to the extent permitted under Code Section 414(v), the total Annual Additions allocated to the Account (and the accounts under all defined contribution plans maintained by an Affiliated Employer) of any Participant for any Limitation Year in accordance with Code Section 415 and the regulations thereunder, which are incorporated herein by this reference, shall not exceed the lesser of the following amounts: (1) one hundred percent (100%) of the Participant's compensation (as defined in Code Section 415(c)(3) and any rulings and regulations thereunder) in the Limitation Year; or (2) $40,000 (as adjusted pursuant to Code Section 415(d)(1)(C)). 5.2 Correction of Contributions in Excess of Section 415 Limits. If the Annual Additions for a Participant exceed the limits of Section 5.1 as a result of the allocation of Forfeitures, if any, a reasonable error in estimating a Participant's annual compensation for purposes of the Plan or under other limited facts and circumstances that the Commissioner of the Treasury finds justify the availability of the rules set forth in this Section 5.2, the excess amounts shall not be deemed Annual Additions if corrected by forfeiture of that portion, or all, of the Employer Contributions (as adjusted for income and loss) and any Forfeitures of Employer Contributions that were allocated to the Participant's Account, if any, (as adjusted for income and loss), as is necessary to ensure compliance with Section 5.1. Any amounts forfeited under this Section 5.2 shall be held in a suspense account (which shall be separate from that Suspense Account defined in Section 2.46 hereof) and shall be applied, subject to Section 5.1, toward funding the Employer Contributions for the next succeeding Plan Year. Such application shall be made prior to any Employing Company contributions that would constitute Annual Additions. No income or investment gains and losses shall be allocated to the suspense account provided for under this Section 5.2. If any amount remains in a suspense account provided for under this Section 5.2 upon termination of this Plan, such amount will revert to the Employing Companies notwithstanding any other provision of this Plan. 5.3 Combination of Plans. If an Employee participates in more than one defined contribution plan maintained by an Affiliated Employer and his Annual Additions exceed the limitations of Section 5.1, corrective adjustments shall be made first under The Southern Company Employee Savings Plan and then, to the extent necessary, under this Plan and then, to the extent necessary, under the Southern Company Employee Stock Ownership Plan. ARTICLE VI INVESTMENT OF CONTRIBUTIONS 6.1 Investment Funds. Employer Contributions which are paid to the Trustee shall be added to such one or more of the Investment Funds constituting part of the Trust Fund and in such proportions and amounts as may be determined in accordance with this Article VI. The Investment Funds shall be selected from time to time by the Pension Fund Investment Review Committee of the Southern Company System. 6.2 Investment of Contributions. Each Participant shall direct, upon his initial participation in the Plan and at such other times as may be directed by the Committee, that his Account be invested in one or more of the Investment Funds, provided such investments are made in one-percent (1%) increments. If a Participant fails to make an investment direction upon his initial participation in the Plan, such Participant's Account shall be invested in accordance with procedures established by the Committee. 6.3 Investment of Earnings. Interest, dividends, if any, and other distributions received by the Trustee with respect to an Investment Fund shall be invested in such Investment Fund. 6.4 Transfer of Assets between Funds. A Participant may direct in accordance with the provisions of this Section 6.4 and such procedures established by the Committee that all of his interest in an Investment Fund or Funds attributable to amounts in his Account or any portion of such amount (expressed in number of shares, whole dollar amounts, or one-percent (1%) increments) to the credit of his Account be transferred and invested by the Trustee as of such date in any other Investment Fund as designated by the Participant. Such direction shall be effective as soon as practicable after it is made. 6.5 Change in Investment Direction. Any investment direction given by a Participant shall continue in effect until changed by the Participant. A Participant may change his investment direction as to the future contributions and allocations to his Account in accordance with the procedures established by the Committee, and such direction shall be effective as soon as practicable after it is made. 6.6 Section 404(c) Plan. This Plan is intended to be a plan described in ERISA Section 404(c) and shall be interpreted in accordance with Department of Labor Regulations Section 1.404c-1, which is incorporated herein by this reference. The Committee shall take such actions as it deems necessary or appropriate in its discretion to cause the Plan to comply with such requirements, including, but not limited to, providing Participants with the right to request and receive written confirmation of their investment instructions. ARTICLE VII MAINTENANCE AND VALUATION OF PARTICIPANTS' ACCOUNTS 7.1 Establishment of Account. An Account shall be established for each Participant to reflect his allocable share of Employer Contributions and the earnings and/or losses thereon. Each Participant will be furnished a statement of his Account at least annually and upon any distribution. 7.2 Valuation of Investment Funds. A Participant's Account in respect of his interest in each Investment Fund shall be credited or charged, as the case may be, as of each Valuation Date with the dividends, income, gains, appreciation, losses, depreciation, forfeitures, expenses, and other transactions with respect to such Investment Fund for the Valuation Date as of which such credit or charge accrued. Such credits or charges to a Participant's Account shall be made in such proportions and by such method or formula as shall be deemed by the Committee to be necessary or appropriate to account for each Participant's proportionate beneficial interest in the Trust Fund in respect of his interest in each Investment Fund. Investments of each Investment Fund shall be valued at their fair market values as of each Valuation Date as determined by the Trustee, and such valuation shall conclusively establish such value. 7.3 Rights in Investment Funds. Nothing contained in this Article VII shall be deemed to give any Participant any interest in any specific property in any Investment Fund or any interest, other than the right to receive payments or distributions in accordance with the Plan. ARTICLE VIII VESTING AND FORFEITURES 8.1 Vesting. The amount to the credit of a Participant's Account shall become fully vested and nonforfeitable upon the earlier of: (a) the date the Participant completes five (5) Years of Service for vesting purposes; or (b) the date the Participant reaches his Normal Retirement Date. 8.2 Forfeitures. That portion of the Account to which the Participant is not entitled shall be credited to the Suspense Account (which will always share in earnings or losses of the Trust) and shall be used to pay Plan administrative expenses as deemed appropriate by the Committee or to offset future Employer Contributions. In addition, should the Plan be merged with another qualified plan maintained by an Employing Company, any amount held in the Suspense Account may be used to offset employer matching contributions due under the merged plan. 8.3 Deemed Cash-out and Deemed Buy-back. Any Participant who terminates employment for any reason at a time when he is zero percent (0%) vested in his Account shall be deemed cashed out of the Plan as of the last day of the month immediately following the month in which occurs his termination of employment. If the terminated Participant returns to the employ of an Affiliated Employer before incurring five (5) consecutive One-Year Breaks in Service, he shall be entitled to a restoration of his benefits under the Plan in an amount not less than that amount determined as of the last day of the month immediately following the month in which occurs his termination of employment, unadjusted by any subsequent gains or losses. The permissible sources for restoration of accrued benefits are subsequent (a) income or gain to the Plan; (b) Forfeitures; or (c) Employer Contributions. Restoration of accrued benefits to which an Employee is entitled under this Section shall be made, as deemed necessary and proper by the Committee, from one or more of the permissible sources named above prior to the normal allocation of such funds under this Plan. 8.4 Vesting after One-Year Break in Service. (a) A terminated Participant who is reemployed after incurring a One-Year Break in Service shall be entitled to receive credit for vesting purposes for Years of Service earned prior to the One-Year Break in Service subject to the following rules: (1) If he had a vested right to all or a portion of his Account balance derived from Employer Contributions at the time of his termination of employment, he shall receive credit for Years of Service earned prior to his One-Year Break in Service upon his date of reemployment. (2) If he did not have a vested right to all or any portion of his Account balance derived from Employer Contributions at the time of his termination of employment, he shall receive credit for Years of Service earned prior to his One-Year Break in Service provided his number of consecutive One-Year Breaks in Service is less than the greater of five (5) or his aggregate Years of Service earned before his One-Year Break in Service. (b) No Years of Service earned after five (5) consecutive One-Year Breaks in Service shall be taken into account in determining a Participant's nonforfeitable percentage in his Account balance attributable to Employer Contributions that were made prior to such five-year period. ARTICLE IX DISTRIBUTION TO PARTICIPANTS 9.1 Distribution upon Retirement. When a Participant attains his Normal Retirement Date as an Employee, the full value of his Account shall become nonforfeitable. If a Participant's employment with the Affiliated Employers is terminated as a result of his retirement pursuant to the defined benefit pension plan of an Affiliated Employer, the entire balance credited to his Account shall be payable to him in such method as elected under Section 9.6 hereof, at such time as requested by the Participant subject to Section 9.7 hereof, and in accordance with the procedures established by the Committee. Notwithstanding the foregoing, the Committee shall direct payment in a single lump sum to such Participant if the balance of his Account does not exceed $5,000 in accordance with the requirements of Code Section 411(a)(11). The Committee shall not cash out any Participant whose Account balance exceeds $5,000 without the written consent of the Participant. 9.2 Distribution upon Disability. If a Participant's employment with the Affiliated Employers is terminated prior to his Normal Retirement Date by reason of his total and permanent disability, as determined by the Social Security Administration and evidenced in a writing provided to the Committee, such disabled Participant shall be entitled to receive the vested balance credited to his Account in a single lump sum in cash, at such time as requested by the Participant or such legal representative subject to Section 9.7 hereof, and in accordance with the procedures established by the Committee. Notwithstanding the foregoing, the Committee shall direct payment in a single lump sum to such Participant or his legal representative if the balance of such Participant's Account does not exceed $5,000 in accordance with the requirements of Code Section 411(a)(11). The Committee shall not cash out any Participant whose Account balance exceeds $5,000 without the written consent of Participant. 9.3 Distribution upon Death. If a Participant's employment with the Affiliated Employers is terminated by reason of death, the vested balance credited to the Participant's Account shall be distributed as soon as practicable to the Participant's surviving Beneficiary or Beneficiaries in a single lump sum in cash. 9.4 Designation of Beneficiary in the Event of Death. A Participant may designate a Beneficiary or Beneficiaries (who may be designated contingently) to receive all or part of the amount credited to his Account in case of his death before his receipt of all of his benefits under the Plan, provided that the Beneficiary of a married Participant shall be the Participant's Surviving Spouse, unless such Surviving Spouse shall consent in a writing witnessed by a notary public, which writing acknowledges the effect of the Participant's designation of a Beneficiary other than such Surviving Spouse. However, if such Participant establishes to the satisfaction of the Committee that such written consent may not be obtained because the Surviving Spouse cannot be located or because of such other circumstances as the Secretary of the Treasury may by regulations prescribe, a designation by such Participant without the consent of the Surviving Spouse shall be valid. Any consent necessary under this Section 9.4 shall be valid and effective only with respect to the Surviving Spouse who signs the consent or, in the event of a deemed consent, only with respect to a designated Surviving Spouse. A designation of Beneficiary may be revoked by the Participant without the consent of any Beneficiary (or the Participant's Surviving Spouse) at any time before the commencement of the distribution of benefits. A Beneficiary designation or change or revocation of a Beneficiary designation shall be made in accordance with the procedures established by the Committee. If no designated Beneficiary shall be living at the death of the Participant and/or such Participant's Beneficiary designation is not valid and enforceable under applicable law or the procedures of the Committee, such Participant's Beneficiary or Beneficiaries shall be the person or persons in the first of the following classes of successive preference, if then living: (a) the Participant's spouse on the date of his death, (b) the Participant's children, equally, (c) the Participant's parents, equally, (d) the Participant's brothers and sisters, equally, or (e) the Participant's executors or administrators. Payment to such one or more persons shall completely discharge the Plan and the Trustee with respect to the amount so paid. 9.5 Distribution upon Termination of Employment. If a Participant's employment with the Affiliated Employers is terminated for any reason other than in accordance with Sections 9.1, 9.2, and 9.3, and the Participant has completed five (5) Years of Service for vesting purposes, the balance to the credit of the Participant's Account shall be payable to him in a single lump sum distribution in cash, at such time requested by the Participant subject to Section 9.7 hereof, and in accordance with procedures established by the Committee. Notwithstanding the foregoing, the Committee shall direct payment in a single lump sum to such Participant if the balance of his Account does not exceed $5,000 in accordance with the requirements of Code Section 411(a)(11). The Committee shall not cash out any Participant whose Account balance exceeds $5,000 without the written consent of the Participant. 9.6 Method of Payment. A Participant separating from service with the Affiliated Employers pursuant to Section 9.1 shall elect a form of benefit payment and a time for commencement of distribution of any benefits under the Plan as provided hereinafter. The Participant shall select one of the following alternative forms of distribution of the Participant's Account: (a) A single lump sum distribution in cash; or (b) Annual installments in cash not to exceed twenty (20), as selected by the Participant, or the Participant's life expectancy. The amount of cash in each installment shall be equal to the proportionate value as of each Valuation Date immediately preceding payment of the balance then to the credit of the Participant in his Account determined by dividing the amount credited to his Account as of such Valuation Date by the number of payments remaining to be made. If a Participant who is receiving installment payments in accordance with paragraph (b) above shall establish to the satisfaction of the Committee, in accordance with principles and procedures established by the Committee which are applicable to all persons similarly situated, that a financial emergency exists in his affairs, such as illness or accident to the Participant or a member of his immediate family or other similar contingency, the Committee may, for the purpose of alleviating such emergency, accelerate the time of payment of some or all of the remaining installments. If a Participant dies before receiving all of the amount to the credit of his Account in accordance with paragraph (b) above, the amount remaining to the credit of his Account at his death shall be distributed to his Beneficiary as soon as practicable in accordance with Section 9.4. 9.7 Commencement of Benefits. (a) Notwithstanding any other provision of the Plan, and except as further provided in Section 9.7(b) below, if the Participant does not elect to defer commencement of his benefit payments, the payment of his benefits shall begin at the Participant's election no later than the sixtieth (60th) day after the close of the Plan Year in which the latest of the following events occurs: (1) the Participant attains the earlier of age sixty-five (65) or his Normal Retirement Date, (2) the Participant's tenth (10th) anniversary of participation under the Plan, or (3) the Participant's separation from service with the Affiliated Employers. (b) In no event shall the distribution of amounts in a Participant's Account commence later than the April 1 of the calendar year following the later of the calendar year in which the Participant attains age 70 1/2 or terminates employment with the Affiliated Employers, in accordance with regulations prescribed by the Secretary of the Treasury. Notwithstanding the foregoing, the payment of benefits to a Participant who is a five-percent (5%) owner of The Southern Company or any Affiliated Employer (as determined pursuant to Code Section 416) with respect to the Plan Year ending in the calendar year in which the Participant attains age 70 1/2 shall begin not later than April 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2 regardless of the Participant's termination from employment. Any distribution made under this Plan shall be made in accordance with the minimum distribution requirements of Code Section 401(a)(9), including the incidental death benefits requirements under Code Section 401(a)(9)(G) and the Treasury Regulations thereunder. With respect to distributions under the Plan made in calendar years beginning on or after January 1, 2001, the Plan will apply the minimum distribution requirements of Code Section 401(a)(9) in accordance with the regulations under Code Section 401(a)(9) that were proposed in January 2001, notwithstanding any provision of the Plan to the contrary. This amendment shall continue in effect until the end of the last calendar year beginning before the effective date of final regulations under Code Section 401(a)(9) or such other date specified in guidance published by the Internal Revenue Service. 9.8 Transfer between Employing Companies. A transfer by a Participant from one Employing Company to another Employing Company shall not affect his participation in the Plan. A transfer by a Participant from an Employing Company to an Affiliated Employer that is not an Employing Company shall not be deemed to be a termination of employment with an Employing Company. 9.9 Distributions to Alternate Payees. If the Participant's Account under the Plan shall become subject to a domestic relations order which (a) is a qualified domestic relations order satisfying the requirements of Section 414(p) of the Code and (b) requires the distribution in a single lump sum of the entire portion of the Participant's Account required to be segregated for the benefit of an alternate payee, then the entire interest of such alternate payee shall be distributed in a single lump sum within ninety (90) days following the later of: (a) the Employing Company's determination that such domestic relations order is qualified in accordance with Section 414(p) of the Code; and (b) such Participant's Account becoming fully vested in accordance with Article VIII, or as soon as practicable thereafter. Such distribution to an alternate payee shall be made even if the Participant has not separated from the service of the Affiliated Employers. Any other distribution pursuant to a qualified domestic relations order shall not be made earlier than the later of: (a) the Participant's termination of service, or his attainment of age fifty (50), if earlier, and (b) such Participant's Account becoming fully vested in accordance with Article VIII. In no event shall a distribution to an alternate payee commence later than the date the Participant's (or his Beneficiary's) benefit payments otherwise commence. Such distribution to an alternate payee shall be made only in a manner permitted under this Article IX. 9.10 Requirement for Direct Rollovers. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Article IX, a Distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. 9.11 Consent and Notice Requirements. If the value of the vested portion of a Participant's Account derived from Employing Company contributions exceeds $5,000, determined in accordance with the requirements of Code Section 411(a)(11), the Participant must consent to any distribution of such vested account balance prior to his Normal Retirement Date. The consent of the Participant shall be obtained within the ninety-day period ending on the first day of the first period for which an amount is payable as an annuity or in any other form under this Plan. The Committee shall notify the Participant of the right to defer any distribution until the Participant's Account balance is no longer immediately distributable. Such notification shall include a general description of the material features and an explanation of the relative values of the optional forms of benefit available under the Plan in a manner that would satisfy the notice requirements of Section 417(a)(3) of the Code; such notification shall be provided no less than 30 days and no more than 90 days prior to the annuity starting date. Distributions may commence less than 30 days after the notice required under Section 1.411(a)-11(c) of the Treasury Regulations is given, provided that: a) the Committee informs the Participant that the Participant has a right to a period of at least thirty (30) days after receiving the notice to consider the decision of whether or not to elect a distribution and a particular distribution option, and b) the Participant, after receiving the notice, affirmatively elects a distribution. 9.12 Form of Payment. All distributions under this Article IX shall be made in the form of cash. ARTICLE X ADMINISTRATION OF THE PLAN 10.1 Membership of Committee. The Plan shall be administered by the Committee, which shall consist of the individuals then serving in the positions of Vice President, System Compensation and Benefits of The Southern Company; Senior Vice-President, Human Resources of The Southern Company; and Comptroller of The Southern Company or any other position or positions that succeed to the duties of the foregoing positions. The Committee shall be chaired by the Senior Vice-President, Human Resources of The Southern Company and may select a Secretary (who may, but need not, be a member of the Committee) to keep its records or to assist it in the discharge of its duties. 10.2 Acceptance and Resignation. Any person appointed to be a member of the Committee shall signify his acceptance in writing to the Chairman of the Committee. Any member of the Committee may resign by delivering his written resignation to the Committee and such resignation shall become effective upon delivery or upon any later date specified therein. 10.3 Transaction of Business. A majority of the members of the Committee at the time in office shall constitute a quorum for the transaction of business at any meeting. Any determination or action of the Committee may be made or taken by a majority of the members present at any meeting thereof or without a meeting by a resolution or written memorandum concurred in by a majority of the members then in office. 10.4 Responsibilities in General. The Committee shall administer the Plan and shall have the discretionary authority, power, and the duty to take all actions and to make all decisions necessary or proper to carry out the Plan and to control and manage the operation and administration of the Plan. The Committee shall have the discretion to interpret the Plan, including any ambiguities herein, and to determine the eligibility for benefits under the Plan in its sole discretion. The determination of the Committee as to any question involving the general administration and interpretation of the Plan shall be final, conclusive, and binding on all persons, except as otherwise provided herein or by law, and may be relied upon by the Company, all Employing Companies, the Trustee, the Participants, and their Beneficiaries. Any discretionary actions to be taken under the Plan by the Committee with respect to Employees and Participants or with respect to benefits shall be uniform in their nature and applicable to all persons similarly situated. 10.5 Committee as Named Fiduciary. For the purpose of compliance with the provisions of ERISA, the Committee shall be deemed the administrator of the Plan as the term "administrator" is defined in ERISA, and the Committee shall be, with respect to the Plan, a "named fiduciary" as that term is defined in ERISA. For the purpose of carrying out its duties, the Committee may, in its discretion, allocate its responsibilities under the Plan among its members and may, in its discretion, designate persons (in writing or otherwise) other than members of the Committee to carry out such responsibilities of the Committee under the Plan as it may see fit. 10.6 Rules for Plan Administration. The Committee may make and enforce rules and regulations for the administration of the Plan consistent with the provisions thereof and may prescribe the use of such forms or procedures as it shall deem appropriate for the administration of the Plan. 10.7 Employment of Agents. The Committee may employ "independent qualified public accountants," as such term is defined in ERISA, who may be accountants to The Southern Company and any Affiliated Employer, legal counsel who may be counsel to The Southern Company and any Affiliated Employer, other specialists, and other persons as the Committee deems necessary or desirable in connection with the administration of the Plan. The Committee and any person to whom it may delegate any duty or power in connection with the administration of the Plan, the Company and the officers and directors thereof shall be entitled to rely conclusively upon and shall be fully protected in any action omitted, taken, or suffered by them in good faith in reliance upon any independent qualified public accountant, counsel, or other specialist, or other person selected by the Committee, or in reliance upon any tables, evaluations, certificates, opinions, or reports which shall be furnished by any of them or by the Trustee. 10.8 Co-Fiduciaries. It is intended that to the maximum extent permitted by ERISA, each person who is a "fiduciary," as that term is defined in ERISA, with respect to the Plan shall be responsible for the proper exercise of his own powers, duties, responsibilities, and obligations under the Plan and the Trust, as shall each person designated by any fiduciary to carry out any fiduciary responsibilities with respect to the Plan or the Trust. No fiduciary or other person to whom fiduciary responsibilities are allocated shall be liable for any act or omission of any other fiduciary or of any other person delegated to carry out any fiduciary or other responsibility under the Plan or the Trust. 10.9 General Records. The Committee shall maintain or cause to be maintained an Account which accurately reflects the interest of each Participant, as provided for in Section 7.1, and shall maintain or cause to be maintained all necessary books of account and records with respect to the administration of the Plan. The Committee shall mail or cause to be mailed to Participants reports to be furnished to Participants in accordance with the Plan or as may be required by ERISA. Any notices, reports, or statements to be given, furnished, made, or delivered to a Participant shall be deemed duly given, furnished, made, or delivered when addressed to the Participant and delivered to the Participant in person or mailed by ordinary mail to his address last communicated to the Committee (or its delegate) or of his Employing Company. 10.10 Liability of the Committee. In administering the Plan, except as may be prohibited by ERISA, neither the Committee nor any person to whom it may delegate any duty or power in connection with administering the Plan shall be liable for any action or failure to act except for its or his own gross negligence or willful misconduct; nor for the payment of any amount under the Plan; nor for any mistake of judgment made by him or on his behalf as a member of the Committee; nor for any action, failure to act, or loss unless resulting from his own gross negligence or willful misconduct; nor for the neglect, omission, or wrongdoing of any other member of the Committee. No member of the Committee shall be personally liable under any contract, agreement, bond, or other instrument made or executed by him or on his behalf as a member of the Committee. 10.11 Reimbursement of Expenses and Compensation of Committee. Members of the Committee shall be reimbursed by the Company for expenses they may individually or collectively incur in the performance of their duties. Each member of the Committee who is a full-time employee of the Company or of any Employing Company shall serve without compensation for his services as such member; each other member of the Committee shall receive such compensation, if any, for his services as the Board of Directors may fix from time to time. 10.12 Expenses of Plan and Trust Fund. The expenses of establishment and administration of the Plan and the Trust Fund shall be paid by the Company or the Employing Companies. Notwithstanding the foregoing, to the extent provided in the Trust Agreement, certain administrative expenses may be paid from the Trust Fund either directly or through reimbursement of the Company or the Employing Companies. All fees of the auditors related to the audit of the Plan or the Trust Fund shall be paid from the Trust Fund either directly or through reimbursement of the Company or the Employing Companies. Any expenses directly related to the investments of the Trust Fund, such as stock transfer taxes, brokerage commissions, or other charges incurred in the acquisition or disposition of such investments, shall be paid from the Trust Fund (or from the particular Investment Fund to which such fees or expenses relate) and shall be deemed to be part of the cost of such securities or deducted in computing the proceeds therefrom, as the case may be. Investment management fees for the Investment Funds shall be paid from the particular Investment Fund to which they relate either directly or through reimbursement of the Company or the Employing Companies unless the Company or the Employing Companies do not elect to receive reimbursement for payment of such expenses. Taxes, if any, on any assets held or income received by the Trustee shall be charged appropriately against the Accounts of Participants as the Committee shall determine. Any expenses paid by the Company pursuant to Section 10.11 and this Section 10.12 shall be subject to reimbursement by other Employing Companies of their proportionate shares of such expenses as determined by the Committee. 10.13 Responsibility for Funding Policy. The Pension Fund Investment Review Committee of The Southern Company System shall have responsibility for providing a procedure for establishing and carrying out a funding policy and method for the Plan consistent with the objectives of the Plan and the requirements of Title I of ERISA. 10.14 Management of Assets. The Committee shall not have responsibility with respect to control or management of the assets of the Plan. The Trustee shall have the sole responsibility for the administration of the assets of the Plan as provided in the Trust Agreement, except to the extent that an investment advisor (who qualifies as an Investment Manager as defined in ERISA) who is appointed by the Pension Fund Investment Review Committee shall have responsibility for the management of the assets of the Plan, or some part thereof (including powers to acquire and dispose of the assets of the Plan, or some part thereof). 10.15 Notice and Claims Procedures. Consistent with the requirements of ERISA and the regulations thereunder of the Secretary of Labor from time to time in effect, the Committee shall: (a) provide adequate notice in writing to any Participant or Beneficiary whose claim for benefits under the Plan has been denied, setting forth specific reasons for such denial, written in a manner calculated to be understood by such Participant or Beneficiary, and (b) afford a reasonable opportunity to any Participant or Beneficiary whose claim for benefits has been denied for a full and fair review of the decision denying the claim. 10.16 Bonding. Unless otherwise determined by the Board of Directors or required by law, no member of the Committee shall be required to give any bond or other security in any jurisdiction. 10.17 Multiple Fiduciary Capacities. Any person or group of persons may serve in more than one fiduciary capacity with respect to the Plan, and any fiduciary with respect to the Plan may serve as a fiduciary with respect to the Plan in addition to being an officer, employee, agent, or other representative of a party in interest, as that term is defined in ERISA. 10.18 Change in Administrative Procedures. Notwithstanding any provision in the Plan to the contrary, the Committee shall be authorized to take whatever actions it deems necessary or appropriate in its discretion to implement administrative procedures, including, but not limited to, suspending plan participation (to the extent permitted by applicable law), and suspending changes in investment directions and fund transfers, even though otherwise permitted or required under the Plan. ARTICLE XI TRUSTEE OF THE PLAN 11.1 Trustee. The Company has entered into a Trust Agreement with the Trustee to hold the funds necessary to provide the benefits set forth in the Plan. If the Board of Directors so determines, the Company may enter into a Trust Agreement or Trust Agreements with additional trustees. Any Trust Agreement may be amended by the Company from time to time in accordance with its terms. Any Trust Agreement shall provide, among other things, that all funds received by the Trustee thereunder will be held, administered, invested, and distributed by the Trustee, and that no part of the corpus or income of the Trust held by the Trustee shall be used for or diverted to purposes other than for the exclusive benefit of Participants or their Beneficiaries, except as otherwise provided in the Plan. Any Trust Agreement may also provide that the investment and reinvestment of the Trust Fund, or any part thereof may be carried out in accordance with directions given to the Trustee by any Investment Manager or Investment Managers (as defined in ERISA) who are appointed by the Pension Fund Investment Review Committee. The Board of Directors may remove any Trustee or any successor Trustee, and any Trustee or any successor Trustee may resign. Upon removal or resignation of a Trustee, the Board of Directors shall appoint a successor Trustee. 11.2 Voting of Investment Fund Shares. The Pension Fund Investment Review Committee or its delegate may direct the Trustee with respect to voting the shares in any Investment Fund. To the extent an investment manager has been designated with respect to an Investment Fund, such investment manager (and not the Pension Fund Investment Review Committee) shall direct the Trustee with respect to voting the shares in such Investment Fund. If the investment manager does not direct the Trustee with respect to voting such shares, the Pension Fund Investment Review Committee may direct the Trustee with respect to voting such shares. If the Pension Fund Investment Review Committee does not provide the Trustee or its designated agent with timely voting instructions, the Trustee, if required to do so by applicable law, may vote such shares. 11.3 Uninvested Amounts. The Trustee may keep uninvested an amount of cash sufficient in its opinion to enable it to carry out the purposes of the Plan. 11.4 Independent Accounting. The Board of Directors shall select a firm of independent public accountants to examine and report annually on the financial position and the results of operation of the Trust forming a part of the Plan. ARTICLE XII AMENDMENT AND TERMINATION OF THE PLAN 12.1 Amendment of the Plan. The Plan may be amended or modified by the Board of Directors pursuant to its written resolutions at any time and from time to time; provided, however, that no such amendment or modification shall make it possible for any part of the corpus or income of the Trust Fund to be used for or diverted to purposes other than for the exclusive benefit of Participants or their Beneficiaries under the Plan, including such part as is required to pay taxes and administration expenses of the Plan. The Plan may also be amended or modified by the Committee (a) if such amendment or modification does not involve a substantial increase in cost to any Employing Company, or (b) as may be necessary, proper, or desirable in order to comply with laws or regulations enacted or promulgated by any federal or state governmental authority and to maintain the qualification of the Plan under Sections 401(a) and 501(a) of the Code and the applicable provisions of ERISA. No amendment to the Plan shall have the effect of decreasing a Participant's vested interest in his Account, determined without regard to such amendment, as of the later of the date such amendment is adopted or the date it becomes effective. In addition, if the vesting schedule of the Plan is amended, any Participant who has completed at least three (3) Years of Service and whose vested interest is at any time adversely affected by such amendment may elect to have his vested interest determined without regard to such amendment during the election period defined under Section 411(a)(10) of the Code. Finally, no amendment shall eliminate an optional form of benefit in violation of Code Section 411(d)(6)as provided in regulations prescribed by the Secretary of the Treasury. If the vesting schedule of the Plan is amended, in the case of an Eligible Employee who is a Participant as of the later of the date such amendment is adopted or the date it becomes effective, the nonforfeitable percentage (determined as of such date) of such Eligible Employee's right to his Account will not be less than his percentage computed under the Plan without regard to such amendment. 12.2 Termination of the Plan. It is the intention of the Employing Companies to continue the Plan indefinitely. However, the Board of Directors pursuant to its written resolutions may at any time and for any reason suspend or terminate the Plan or suspend or discontinue the making of contributions by all Employing Companies. Any Employing Company may, by action of its board of directors and approval of the Board of Directors, suspend or terminate the making of contributions by such Employing Company. In the event of termination of the Plan or partial termination or upon complete discontinuance of contributions under the Plan by all Employing Companies or by any one Employing Company, the amount to the credit of the Account of each Participant whose Employing Company shall be affected by such termination, partial termination or discontinuance shall be immediately fully vested and nonforfeitable. Each affected Participant's Account balances shall be determined as of the next Valuation Date and shall be distributed to him or his Beneficiary thereafter at such time or times and in such nondiscriminatory manner as is determined by the Committee. 12.3 Merger or Consolidation of the Plan. The Plan shall not be merged or consolidated with nor shall any assets or liabilities thereof be transferred to any other plan unless each Participant of the Plan would (if the Plan then terminated) receive a benefit immediately after the merger, consolidation, or transfer which is equal to or greater than the benefit he would have been entitled to receive immediately prior to the merger, consolidation, or transfer (if the Plan had then terminated). ARTICLE XIII TOP-HEAVY REQUIREMENTS 13.1 Top-Heavy Plan Requirements. For any Plan Year the Plan shall be determined to be a top-heavy plan, the Plan shall provide the minimum allocation and vesting requirements of Sections 13.3 and 13.4. 13.2 Determination of Top-Heavy Status. (a) The Plan shall be determined to be a top-heavy plan, if, as of the Determination Date, the sum of the Aggregate Accounts of Key Employees under this Plan exceeds 60% of the Aggregate Accounts of all Employees entitled to participate in this Plan. (b) The Plan shall be determined to be a super-top-heavy plan, if, as of the Determination Date, the sum of the Aggregate Accounts of Key Employees under this Plan exceeds 90% of the Aggregate Accounts of all Employees entitled to participate in this Plan. (c) In the case of a Required Aggregation Group, each plan in the group will be considered a top-heavy plan if the Required Aggregation Group is a Top-Heavy Group. No plan in the Required Aggregation Group will be considered a top-heavy plan if the Aggregation Group is not a Top-Heavy Group. In the case of a Permissive Aggregation Group, only a plan that is part of the Required Aggregation Group will be considered a top-heavy plan if the Permissive Aggregation Group is a Top-Heavy Group. A plan that is not part of the Required Aggregation Group but that has nonetheless been aggregated as part of the Permissive Aggregation Group will not be considered a top-heavy plan even if the Permissive Aggregation Group is a Top-Heavy Group. (d) For purposes of this Article XIII, if any Employee is a non-Key Employee for any Plan Year, but such Employee was a Key Employee for any prior Plan Year, such Employee's Present Value of Accrued Retirement Income and/or Aggregate Account balance shall not be taken into account for purposes of determining whether this Plan is a top-heavy or super-top-heavy plan (or whether any Aggregation Group which includes this Plan is a Top-Heavy Group). In addition, if an Employee or former Employee has not performed any services for any Employing Company maintaining the Plan at any time during the one-year period ending on the Determination Date, the Aggregate Account and/or Present Value of Accrued Retirement Income shall be excluded in determining whether this Plan is a top-heavy or super-top-heavy plan. (e) Only those plans of the Affiliated Employers in which the Determination Dates fall within the same calendar year shall be aggregated in order to determine whether such plans are top-heavy plans. 13.3 Minimum Allocation for Top-Heavy Plan Years. (a) Notwithstanding anything herein to the contrary, for any top-heavy Plan Year, the Employing Company contribution allocated to the Account of each non-Key Employee shall be an amount not less than the lesser of: (1) 3% of such Participant's compensation for that Plan Year, or (2) a percentage of that Participant's compensation not to exceed the percentage at which contributions are made under the Plan for the Key Employee for whom such percentage is highest for that Plan Year. (b) For purposes of the minimum allocation of Section 13.3(a), the percentage allocated to the Account of any Key Employee shall be equal to the ratio of the Employing Company contributions allocated on behalf of such Key Employee divided by the compensation of such Key Employee for that Plan Year. (c) For any top-heavy Plan Year, the minimum allocations of Section 13.3(a) shall be allocated to the Accounts of all non-Key Employees who are Participants and who are employed by the Affiliated Employers on the last day of the Plan Year. (d) Notwithstanding the foregoing, in any Plan Year in which a non-Key Employee is a Participant in both this Plan and a defined benefit plan, and both such plans are top-heavy plans, the Affiliated Employers shall not be required to provide a non-Key Employee with both the full separate minimum defined benefit and the full separate defined contribution plan allocations. Therefore, if a non-Key Employee is participating in a defined benefit plan maintained by the Affiliated Employers and the minimum benefit under Code Section 416(c)(1) is provided the non-Key Employee under such defined benefit plan, the minimum allocation provided for above shall not be applicable, and no minimum allocation shall be made on behalf of the non-Key Employee. Alternatively, the Employing Company may satisfy the minimum allocation requirement of Code Section 416(c)(2) for the non-Key Employee by providing any combination of benefits and/or contributions that satisfy the safe harbor rules of Treasury Regulation Section 1.416-1(M-12). 13.4 Minimum Vesting. Notwithstanding the provisions of Section 8.1(a) hereof, if a Participant's termination of employment occurs while the Plan is a Top-Heavy Plan, such Participant's vested percentage in his Account shall not be less than the percentage determined in accordance with the following schedule: Completed Nonforfeitable Forfeitable Years of Service Percentage Percentage Less than 3 0% 100% 3 or more 100% 0% If in any subsequent Plan Year the Plan ceases to be a Top-Heavy Plan, the Committee may, in its sole discretion, elect to (a) continue to apply this vesting schedule in determining the vested portion of any Participant's Account, or (b) revert to the vesting schedule set forth in Section 8.1(a) hereof. Any such reversion shall be treated as an amendment to the Plan. ARTICLE XIV GENERAL PROVISIONS 14.1 Plan Not an Employment Contract. The Plan shall not be deemed to constitute a contract between an Affiliated Employer and any Employee, nor shall anything herein contained be deemed to give any Employee any right to be retained in the employ of an Employing Company or to interfere with the right of an Employing Company to discharge any Employee at any time and to treat him without regard to the effect which such treatment might have upon him as a Participant. 14.2 No Right of Assignment or Alienation. Except as may be otherwise permitted or required by law, no right or interest in the Plan of any Participant or Beneficiary and no distribution or payment under the Plan to any Participant or Beneficiary shall be subject in any manner to anticipation, alienation, sale, transfer (except by death), assignment (either at law or in equity), pledge, encumbrance, charge, attachment, garnishment, levy, execution, or other legal or equitable process, whether voluntary or involuntary, and any attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber, charge, attach, garnish, levy, or execute or enforce any other legal or equitable process against the same shall be void, nor shall any such right, interest, distribution, or payment be in any way liable for or subject to the debts, contracts, liabilities, engagements, or torts of any person entitled to such right, interest, distribution, or payment. If any Participant or Beneficiary is adjudicated bankrupt or purports to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge any such right, interest, distribution, or payment, voluntarily or involuntarily, or if any action shall be taken which is in violation of the provisions of the immediately preceding sentence, the Committee may hold or apply or cause to be held or applied such right, interest, distribution, or payment or any part thereof to or for the benefit of such Participant or Beneficiary in such manner as is in accordance with applicable law. In addition, a Participant's benefits may be offset pursuant to a judgment, order, or decree issued (or settlement agreement entered into) on or after August 5, 1997, if and to the extent that such offset is permissible or required under Code Section 401(a)(13). Notwithstanding the above, the Committee and the Trustee shall comply with any domestic relations order (as defined in Section 414(p)(1)(B) of the Code) which is a qualified domestic relations order satisfying the requirements of Section 414(p) of the Code. The Committee shall establish procedures for (a) notifying Participants and alternate payees who have or may have an interest in benefits which are the subject of domestic relations orders, (b) determining whether such domestic relations orders are qualified domestic relations orders under Section 414(p) of the Code, and (c) distributing benefits which are subject to qualified domestic relations orders. 14.3 Payment to Minors and Others. If the Committee determines that any person entitled to a distribution or payment from the Trust Fund is an infant or a minor, is incompetent or is unable to care for his affairs by reason of physical or mental disability, it may cause all distributions or payments thereafter becoming due to such person to be made to any other person for his benefit, without responsibility to follow the application of payments so made. Payments made pursuant to this provision shall completely discharge the Company, the Trustee, and the Committee with respect to the amounts so paid. No person shall have any rights under the Plan with respect to the Trust Fund, or against the Trustee or any Employing Company, except as specifically provided herein. 14.4 Source of Benefits. The Trust Fund established under the Plan shall be the sole source of the payments or distributions to be made in accordance with the Plan. No person shall have any rights under the Plan with respect to the Trust Fund, or against the Trustee or any Employing Company, except as specifically provided herein. 14.5 Unclaimed Benefits. If the Committee is unable, within five (5) years after any distribution becomes payable to a Participant or Beneficiary, to make or direct payment to the person entitled thereto because the identity or whereabouts of such person cannot be ascertained, notwithstanding the mailing of due notice to such person at his last known address as indicated by the records of either the Committee or his Employing Company, then such benefit or distribution will be disposed of as follows: (a) If the whereabouts of the Participant is unknown to the Committee, distribution will be made to the Participant's Beneficiary or Beneficiaries. Payment to such one or more persons shall completely discharge the Company, the Trustee, and the Committee with respect to the amounts so paid. (b) If none of the persons described in (a) above, can be located, then the benefit payable under the Plan shall be forfeited and shall be applied to reduce future Employer Contributions. Notwithstanding the foregoing sentence, such benefit shall be reinstated if a claim is made by the Participant or Beneficiary for the forfeited benefit. In the event the Committee makes or directs a payment to the person entitled thereto but the check for such payment remains un-cashed for a period of 180 days, the Committee shall take such actions as it deems reasonable to determine the whereabouts of such person. If the whereabouts of the person is unknown or the check remains un-cashed, the Committee shall direct that such check be cancelled. In the event the person entitled to such payment subsequently requests payment, the Committee shall direct such payment to such person in the amount of the previous check. 14.6 Transfer of Plan Assets. Notwithstanding any provision of the Plan to the contrary, upon the distribution by the Southern Company to its shareholders of the Mirant Stock held by the Southern Company pursuant to a tax-free spin-off under Code Section 355 or such similar transaction, the Accounts of certain active Participants who shall be identified in accordance with the Employee Matters Agreement entered into between the Southern Company and Mirant ("Agreement") shall be transferred to a retirement plan established by Mirant which is intended to constitute a qualified retirement plan under Code Section 401(a). The Committee shall determine the time of such transfers and shall establish such rules and procedures as it deems necessary or appropriate to effect the transfers, except that all actions with respect to the transfers shall be taken in a manner consistent with the Agreement. 14.7 Governing Law. The provisions of the Plan and the Trust shall be construed, administered, and enforced in accordance with the laws of the State of Georgia, except to the extent such laws are preempted by the laws of the United States. IN WITNESS WHEREOF, the Company has caused this amendment and restatement of The Southern Company Performance Sharing Plan to be executed this day of _______________, 2002, to be effective as of January 1, 2002. PERFORMANCE SHARING PLAN COMMITTEE APPENDIX A - EMPLOYING COMPANIES The Employing Companies as of January 1, 2002 are: Alabama Power Company Georgia Power Company Gulf Power Company Mississippi Power Company Savannah Electric and Power Company Southern Communications Services, Inc. Southern Company Energy Solutions, Inc. Southern Company Services, Inc. Southern Nuclear Operating Company, Inc. APPENDIX B - INCENTIVE PAY PLANS All awards under the following incentive pay plans shall be counted as compensation for purposes of Section 2.12 of the Plan: o The Southern Company Performance Pay Plan o Merchandise Sales and Service Business Unit 2001 Incentive Plan (APC/Gulf) o 2001 Sales Incentive Plan ("Basic Plan" component only) ? Georgia Power Company Business Development Organization ? Georgia Power Company Value Management Team ? Southern Company National Accounts APPENDIX C - NONPRODUCTIVE PAY EARNINGS TYPES Earnings Code Earnings Description 003 Salesperson - Hourly 092 Holiday Taken 093 Meetings 095 Meetings - Safety 096 Disability 100% 100 Disability Extended Approval 106 Leave - Death 108 Occupational Injury 111 Jury Duty 112 Training 113 Safety Training 115 Vacation 116 Vacation Special Circumstances 117 Vacation FMLA Employee 118 Vacation FMLA Family Care 119 Time Off With Pay 125 Holiday Banked - Taken 127 Vacation In Lieu Of Disability 442 DISABILITY FMLA EMPLOYEE EX-10 14 x10a64.txt SUPPLEMENTAL BENEFIT PLAN Exhibit 10(a)64 THE SOUTHERN COMPANY SUPPLEMENTAL BENEFIT PLAN Troutman Sanders LLP 600 Peachtree Street, N.E. Suite 5200 Bank of America Plaza Atlanta, Georgia 30308-2216 (404) 885-3000 Amended and Restated Effective as of May 1, 2000 THE SOUTHERN COMPANY SUPPLEMENTAL BENEFIT PLAN Page ARTICLE I - PURPOSE AND ADOPTION OF PLAN..................................1 1.1 Adoption.....................................................1 1.2 Purpose......................................................2 ARTICLE II - DEFINITIONS..................................................3 2.1 Account......................................................3 2.2 Administrative Committee.....................................3 2.3 Beneficiary..................................................3 2.4 Board of Directors...........................................3 2.5 Change in Control Benefit Plan Determination Policy..........3 2.6 Code 3 2.7 Common Stock.................................................3 2.8 Company......................................................3 2.9 Deferred Compensation Plan...................................3 2.10 Effective Date..............................................3 2.11 Employee....................................................3 2.12 Employing Company...........................................4 2.13 ESOP........................................................4 2.14 Non-Pension Benefit.........................................4 2.15 Participant.................................................4 2.16 Pension Benefit.............................................4 2.17 Pension Plan................................................4 2.18 Performance Sharing Plan....................................4 2.19 Phantom Common Stock........................................4 2.20 Plan........................................................4 2.21 Plan Year...................................................4 2.22 Purchase Price..............................................5 2.23 Sales Price.................................................5 2.24 Savings Plan................................................5 2.25 Southern Board..............................................5 2.26 Southern Company............................................5 2.27 "Spin-Off Date".............................................5 2.28 Trust.......................................................5 2.29 Valuation Date..............................................5 ARTICLE III - ADMINISTRATION OF PLAN......................................7 3.1 Administrator................................................7 3.2 Powers.......................................................7 3.3 Duties of the Administrative Committee.......................8 3.4 Indemnification..............................................9 ARTICLE IV - ELIGIBILITY.................................................10 4.1 Eligibility Requirements....................................10 4.2 Determination of Eligibility................................10 4.3 Eligibility of Employees of Savannah Electric and Power Company..........................................11 ARTICLE V - BENEFITS.....................................................12 5.1 Pension Benefit.............................................12 5.2 Non-Pension Benefit.........................................13 5.3 Distribution of Benefits....................................15 5.4 Allocation of Pension Benefit Liability.....................19 5.5 Funding of Benefits.........................................20 5.6 Withholding.................................................21 5.7 Recourse Against Deferred Compensation Trust................21 5.8 Change in Control...........................................21 ARTICLE VI - MISCELLANEOUS...............................................22 6.1 Assignment..................................................22 6.2 Amendment and Termination...................................22 6.3 No Guarantee of Employment..................................22 6.4 Construction................................................22 THE SOUTHERN COMPANY SUPPLEMENTAL BENEFIT PLAN ARTICLE I - PURPOSE AND ADOPTION OF PLAN 1.1 Adoption: The Southern Company Supplemental Benefit Plan, effective as of May 1, 2000 and hereinafter set forth (the "Plan"), is a modification and continuation of the Supplemental Benefit Plan for Southern Company Services, Inc. which originally became effective January 1, 1983, and was last amended and restated effective July 10, 2000. Prior to that restatement, the Plan was last restated effective January 1, 1998, and was subsequently amended by the First Amendment dated April 15, 1999. Effective January 1, 1998, the following other plans were merged into the Plan: o Supplemental Benefit Plan for Alabama Power Company o Supplemental Benefit Plan for Georgia Power Company o Supplemental Benefit Plan for Gulf Power Company o Supplemental Benefit Plan for Mississippi Power Company o Supplemental Benefit Plan for Southern Company Services, Inc. and Southern Electric International, Inc., as adopted by Southern Communications Services, Inc. o Supplemental Benefit Plan for Southern Company Services, Inc. and Southern Electric International, Inc., as adopted by Southern Development and Investment Group, Inc. o Supplemental Benefit Plan for Southern Nuclear Operating Company, Inc. Employees participating in the merged plans and employed by an Employing Company on January 1, 1998 became immediately covered under the Plan; provided, however, that the terms of the prior plans govern an Employee's circumstances with regard to actions taken or occurring before January 1, 1998. The benefits of former Employees who retired before January 1, 1998 are payable in accordance with the provisions of the prior plans. 1.2 Purpose: The Plan is designed to provide certain retirement and other deferred compensation benefits primarily for a select group of management or highly compensated employees which are not otherwise payable or cannot otherwise be provided by the Employing Companies (1) under The Southern Company Pension Plan, The Southern Company Employee Savings Plan, The Southern Company Employee Stock Ownership Plan and The Southern Company Performance Sharing Plan, as a result of the limitations set forth under Sections 401(a)(17), 401(k), 401(m), 402(g), or 415 of the Internal Revenue Code of 1986, as amended from time to time; and (2) to compensate for lost benefits resulting from participation in The Southern Company Deferred Compensation Plan, as amended from time to time. The Plan shall be an unfunded deferred compensation arrangement whose benefits shall be paid solely from the general assets of the Employing Companies. The Plan, as amended and restated herein, is intended to benefit only employees who complete an Hour of Service on or after May 1, 2000. Any employees or former employees who ceased to participate in the Plan for any reason prior to May 1, 2000 shall be governed by the Plan as in effect on the date their participation ceased. ARTICLE II - DEFINITIONS 2.1 "Account" shall mean the total amount credited to the account of a Participant to reflect the interest of a Participant in the Plan resulting from a Participant's Non-Pension Benefit calculated in accordance with Section 5.2. 2.2 "Administrative Committee" shall mean the committee referred to in Section 3.1 hereof. 2.3 "Beneficiary" shall mean any person, estate, trust, or organization entitled to receive any payment under the Plan upon the death of a Participant. 2.4 "Board of Directors" shall mean the Board of Directors of the Company. 2.5 "Change in Control Benefit Plan Determination Policy" shall mean the Change in Control Benefit Plan Determination Policy, as approved by the Southern Board, as it may be amended from time to time in accordance with the provisions therein. 2.6 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. 2.7 "Common Stock" shall mean common stock of Southern Company. 2.8 "Company" shall mean Southern Company Services, Inc. 2.9 "Deferred Compensation Plan" shall mean The Southern Company Deferred Compensation Plan, as amended from time to time. 2.10 "Effective Date" of this amendment and restatement shall mean May 1, 2000. 2.11 "Employee" shall mean any person who is currently employed by an Employing Company. 2.12 "Employing Company" shall mean the Company and any affiliate or subsidiary of Southern Company which the Board of Directors may from time to time determine to bring under the Plan and any successor to them. The Employing Companies are set forth in Appendix A to the Plan, as amended from time to time. 2.13 "ESOP" shall mean The Southern Company Employee Stock Ownership Plan, as amended from time to time. 2.14 "Non-Pension Benefit" shall mean the benefit described in Section 5.2. 2.15 "Participant" shall mean an Employee or former Employee of an Employing Company who is eligible and participates in the Plan pursuant to Sections 4.1 and 4.2. 2.16 "Pension Benefit" shall mean the benefit described in Section 5.1. 2.17 "Pension Plan" shall mean The Southern Company Pension Plan, as amended from time to time. 2.18 "Performance Sharing Plan" shall mean The Southern Company Performance Sharing Plan, as amended from time to time. 2.19 "Phantom Common Stock" shall mean the Common Stock in which a Participant is deemed to invest his Non-Pension Benefit as if such Common Stock had been purchased upon contribution to the Savings Plan, the ESOP and/or the Performance Sharing Plan, as the case may be. 2.20 "Plan" shall mean The Southern Company Supplemental Benefit Plan, as amended from time to time. 2.21 "Plan Year" shall mean the calendar year. 2.22 "Purchase Price" shall mean for purposes of deemed purchases of Phantom Common Stock the following: (a) with respect to the Savings Plan and the Performance Sharing Plan, the weighted average purchase price of a share of the Common Stock under the Savings Plan as of the applicable Valuation Date; (b) with respect to any investment of dividends attributable to Phantom Common Stock, the dividend reinvestment price of a share of the Common Stock under the Savings Plan as of the applicable Valuation Date; and (c) with respect to the ESOP, the price at which a share of Common Stock is purchased with regard to a contribution made for each applicable Plan Year. 2.23 "Sales Price" shall mean the weighted average sales price of a share of Common Stock under the Savings Plan as of each applicable Valuation Date. 2.24 "Savings Plan" shall mean The Southern Company Employee Savings Plan, as amended from time to time. 2.25 "Southern Board" shall mean the board of directors of Southern Company. 2.26 "Southern Company" shall mean Southern Company, its successors and assigns. 2.27 "Spin-Off Date" shall mean the "Group Status Change Date" as defined in the Employee Matters Agreement between Mirant Corporation (formerly Southern Energy, Inc.) ("Mirant") and The Southern Company (i.e., April 2, 2001). 2.28 "Trust" shall mean the Southern Company Deferred Compensation Trust. 2.29 "Valuation Date" shall mean each business day of the New York Stock Exchange. Where the context requires, the definitions of all terms set forth in the Pension Plan, the ESOP, the Performance Sharing Plan, the Savings Plan and the Deferred Compensation Plan shall apply with equal force and effect for purposes of interpretation and administration of the Plan, unless said terms are otherwise specifically defined in the Plan. The masculine pronoun shall be construed to include the feminine pronoun and the singular shall include the plural, where the context so requires. ARTICLE III - ADMINISTRATION OF PLAN 3.1 Administrator. The general administration of the Plan shall be placed in the Administrative Committee. The Administrative Committee shall consist of the Senior Vice President, Human Resources of The Southern Company, the Vice President, System Compensation and Benefits of The Southern Company and the Comptroller of The Southern Company or any other position or positions that succeed to the duties of the foregoing positions. Any member may resign or may be removed by the Board of Directors and new members may be appointed by the Board of Directors at such time or times as the Board of Directors in its discretion shall determine. The Administrative Committee shall be chaired by the Senior Vice President, Human Resources of The Southern Company and may select a Secretary (who may, but need not, be a member of the Administrative Committee) to keep its records or to assist it in the discharge of its duties. A majority of the members of the Administrative Committee shall constitute a quorum for the transaction of business at any meeting. Any determination or action of the Administrative Committee may be made or taken by a majority of the members present at any meeting thereof, or without a meeting by resolution or written memorandum concurred in by a majority of the members. 3.2 Powers. The Administrative Committee shall administer the Plan in accordance with its terms and shall have all powers necessary to carry out the provisions of the Plan more particularly set forth herein. It shall have the discretion to interpret the Plan and shall determine all questions arising in the administration, interpretation and application of the Plan. Any such determination by it shall be conclusive and binding on all persons. It may adopt such regulations as it deems desirable for the conduct of its affairs. It may appoint such accountants, counsel, actuaries, specialists and other persons as it deems necessary or desirable in connection with the administration of this Plan, and shall be the agent for the service of process. 3.3 Duties of the Administrative Committee. (a) The Administrative Committee is responsible for the daily administration of the Plan. It may appoint other persons or entities to perform any of its fiduciary functions. The Administrative Committee and any such appointee may employ advisors and other persons necessary or convenient to help it carry out its duties, including its fiduciary duties. The Administrative Committee shall have the right to remove any such appointee from his position. Any person, group of persons or entity may serve in more than one fiduciary capacity. (b) The Administrative Committee shall maintain accurate and detailed records and accounts of Participants and of their rights under the Plan and of all receipts, disbursements, transfers and other transactions concerning the Plan. Such accounts, books and records relating thereto shall be open at all reasonable times to inspection and audit by persons designated by the Administrative Committee. (c) The Administrative Committee shall take all steps necessary to ensure that the Plan complies with the law at all times. These steps shall include such items as the preparation and filing of all documents and forms required by any governmental agency; maintaining of adequate Participants' records; recording and transmission of all notices required to be given to Participants and their Beneficiaries; the receipt and dissemination, if required, of all reports and information received from an Employing Company; securing of such fidelity bonds as may be required by law; and doing such other acts necessary for the proper administration of the Plan. The Administrative Committee shall keep a record of all of its proceedings and acts, and shall keep all such books of account, records and other data as may be necessary for proper administration of the Plan. 3.4 Indemnification. The Employing Companies shall indemnify the Administrative Committee against any and all claims, losses, damages, expenses and liability arising from an action or failure to act, except when the same is finally judicially determined to be due to gross negligence or willful misconduct. The 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 failure to act in connection with the execution of the duties as Administrative Committee. No member of the Administrative Committee who is also an Employee of the Employing Companies shall receive any compensation from the Plan for his services in administering the Plan. ARTICLE IV - ELIGIBILITY 4.1 Eligibility Requirements. Subject to Section 4.3, all Employees who are determined eligible to participate in accordance with Section 4.2: (a) whose benefits under the Pension Plan are limited by the limitations set forth in Sections 401(a)(17) or 415 of the Code, (b) for whom contributions by their Employing Company to the Savings Plan are limited by the limitations set forth in Sections 401(a)(17), 401(k), 401(m), 402(g) or 415 of the Code, (c) for whom contributions by their Employing Company to the ESOP are limited by the limitations set forth in Sections 401(a)(17) or 415 of the Code, (d) for whom contributions by their Employing Company to the Performance Sharing Plan are limited by the limitations set forth in Sections 401(a)(17) or 415 of the Code, or (e) who make deferrals under the Deferred Compensation Plan, shall be eligible to receive benefits under the Plan. 4.2 Determination of Eligibility. The Administrative Committee shall determine which Employees are eligible to participate. Upon becoming a Participant, an Employee shall be deemed to have assented to the Plan and to any amendments hereafter adopted. The Administrative Committee shall be authorized to rescind the eligibility of any Participant if necessary to ensure that the Plan is maintained primarily for the purpose of providing deferred compensation to a select group of management or highly compensated employees under the Employee Retirement Income Security Act of 1974, as amended. In addition, a Participant shall not be eligible for a Pension Benefit under the Plan unless such Participant shall be entitled to a vested benefit under the Pension Plan. If an Employee who was employed by Mirant Corporation (f/k/a Southern Energy, Inc.) ("Mirant") or an affiliate thereof on or after April 2, 2001 is thereafter employed by an Affiliated Employer, he shall be treated the same as a new hire and none of his service with Mirant shall be considered as Accredited Service under Section 5.1. 4.3 Eligibility of Employees of Savannah Electric and Power Company. (a) Employees of Savannah Electric and Power Company meeting the requirements of Sections 4.1 and 4.2 on or after January 1, 1997 shall be eligible to participate in the Plan provided that such employees are not participating in the Supplemental Executive Retirement Plan of Savannah Electric and Power Company. Such Employees' benefits shall include any accruals for the Plan Year ending December 31, 1997 as determined in accordance with Sections 5.1 and 5.2. (b) Notwithstanding paragraph (a) above, Employees of Savannah Electric and Power Company who have participated in The Southern Company Deferred Compensation Plan on and after January 1, 1996, shall be eligible to participate in the Plan but only to the extent that the Plan compensates employees for lost benefits resulting from participation in The Southern Company Deferred Compensation Plan. Such Employees' benefits shall include any accruals permitted under the preceding sentence for Plan Years ending December 31, 1996 and December 31, 1997 determined in accordance with Sections 5.1 and 5.2. ARTICLE V - BENEFITS 5.1 Pension Benefit. (a) Each Participant shall be entitled to a Pension Benefit equal to that portion of his Retirement Income under the Pension Plan which is not payable under the Pension Plan as a result of the exclusion of compensation deferred under the Deferred Compensation Plan and/or the limitations imposed by Sections 401(a)(17) or 415(b) of the Code. When determining a Participant's Pension Benefit, the Participant's years of Accredited Service shall include any deemed Accredited Service provided under the terms of any agreement concerning supplemental pension payments between the Participant and an Employing Company. (b) For purposes of this Section 5.1, the Pension Benefit of a Participant shall be calculated based on the Participant's Earnings that are considered under the Pension Plan in calculating his Retirement Income, as modified below, without regard to the limitation of Section 401(a)(17) of the Code. For purposes of determining the Participant's Earnings, all incentive pay earned while he is an Employee under any annual group incentive plans, as defined in Section 5.2 of the Pension Plan, shall be considered, provided such incentive award was earned on or after January 1, 1994. Alternatively, if it produces greater Earnings, all incentive pay paid or that would have been paid but for an election to defer such incentive award under the Deferred Compensation Plan to the Participant under any annual group incentive plans, as defined in Section 5.2 of the Pension Plan, shall be considered, provided such incentive pay was paid or deferred on or after January 1, 1995. However, incentive pay shall only be included in the Participant's Earnings for purposes of calculating the Participant's Pension Benefit using the 1.25% formula described in Section 5.2 of the Pension Plan. (c) To the extent that a Participant's Retirement Income under the Pension Plan is recalculated as a result of an amendment to the Pension Plan, the Participant's Pension Benefit shall also be recalculated in determining payments of the Participant's Pension Benefit made on or after the effective date of such Pension Plan recalculation. 5.2 Non-Pension Benefit. (a) A Participant shall be entitled to a Non-Pension Benefit which is determined under this Section 5.2. An Account shall be established for the Participant as of his initial Plan Year of participation in the Plan. Each Plan Year, such Account shall be credited with an amount equal to the amount that his Employing Company is prohibited from contributing (1) to the Savings Plan on behalf of the Participant as a result of the limitations imposed by Sections 401(a)(17), 401(k), 401(m), 402(g), or 415(c) of the Code, (2) to the ESOP on behalf of the Participant as a result of the limitations imposed by Sections 401(a)(17) or 415(c) of the Code, and (3) to the Performance Sharing Plan (including for the 1997 Plan Year) on behalf of the Participant as a result of the limitations imposed by Sections 401(a)(17) or 415(c) of the Code. (b) For purposes of this Section 5.2, the Non-Pension Benefit of a Participant shall be calculated based on the Participant's compensation that would have been considered in calculating allocations to his accounts under the Savings Plan, ESOP and Performance Sharing Plan, without regard to the limitations of Section 401(a)(17) or Section 402(g) of the Code, including any portion of his compensation he may have elected to defer under the Deferred Compensation Plan, but with respect to the Savings Plan only excluding incentive pay he deferred under the Deferred Compensation Plan. (c) The Non-Pension Benefit of the Participant shall be deemed to be invested in Phantom Common Stock. On each such date of investment, a Participant's Account shall be credited with the number of shares (including fractional shares) of Phantom Common Stock which could have been purchased on such date, based upon the Common Stock's Purchase Price. As of the date upon which occurs the payment of dividends on the Common Stock, there shall be credited with respect to shares of Phantom Common Stock in the Participant's Account on such date, such additional shares (including fractional shares) of Phantom Common Stock as follows: (1) In the case of cash dividends, such additional shares as could be purchased at the Purchase Price with the dividends which would have been payable if the credited shares had been outstanding; (2) In the case of dividends payable in property other than cash or Common Stock, such additional shares as could be purchased at the Purchase Price with the fair market value of the property which would have been payable if the credited shares had been outstanding; (3) In the case of dividends payable in Common Stock, such additional shares as would have been payable on the credited shares if they had been outstanding; or (4) In the case of a deemed distribution of Mirant common stock as a result of a spin-off of Mirant from The Southern Company, the Phantom Common Stock in a Participant's Account shall be adjusted at a time and in a manner designated by the Administrative Committee. (d) As soon as practicable following the first day of his eligibility to have benefits credited to his Account, a Participant shall designate in writing on a form to be prescribed by the Administrative Committee the method of payment of his Account, which shall be the payment of a single lump sum or a series of annual installments not to exceed twenty (20). The method of distribution initially designated by a Participant shall not be revoked and shall govern the distribution of a Participant's Account. Notwithstanding the foregoing, in the sole discretion of the Administrative Committee, upon application by the Participant, the method of distribution designated by such Participant may be modified not prior to 395 days nor later than 365 days prior to a Participant's date of separation from service in order to change the form of distribution of his Account in accordance with the terms of the Plan; provided, however, that any Participant who is required to file reports pursuant to Section 16(a) of the Securities and Exchange Act of 1934, as amended, with respect to equity securities of The Southern Company shall not be permitted to amend his distribution election during any time period for which such Participant is required to file any such reports with respect to his Non-Pension Benefit unless such amendment is specifically approved by the Administrative Committee in its sole discretion. Each Participant, his Beneficiary, and legal representative shall be bound as to any action taken pursuant to the method of distribution elected by a Participant and the terms of the Plan. Notwithstanding any provision of the Plan to the contrary, if a Participant has elected to receive his Plan distribution in annual installment payments and such Participant's Plan Account does not exceed five thousand dollars ($5,000) (as adjusted from time to time by Treasury regulations applicable to tax-qualified retirement plans) at the time such benefit is valued for distribution, such payment shall be made as a single, lump-sum payment to the Participant. 5.3 Distribution of Benefits. (a) The Pension Benefit, as determined in accordance with Section 5.1, shall be payable in monthly increments on the first day of the month concurrently with the Participant's Retirement Income under the Pension Plan. The form in which the Pension Benefit is paid will be the same as elected by the Participant under the Pension Plan except that the amount of the monthly benefit will be modified at the appropriate time based on the commencement of payments as follows. Payments shall be adjusted to include three components: (1) The amount necessary to pay the tax due under the Federal Insurance Contributions Act with respect to the accrued Pension Benefit determined upon retirement (or such other appropriate "resolution date" as defined under Treasury Regulation Section 31.3121(v)-2) calculated in accordance with Section 5.1; (2) The amount estimated to pay the federal and state income tax withholding liability due on the amount paid under paragraph (1) above; and (3) An adjusted monthly benefit determined on an actuarially equivalent basis in accordance with the terms of the Pension Plan which takes into account the amounts paid under paragraph (1) and (2) above and taking into account the form of benefit elected by the Participant under the Pension Plan. Upon adjustment, the remaining monthly payments shall equal the amount described in paragraph (3) above. The Beneficiary of a Participant's Pension Benefit shall be the same as the Provisional Payee, if any, of the Participant's Retirement Income under the Pension Plan. (b) When a Participant terminates his employment with an Employing Company, said Participant shall be entitled to receive the market value of any shares of Phantom Common Stock (and fractions thereof) reflected in his Account in a single lump sum distribution or annual installments not to exceed twenty (20). Such distribution shall be made not later than sixty (60) days following the date on which his termination of employment occurs, or as soon as reasonably practicable thereafter. The transfer by a Participant between companies within The Southern Company shall not be deemed to be a termination of employment with an Employing Company. With regard to any distribution made under this Article, the market value of any shares of Phantom Common Stock credited to a Participant's Account shall be based on the Sales Price. No portion of a Participant's Account shall be distributed in Common Stock. (c) In the event a Participant elects to receive the distribution of his Account in annual installments, the first payment shall be made not later than sixty (60) days following the date on which his termination of employment occurs, or as soon as reasonably practicable thereafter, subject however to the cash-out provisions of Section 5.2(d). Installments shall equal the balance in the Participant's Account taking into account the tax due under the Federal Insurance Contributions Act divided by the number of annual installment payments. Each subsequent annual payment shall be an amount equal to the balance in the Participant's Account as of the Valuation Date, divided by the number of the remaining annual payments and shall be due on the anniversary of the preceding payment date. (d) Upon the death of a Participant or a former Participant prior to the payment of the market value of any shares of Phantom Common Stock (and fractions thereof) credited to said Participant's Account based on the Sales Price, the unpaid balance shall be paid in the sole discretion of the Administrative Committee (1) in a lump sum to the designated Beneficiary of a Participant or former Participant within sixty (60) days following the date on which the Administrative Committee is provided evidence of the Participant's death (or as soon as reasonably practicable thereafter) or (2) in accordance with the distribution method chosen by such Participant or former Participant. The Beneficiary designation may be changed by the Participant or former Participant at any time without the consent of the prior Beneficiary. In the event a Beneficiary designation is not on file or the designated Beneficiary is deceased or cannot be located, payment will be made to the person or persons in the first of the following classes of successive preference, if then living: (1)......the Participant's spouse on the date of his death; (2)......the Participant's children, equally; (3)......the Participant's parents, equally; (4)......the Participant's brothers and sisters, equally; or (5)......the Participant's executors or administrators. Payment to such one or more persons shall completely discharge the Plan with respect to the amount so paid. (e) Upon the total disability of a Participant or former Participant, as determined by the Social Security Administration, prior to the payment of the market value of any shares of Phantom Common Stock (and fractions thereof) credited to such Participant's Account based on the Sales Price, the unpaid balance of his Account shall be paid in the sole discretion of the Administrative Committee (1) in a lump sum to the Participant or former Participant, or his legal representative within sixty (60) days following the date on which the Administrative Committee receives notification of the determination of a disability by the Social Security Administration (or as soon as reasonably practicable thereafter) or (2) in accordance with the distribution method elected by such Participant or former Participant. (f) The Administrative Committee, in its sole discretion upon application made by the Participant, a designated Beneficiary, or their legal representative, may determine to accelerate payments or, in the event of death or total disability (as determined by Social Security Administration), to extend or otherwise make payments in a manner different from the manner in which such payment would be made under the method of distribution elected by the Participant in the absence of such determination. Notwithstanding any provision of the Plan to the contrary, if a Participant has elected to receive his Plan distribution in annual installment payments and such Participant's Plan Account does not exceed five thousand dollars ($5,000) (as adjusted from time to time by Treasury regulations applicable to tax-qualified retirement plans) at the time such benefit is valued for distribution, such payment shall be made as a single, lump-sum payment to the Participant. (g) The value of the Accounts of all Participants who are employees of Mirant or one of its subsidiaries on the Spin-Off Date shall be transferred to Mirant on a date selected by the Administrative Committee, and The Southern Company and its affiliates and subsidiaries shall have no further obligation to make any distribution of such Accounts to such Participants under Section 5.3(b), (c), (d) or (e). 5.4 Allocation of Pension Benefit Liability. In the event that a Participant eligible to receive a Pension Benefit has been employed at more than one Employing Company, the Pension Benefit liability shall be apportioned so that each such Employing Company is obligated in accordance with Section 5.5 to cover the percentage of the total Pension Benefit as determined below. Each Employing Company's share of the Pension Benefit liability shall be calculated by multiplying the Pension Benefit by a fraction where the numerator of such fraction is the base rate of pay, as defined by the Administrative Committee, received by the Participant at the respective Employing Company on his date of termination of employment or transfer, as applicable, multiplied by the Accredited Service earned by the Participant at the respective Employing Company and where the denominator of such fraction is the sum of all numerators calculated for each respective Employing Company by which the Participant has been employed. For purposes of determining the above-described fraction, when determining a Participant's Pension Benefit, the Participant's years of Accredited Service shall include any deemed Accredited Service provided under the terms of any agreement concerning supplemental pension payments between the Participant and an Employing Company. In the event a Participant receives additional Accredited Service under such an agreement, such Accredited Service shall be allocated to each Employing Company which has contracted with the Participant in accordance with such contract and this allocation will be utilized to adjust the appropriate components of the fraction described above in determining each Employing Company's share of the Pension Benefit liability. Notwithstanding the preceding paragraph, the Pension Benefit liability attributable to any Participant employed by Mirant or one of its subsidiaries on the Spin-Off Date shall not be paid from this Plan, but rather shall be a liability of Mirant in accordance with the Employee Matters Agreement entered into by and between Mirant and Southern Company. However, the portion of any Pension Benefit payable to a Participant employed by an Affiliated Employer on the Spin-Off Date which is attributable to service with Mirant prior to such date (as determined using the fraction described above) shall be a liability of Southern Company. 5.5 Funding of Benefits. Except as expressly limited under the terms of the Trust, neither the Company nor any Employing Company hereunder shall reserve or otherwise set aside funds for the payment of its obligations under the Plan. In any event, such obligations shall be paid or deemed to be paid solely from the general assets of the Employing Companies. Participants shall only have the status of general, unsecured creditors of the Company and their respective Employing Companies. Notwithstanding that a Participant shall be entitled to receive the balance of his Account under the Plan, the assets from which such amount shall be paid shall at all times remain subject to the claims of the creditors of the Participant's Employing Company. When a Participant becomes entitled to payment of a Pension Benefit, the Company may, in its sole discretion, elect to purchase an annuity from a reputable third party annuity provider to secure payment of all or any portion of the Participant's Pension Benefit, pursuant to a uniform annuitization program adopted by the Administrative Committee. 5.6 Withholding. There shall be deducted from payments and, if necessary, from the Non-Pension Account under the Plan the amount of any tax required by any governmental authority to be withheld and paid over by an Employing Company to such governmental authority for the account of the Participant or Beneficiary. 5.7 Recourse Against Deferred Compensation Trust. In the event a Participant who is employed on or after January 1, 1999 with an "Employing Company" (as such term is defined in the Change in Control Benefit Plan Determination Policy) disputes the calculation of his Pension Benefit or Non-Pension Benefit, or payment of amounts due under the terms of the Plan, the Participant has recourse against the Company, the Employing Company by which the Participant is employed, if different, the Plan, and the Trust for payment of benefits to the extent the Trust so provides. 5.8 Change in Control. The provisions of the Change in Control Benefit Plan Determination Policy are incorporated herein by reference to determine the occurrence of a change in control or preliminary change in control of Southern Company or an Employing Company, the benefits to be provided hereunder and the funding of the Trust in the event of such a change in control. Any modifications to the Change in Control Benefit Plan Determination Policy are likewise incorporated herein. ARTICLE VI - MISCELLANEOUS 6.1 Assignment. Neither the Participant, his Beneficiary, nor his legal representative shall have any rights to sell, assign, transfer or otherwise convey the right to receive the payment of any Pension Benefit or Non-Pension Benefit due hereunder, which payment and the right thereto are expressly declared to be nonassignable and nontransferable. Any attempt to assign or transfer the right to payment under the Plan shall be null and void and of no effect. 6.2 Amendment and Termination. Except for the provisions of Section 5.8 hereof, which may not be amended following a "Southern Change in Control" or "Subsidiary Change in Control", as defined in the Change in Control Benefit Plan Determination Policy, the Plan may be amended or terminated at any time by the Board of Directors, provided that no amendment or termination shall cause a forfeiture or reduction in any benefits accrued as of the date of such amendment or termination. The Plan may also be amended by the Administrative Committee (a) if such amendment does not involve a substantial increase in cost to any Employing Company, or (b) as may be necessary, proper, or desirable in order to comply with laws or regulations enacted or promulgated by any federal or state governmental authority. 6.3 No Guarantee of Employment. Participation hereunder shall not be construed as creating any contract of employment between any Employing Company and a Participant, nor shall it limit the right of an Employing Company to suspend, terminate, alter, or modify, whether or not for cause, the employment relationship between such Employing Company and a Participant. 6.4 Construction. This Plan shall be construed in accordance with and governed by the laws of the State of Georgia, to the extent such laws are not otherwise superseded by the laws of the United States. IN WITNESS WHEREOF, the amended and restated Plan has been executed by a duly authorize officer of Southern Company Services, Inc., subject to ratification by the Board of Directors of the Company, this day of , 2001. SOUTHERN COMPANY SERVICES, INC. By:______________________________________ Its:_____________________________________ Attest: By: ______________________________ Its: ______________________________ APPENDIX A THE SOUTHERN COMPANY SUPPLEMENTAL BENEFIT PLAN EMPLOYING COMPANIES AS OF MAY 1, 2000 Alabama Power Company Georgia Power Company Gulf Power Company Mississippi Power Company Savannah Electric and Power Company Southern Communications Services, Inc. Southern Company Energy Solutions, Inc. Southern Company Services, Inc. Southern Energy Resources, Inc. (through April 1, 2001) Southern Nuclear Operating Company, Inc. EX-10 15 x10a83.txt DEFERRED COMPENSATION AGREEMENT Exhibit 10(a)83 FIRST AMENDMENT TO DEFERRED COMPENSATION AGREEMENT THIS FIRST AMENDMENT TO DEFERRED COMPENSATION AGREEMENT ("Agreement") made and entered into by and between The Southern Company ("Company") and William L. Westbrook ("Mr. Westbrook"), effective as of the day of - --------------------------- , 2001. W I T N E S S E T H: WHEREAS, the parties entered into that certain Deferred Compensation Agreement on February 15, 2001 ("Deferred Compensation Agreement"); and WHEREAS, the parties wish to amend the Deferred Compensation Agreement to expressly provide Mr. Westbrook with the value of the Award of Non-Qualified Stock Options Mr. Westbrook would have received under The Southern Company Performance Stock Plan on April 16, 2001 if he had been an employee of the Company on such date. NOW, THEREFORE, in consideration of the premises, and the agreements of the parties set forth in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Paragraph 2 of the Deferred Compensation Agreement is amended by deleting the last paragraph and inserting the following in lieu thereof: (d) Subject to the terms and conditions of this Agreement, Company shall grant to Employee, as of his Early Retirement Date, Fifty-Six Thousand Five Hundred Twenty-Three (56,523) Stock Appreciation Rights ("SARs") and shall issue to Employee a Certificate evidencing his rights hereunder in the form attached hereto as Exhibit 2. Employee shall be 100% vested in the SARs on his Early Retirement Date. The SARs shall expire on the fifth anniversary of Employee's Early Retirement Date ("Expiration Date"). The SARs may be exercised in whole or in part at any time on or before the Expiration Date. During the Employee's lifetime, only the Employee may exercise the SARs granted under Paragraph 2(d) of this Agreement. If the Employee dies without having exercised all of the SARs granted hereunder, the balance of the SARs may be exercised, to the extent the SARs could have been exercised on the date of Employee's death, by the estate or a person who acquired the right to exercise the SARs by bequest or inheritance from or by reason of the death of the Employee. The SARs shall be exercised by delivering to the Vice President, Human Resources of the Company on any business day a Notice of Exercise in the form attached hereto as Exhibit 3. Upon the exercise of a SAR, Employee shall be entitled to receive a payment from the Company of an amount ("SAR Exercise Amount") equal to the product determined by multiplying (i) the number of SARs being exercised, by (ii) an amount equal to the excess of (A) the Exercise Value per Share on the date of the exercise of the SAR over (B) the Base Value per Share for the SAR. For purposes of the preceding sentence, "Exercise Value per Share" shall mean the average of the high and low prices at which a share of the common stock of the Company shall have been traded on the date of exercise, or if there is no sale on the exercise date, then on the last previous day on which a sale occurred, as reported on the New York Stock Exchange-Composite Transactions Listing, and "Base Value per Share" shall mean $22.425. The Company shall pay the SAR Exercise Amount in cash as soon as practicable after receiving a Notice of Exercise from the Employee in accordance with this Paragraph 2(d). The SARs granted under this Paragraph 2(d) may be transferred by the Employee in the same manner as Awards other than Incentive Stock Options under Article VIII of The Southern Company Performance Stock Plan ("PSP") and upon Employee's death by will or by the laws of descent and distribution. Except as provided above, the SARs and the rights and privileges conferred hereby, shall not be assigned, pledged or hypothecated in any way and shall not be subject to execution, attachment or similar process. The SARs shall be used solely as a device for the measurement and determination of the amount to be paid to Employee under this Paragraph 2(d). The SARs shall not constitute or be treated as property or as a trust fund of any kind. All amounts at any time attributable to the SARs shall be and remain the sole property of the Company, and Employee's rights under this Paragraph 2(d) are limited to the rights to receive payment. The Employee, or any transferee of the SARs, shall have no rights as a shareholder with respect to any shares of common stock of the Company with respect to which the SAR's value is measured. In the event of a stock split, stock dividend, reclassification, reorganization, or other capital adjustment of shares of common stock of the Company, the number of SARs granted to Employee in this Paragraph 2(d) shall be adjusted in a manner to place Employee in the same economic position after such event as he held immediately prior thereto. (e) Subject to the terms and conditions of this Agreement, Company shall pay to Employee amounts ("Supplemental PDP Amounts") equal to the Awards the Employee would have received under The Southern Company Performance Dividend Plan ("PDP") in 2002, 2003 and 2004 if the SARs granted to Employee under Paragraph 2(d) above constituted an Award of Non-Qualified Stock Options under the PSP paid on April 16, 2001. The Supplemental PDP Amounts shall be paid to the Employee in the same manner and on the same dates as the Awards the Employee would have received under the PDP in 2002, 2003 and 2004. (f) In accordance with Paragraph 16 hereof, Employee shall be responsible for all state and federal income taxes and his share of FICA taxes owed on the amounts payable in accordance with subparagraphs (a), (b), (c), (d) and (e) of this Paragraph 2, and Company shall make appropriate withholding of these amounts. 2. The Agreement shall be amended by adding Exhibits 2 and 3 in the forms attached hereto as Schedules 1 and 2 to the end thereof. 3. Except as specifically amended above, the Deferred Compensation Agreement shall remain unchanged and, as amended herein, shall continue in full force and effect. IN WITNESS WHEREOF, this First Amendment to Deferred Compensation Agreement has been executed by the parties first listed above, this _______ day of ___________________, 2001. THE SOUTHERN COMPANY By: ----------------- MR. WESTBROOK William L. Westbrook Schedule 1 Exhibit 2 to Deferred Compensation Agreement with William L. Westbrook SAR GRANT CERTIFICATE This Certificate, which is issued pursuant to, and subject to, the Deferred Compensation Agreement with William L. Westbrook, credits William L. Westbrook with 56,523 Stock Appreciation Rights. The Southern Company By: ----------------------------------------- Its: ---------------------------------------- Date: --------------------------------------- ACCEPTED: Grantee Date 1st Amendment to Deferred Comp. Agree_Westbrook.DOC Schedule 2 Exhibit 3 to Deferred Compensation Agreement with William L. Westbrook NOTICE OF EXERCISE The Southern Company Attention: Vice President, Human Resources I hereby exercise my rights under Paragraph 2(d) of the Deferred Compensation Agreement entered into by and between The Southern Company and me, as amended (the "Agreement"), and granted as of _________________________, subject to all of the terms and conditions of the Agreement, with respect to the following number of SARs: Number of SAR(s) - ------------------------------------------- If this Notice of Exercise involves fewer than all of the SARs which are the subject of Paragraph 2(d) of the Agreement, I retain the right to exercise my rights for the balance of the SARs remaining subject to said Agreement, all in accordance with the terms of the Agreement. I hereby authorize The Southern Company (the "Company") (and any of its subsidiaries) to withhold from any extraordinary pay from the Company (and any of its subsidiaries) and/or any payment with respect to my exercise of the aforesaid SARs, the applicable amount of any taxes required by law or the Agreement to be withheld as a result to this exercise. My current address and my Social Security Number are as follows: Address: Social Security Number: ------------------------------------ Date: - ------------------------ -------------------------------------------- Name EX-10 16 x10a92.txt DEFERRED COMPENSATION TRUST AGREEMENT Exhibit 10(a)92 DEFERRED CASH COMPENSATION TRUST AGREEMENT FOR DIRECTORS OF SOUTHERN COMPANY AND ITS SUBSIDIARIES AMENDED AND RESTATED EFFECTIVE SEPTEMBER 1, 2001 DEFERRED CASH COMPENSATION TRUST AGREEMENT FOR DIRECTORS OF SOUTHERN COMPANY AND ITS SUBSIDIARIES TABLE OF CONTENTS 1. Purpose...........................................................1 2. Trust Corpus......................................................2 3. Grantor Trust.....................................................2 4. Irrevocability of Trust...........................................3 5. Contributions to Trust............................................3 6. Investment of Trust Assets........................................5 7. Distribution of Trust Assets......................................6 8. Termination of the Trust and Reversion of Trust Assets...........11 9. Powers of the Trustee............................................12 10. Termination of Trustee...........................................15 11. Appointment of Successor Trustee.................................15 12. Trustee Compensation.............................................16 13. Trustee's Consent to Act and Indemnification of the Trustee......17 14. Prohibition Against Assignment...................................17 15. Annual Accounting................................................17 16. Notices..........................................................18 17. Miscellaneous Provisions.........................................19 DEFERRED CASH COMPENSATION TRUST AGREEMENT FOR DIRECTORS OF SOUTHERN COMPANY AND ITS SUBSIDIARIES This amended and restated Trust Agreement entered into this _____ day of ___________, 2001 is between the Grantors as set forth on the signature page of this Trust Agreement and Wachovia Bank, N.A. (the "Trustee"). This Trust Agreement is effective September 1, 2001 ("Effective Date") and supercedes all previous Trust Agreements. 1. Purpose. The purpose of this trust (the "Trust") is to provide a vehicle to (a) hold assets of the Grantors as a reserve for the discharge of certain of the Grantors' obligations with respect to Prime Rate Investment Accounts and Phantom Stock Investment Accounts under the respective Grantors' Deferred Compensation Plans for Directors (i) upon the occurrence of a change in control, and (ii) in accordance with paragraph 7(b), to provide added protections for certain individuals who actively serve on the Board of Directors of a Grantor on or after January 1, 1999, entitled to receive benefits under designated plans and arrangements and (b) invest, reinvest, disburse and distribute those assets and the earnings thereon as provided hereunder. Individuals eligible for benefits in accordance with the preceding sentence shall hereinafter be referred to as "Beneficiaries" under the Trust. Grantors shall designate in writing to the Trustee in Exhibit A attached hereto and made a part hereof those plans or arrangements subject to all or certain provisions of the Trust (the "Plans"). Exhibit A shall also specify which provisions of the Trust apply to the various Plans. 2. Trust Corpus. The Grantors hereby transfer to the Trustee and the Trustee hereby accepts and agrees to hold, in trust, the sum of Ten Dollars ($10.00) plus such cash and/or property, if any, transferred to the Trustee by the Grantors or on behalf of the Grantors pursuant to obligations incurred under any or all of the Plans and the earnings thereon, and such cash and/or property, together with the earnings thereon and together with any other cash or property received by the Trustee pursuant to Section 9(a) of this Trust Agreement, shall constitute the trust estate and shall be held, managed and distributed as hereinafter provided. The Grantors shall execute any and all instruments necessary to vest the Trustee with full title to the property hereby transferred. 3. Grantor Trust. The Trust is intended to be a trust of which the Grantors are treated as individual owners for federal income tax purposes in accordance with the provisions of Sections 671 through 679 of the Internal Revenue Code of 1986, as amended (the "Code"). If the Trustee, in its sole and absolute discretion, deems it necessary or advisable for the Grantors and/or the Trustee to undertake or refrain from undertaking any actions (including, but not limited to, making or refraining from making any elections or filings) in order to ensure that the Grantors are at all times treated as individual owners of the Trust for federal income tax purposes, the Grantors and/or the Trustee will undertake or refrain from undertaking (as the case may be) such actions. The Grantors hereby irrevocably authorize the Trustee to be their attorney-in-fact for the purpose of performing any act which the Trustee, in its sole and absolute discretion, deems necessary or advisable in order to accomplish the purposes and the intent of this Section 3. The Trustee shall be fully protected in acting or refraining from acting in accordance with the provisions of this Section 3. 4. Irrevocability of Trust. Prior to the occurrence of a "Preliminary Change in Control" (hereinafter referred to as a "Preliminary CIC"), the Trust shall be revocable and may be altered or amended in any substantive respect, or revoked or terminated by the Grantors in whole or in part provided that no such amendment may increase the duties of the Trustee without its consent. In the event of a Preliminary CIC, the Trust may not be altered or amended in any substantive respect, or revoked or terminated by the Grantor or Grantors incurring a Preliminary CIC unless a majority of the Beneficiaries, determined as of the day before such Preliminary CIC, agree in writing to such an alteration, amendment, revocation or termination provided that no such amendment may increase the duties of the Trustee without its consent. If after a Preliminary CIC occurs but fails to become a Change in Control, thereafter the Trust shall again be revocable and may be altered or amended in any substantive respect, or revoked or terminated by the Grantors in whole or in part provided that no such amendment may increase the duties of the Trustee without its consent. Notwithstanding the preceding, the Trust may be amended following a Preliminary CIC or a Change in Control without approval of the Beneficiaries to protect the tax status or ERISA status of this Trust. For purposes of this Trust, Preliminary CIC and other capitalized terms if not defined in the Trust shall have the same meaning as set forth in the Grantor's respective Deferred Compensation Plan for Directors. 5. Contributions to Trust. The Grantors have obligated themselves under the terms of the Plans, which are hereby incorporated by reference, to make certain contributions to the Trust upon the occurrence of a Preliminary CIC. Upon such a Preliminary CIC, the Grantors affected thereby shall account for each Beneficiary's benefit funded by contributions to the Trust in a manner determined by the Trust Administrative Committee. The Grantors have also obligated themselves to make certain contributions to the Trust in a manner determined by the Trust Administrative Committee to provide for the protections set forth in Section 7(c) hereof. A return of such contributions and earnings thereon may only occur under the following circumstances: (a) if, on the second anniversary of a Preliminary CIC or any time thereafter, the Southern Committee determines that a Change in Control has not been Consummated, the Trustee upon its agreement with this determination shall, upon the request of the Grantor or Grantors incurring a Preliminary CIC, return to such Grantor or Grantors property contributed to the Trust on account of the occurrence of a Preliminary CIC; (b) if, at any time, following a Preliminary CIC, the Southern Committee provides evidence satisfactory to the Trustee that the Preliminary CIC will not become a Change in Control; or (c) if the Trustee determines in its sole and absolute discretion that a Southern Change in Control has occurred, and, on the second anniversary of the date of Consummation of such Change in Control 75% of the members of the Incumbent Board on such anniversary date shall continue to serve as determined by the Southern Committee, the Trustee upon its agreement with this determination shall return to the Grantor or Grantors incurring a Change in Control, upon such Grantor's request, any such property received and earnings thereon as a result of such Change in Control; or (d) prior to Change of Control, with respect to amounts contributed to fund benefits paid in accordance with Section 7(b) hereof, if the Trust assets equal or exceed 200% of the targeted funding level as established by the Trust Administrative Committee prior to a Change in Control, assets shall be returned by the Trustee to the Grantor or Grantors designated by the Trust Administrative Committee to reduce total assets to 150% of the targeted funding level. 6. Investment of Trust Assets. -------------------------- (a) Subject to the provisions of paragraph (b) below, until the Trustee has distributed all of the assets of the Trust in accordance with the terms hereof, the Trustee shall invest and reinvest such assets (without regard to any state law limiting the investment powers of fiduciaries) in such securities and other property as the Trustee deems advisable, considering the probable income (including capital appreciation potential) from any such investment, the probable safety of the assets of the Trust and, where appropriate, the rate of return at which the assets would have been invested on behalf of each Beneficiary under any applicable qualified defined benefit pension plan maintained by the Grantors. Within the limitations of the foregoing, the Trustee is specifically authorized to acquire, for cash or on credit, every kind of property, real, personal or mixed, and to make every kind of investment, specifically including, but not limited to, corporate and governmental obligations of every kind, preferred or common stocks, securities of any regulated investment company or trust, and property in which the Trustee owns an undivided interest in any other trust capacity. The Trustee is expressly authorized and empowered to hold or purchase such insurance in its own name (and with itself as the beneficiary) as it shall determine to be necessary or advisable to advance best the purposes of the Trust and the interests of the Beneficiaries. (b) The Trustee shall invest and reinvest the assets of the Trust in accordance with such investment objectives, guidelines, restrictions or directions as the Trust Administrative Committee or its delegee may furnish to the Trustee at the time of the execution of the Trust or at any later date; provided, however, that if there is a Preliminary CIC, the Trust's investment objectives, guidelines, restrictions or directions may not be changed thereafter unless there is a return of Grantor contributions pursuant to Section 5(a), (b) or (c). Upon a Change in Control, the Trustee shall promptly contact all Beneficiaries at their last known addresses provided by the Grantors and put such Beneficiaries on notice of the funding of the Trust and the Trustee's obligations hereunder. The Trust Administrative Committee shall promptly provide the Trustee with such information as it needs to carry out this duty. 7. Distribution of Trust Assets. ---------------------------- (a) The Grantors may make payment of benefits directly to Beneficiaries as they become due under the terms of the Plan(s). Upon a Change in Control, the Grantors shall notify the Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to Beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Plan(s), the Grantors shall make the balance of each such payment as it falls due in accordance with the Plan(s). The Trustee shall notify the Grantors where principal and earnings are not sufficient. Nothing in this Agreement shall relieve the Grantors of their liabilities to pay benefits due under the Plan(s) except to the extent such liabilities are met by application of assets of the Trust. (b) At such time as a Beneficiary is entitled to payments under any of the Plans prior to a Change in Control, if the Grantors fail to make payment of all or a portion of the benefits to a Beneficiary under any Plan in accordance with paragraph (a) above, such Beneficiary can make application for payment in accordance with the provisions of paragraph (d)(i) below. If so requested, the Trustee shall make an independent determination in its sole and absolute discretion regarding the Beneficiary's right to payment under the Plan(s) within 60 days thereof. Such determination shall be made with advice from outside counsel independent of Southern and the Trustee. The Grantors agree to be bound by Trustee's determination and to make payment of benefits as they fall due commencing not later than 30 days following Trustee's determination regarding entitlement to benefits absent a manifest abuse of discretion by the Trustee. If Trustee determines benefits are payable to Beneficiary and Grantor fails to commence payment within 30 days following the Trustee's determination, Trustee shall make payment of such benefits and instruct Beneficiary in writing that he or she must bring suit within 180 days of the Trustee's claims determination or thereafter be barred from doing so. Trustee shall only make benefits payments until the first of the following to occur: (i) 180 days following its claims determination if the Beneficiary fails to bring a lawsuit to enforce his or her rights within this limitation period; or (ii) until there is a final adjudication or other final resolution of the Beneficiary's claim. In the event that such Beneficiary timely files a lawsuit within 180 days of Trustee's determination that Beneficiary is entitled to the disputed benefits, all reasonable costs of litigation (as determined in the sole and absolute discretion of the Trustee) shall be periodically, but no less than quarterly, advanced to the Beneficiary through the final adjudication of the claim; provided, however, that the Beneficiary shall repay such advanced costs of litigation if he or she fails to have finally resolved in the Beneficiary's favor a material issue supporting the underlying merits of the Beneficiary's claim for benefits in such dispute as determined in the sole and absolute discretion of the Trustee. Alternatively, in the event that a Beneficiary files a lawsuit to obtain benefits after the Trustee determines that such Beneficiary is not entitled to such benefits, all costs of litigation shall be borne by each party thereto; provided, however, that the Grantors, or the Trustee if the Grantors refuse, shall reimburse such reasonable costs in the event any material issue supporting the underlying merits of the Beneficiary's claim for benefits in such dispute is finally resolved in favor of the Beneficiary. (c) Subject to the provisions of paragraph (d) of this Section 7, after a Change in Control, a Beneficiary shall receive payment from the Trust in amount equal to the accrued benefit to which he is entitled under the Plans determined as of the Change in Control, less any payments previously made to him by the Grantors pursuant to the terms of the Plan(s). The form of payment will be consistent with the forms provided under the terms of the Plan(s). (d) (i) The commencement of payments from the Trust shall be conditioned on the Trustee's prior receipt of a written instrument from the Beneficiary in a form reasonably satisfactory to the Trustee. In addition to any other information the Trustee requires, such form should indicate the amount, if any, the Beneficiary has received from the Grantors under the Plans as of his request. All payments to a Beneficiary from the Trust shall be made in accordance with a good faith interpretation of the provisions of the applicable Plan(s). (ii) Except as provided below, the Trustee shall make or commence payment to the Beneficiary in accordance with his representations not later than 30 business days after its receipt thereof; provided, however, that before the Trustee makes or commences any such payment and not later than 7 business days after its receipt of the Beneficiary's representations, the Trustee shall request in writing the Grantors' agreement that the Beneficiary's representations are accurate with respect to the amount, fact, and time of payment to him. The Trustee shall enclose with such request a copy of the Beneficiary's representations and written advice to the Grantors that it must respond to the Trustee's request on or before the 20th business day (which date shall be set forth in such written advice) after the Beneficiary furnished such representations to the Trustee. If the Grantors in a writing delivered to the Trustee agree with the Beneficiary's representations in all respects, or if the Grantors do not respond to the Trustee's request by the 20th-day deadline, the Trustee shall make payment in accordance with the Beneficiary's representations. If the Grantors advise the Trustee in writing on or before the 20th-day deadline that it does not agree with any or all of the Beneficiary's representations, the Trustee immediately shall take whatever steps it in its sole and absolute discretion deems appropriate, including, but not limited to, a review of any notice furnished by the Grantor pursuant to paragraph (e) hereof, to attempt to resolve the difference(s) between the Grantors and the Beneficiary. If, however, the Trustee is unable to resolve such difference(s) to its satisfaction within 60 days after its receipt of the Beneficiary's representations, the Trustee shall make an independent determination in its sole and absolute discretion with the advice of independent counsel regarding the Beneficiary's claim for benefits and commence such payment, if any, within such 60 day period. In the event Grantors do not agree with Beneficiary's right to payment of all or a portion of a benefit under any Plan(s), Grantors may bring a declaratory judgment action to clarify their rights. Trustee may rely on any final judgment concerning a declaratory judgment action with respect to the payment of benefits from the Trust. (e) Notwithstanding any other provision of the Trust to the contrary, after a Change in Control the Trustee shall make payments hereunder before such payments are otherwise due if it determines in its sole and absolute discretion, based on a change in the tax or revenue laws of the United States of America, a published ruling or similar announcement issued by the Internal Revenue Service, a regulation issued by the Secretary of the Treasury or his delegate, a final non-appealable decision by the Internal Revenue Service addressed to a Beneficiary, a final decision by a court of competent jurisdiction involving a Beneficiary, or a closing agreement made under Code Section 7121 that is approved by the Internal Revenue Service and involves a Beneficiary, that a Beneficiary has recognized or will recognize income for federal income tax purposes with respect to amounts that are or will be payable to him under the Plans before they are paid to him. The Trustee in its sole and absolute discretion shall reimburse a Beneficiary all costs determined to be reasonable to defend any tax claims described herein which are asserted by the Internal Revenue Service against any Beneficiary, including attorney fees and cost of appeal, and shall have the sole authority to determine whether or not to appeal any determination made by the Internal Revenue Service or by a lower court. The Trustee also shall reimburse any Beneficiary for any interest or penalties in respect of tax claims hereunder upon receipt of documentation of same. (f) Unless (contemporaneously with his submission of the written instrument referred to in paragraph (a) hereof) a Beneficiary furnishes documentation in form and substance satisfactory to the Trustee that no withholding is required with respect to a payment to be made to him from the Trust, the Trustee may deduct from any such payment any federal, state or local taxes required by law to be withheld by the Trustee. (g) The Trustee shall provide the Grantors with written confirmation of the fact and time of any commencement of payments hereunder within 10 business days after any payments commence to a Beneficiary. The Grantors shall notify the Trustee in the same manner of any payments it commences to make to a Beneficiary pursuant to the Plans. (h) The Trustee shall be fully protected in making any payment or any calculations in accordance with the provisions of this Section 7. 8. Termination of the Trust and Reversion of Trust Assets. The Trust shall terminate upon the first to occur of (i) the payment by the Grantors of all amounts due the Beneficiaries under each of the Plans or the receipt by the Trustee of a valid release to that effect from each of the Beneficiaries with respect to payments made to him, or (ii) the twenty-first anniversary of the death of the last survivor of the Beneficiaries who are in being on the date of the execution of this Trust Agreement. Upon termination of the Trust, any and all assets remaining in the Trust, after the payment to the Beneficiaries of all amounts to which they are entitled and after payment of the expenses and compensation in Sections 12 and 17(i) of this Trust Agreement, shall revert to the Grantors in accordance with their separate interest as accounted for by the Trust Administrative Trust, and the Trustee shall promptly take such action as shall be necessary to transfer any such assets to the Grantors in accordance with such interest. Notwithstanding the above, the Grantors shall be obligated to take whatever steps are necessary to ensure that the Trust is not terminated for a period of five (5) years following a Change in Control, such steps to include, but not being limited to, the transfer to the Trustee of cash or other assets pursuant to the provisions of Section 9(a) hereof. 9. Powers of the Trustee. To carry out the purposes of the Trust and subject to any limitations herein expressed, the Trustee is vested with the following powers until final distribution, in addition to any now or hereafter conferred by law affecting the trust or estate created hereunder. In exercising such powers, the Trustee shall act in a manner reasonable and equitable in view of the interests of the Beneficiaries and in a manner in which persons of ordinary prudence, diligence, discretion and judgment would act in the management of their own affairs. (a) Receive and Retain Property. To receive and retain any property received at the inception of the Trust or at any other time, whether or not such property is unproductive of income or is property in which the Trustee is personally interested or in which the Trustee owns an undivided interest in any other trust capacity. (b) Dispose of, Develop, and Abandon Assets. To dispose of an asset, for cash or on credit, at public or private sale and, in connection with any sale or disposition, to give such warranties and indemnifications as the Trustee shall determine; to manage, develop, improve, exchange, partition, change the character of or abandon a Trust asset or any interest therein. (c) Borrow and Encumber. To borrow money for any Trust purpose upon such terms and conditions as may be determined by the Trustee; to obligate the Trust or any part thereof by mortgage, deed of trust, pledge or otherwise, for a term within or extending beyond the term of the Trust. (d) Lease. To enter for any purpose into a lease as lessor or lessee, with or without an option to purchase or renew, for a term. (e) Grant or Acquire Options. To grant or acquire options and rights of first refusal involving the sale or purchase of any Trust assets, including the power to write covered call options listed on any securities exchange. (f) Powers Respecting Securities. To have all the rights, powers, privileges and responsibilities of an owner of securities, including, without limiting the foregoing, the power to vote, to give general or limited proxies, to pay calls, assessments, and other sums; to assent to, or to oppose, corporate sales or other acts; to participate in, or to oppose, any voting trusts, pooling agreements, foreclosures, reorganizations, consolidations, mergers and liquidations, and, in connection therewith, to give warranties and indemnifications and to deposit securities with and transfer title to any protective or other committee; to exchange, exercise or sell stock subscription or conversion rights; and, regardless of any limitations elsewhere in this instrument relative to investments by the Trustee, to accept and retain as an investment hereunder any securities received through the exercise of any of the foregoing powers. (g) Use of Nominee. To hold securities or other property in the name of the Trustee, in the name of a nominee of the Trustee, or in the name of a custodian (or its nominee) selected by the Trustee, with or without disclosure of the Trust, the Trustee being responsible for the acts of such custodian or nominee affecting such property. (h) Advance Money. To advance money for the protection of the Trust, and for all expenses, losses and liabilities sustained or incurred in the administration of the Trust or because of the holding or ownership of any Trust assets, for which advances, with interest, the Trustee has a lien on the Trust assets as against the Beneficiaries. (i) Pay, Contest or Settle Claims. To pay, contest or settle any claim by or against the Trust by compromise, arbitration or otherwise; to release, in whole or in part, any claim belonging to the Trust to the extent that the claim is uncollectible. Notwithstanding the foregoing, the Trustee may only pay or settle a claim asserted against the Trust by a Grantor if it is compelled to do so by a final order of a court of competent jurisdiction. (j) Litigate. To prosecute or defend actions, claims or proceedings for the protection of Trust assets and of the Trustee in the performance of its duties. (k) Employ Advisers and Agents. To employ and reasonably compensate persons, corporations or associations, including attorneys, auditors, investment advisers or agents, even if they are associated with the Trustee, to advise or assist the Trustee in the performance of its administrative duties; to act without independent investigation upon their recommendations. (l) Use Custodian. If no bank or trust company is acting as Trustee hereunder, the Trustee shall appoint a bank or trust company to act as custodian (the "Custodian") for securities and any other Trust assets. Any such appointment shall terminate when a bank or trust company begins to serve as Trustee hereunder. The Custodian shall keep the deposited property, collect and receive the income and principal, and hold, invest, disburse or otherwise dispose of the property or its proceeds (specifically including selling and purchasing securities, and delivering securities sold and receiving securities purchased) upon the order of the Trustee. (m) Execute Documents. To execute and deliver all instruments that will accomplish or facilitate the exercise of the powers vested in the Trustee. (n) Grant of Powers Limited. The Trustee is expressly prohibited from exercising any powers vested in it primarily for the benefit of the Grantors rather than for the benefit of the Beneficiaries. The Trustee shall not have the power to purchase, exchange, or otherwise deal with or dispose of the assets of the Trust for less than adequate and full consideration in money or money's worth. (o) Deposit Assets. To deposit Trust assets in commercial, savings or savings and loan accounts (including such accounts in a corporate Trustee's banking department) and to keep such portion of the Trust assets in cash or cash balances as the Trustee may, from time to time, deem to be in the best interests of the Trust, without liability for interest thereon. 10. Termination of Trustee. Grantors may remove Trustee upon sixty (60) days notice or upon such shorter period of time if acceptable to Trustee; provided that upon a Preliminary CIC or subsequent Change in Control the Grantors may only remove the Trustee if a majority of the Beneficiaries approve such action. 11. Appointment of Successor Trustee. -------------------------------- (a) The Trustee shall have the right to resign upon 60 days' written notice to the Grantor, during which time the Grantor shall appoint a "Qualified Successor Trustee." If no Qualified Successor Trustee accepts such appointment, the resigning Trustee shall petition a court of competent jurisdiction for the appointment of a "Qualified Successor Trustee." For this purpose, a "Qualified Successor Trustee" must be a bank or trust company with a market capitalization of at least $10 billion but may not be the Grantor, any person who would be a "related or subordinate party" to the Grantor within the meaning of Section 672(c) of the Code or a corporation that would be a member of an "affiliated group" of corporations including the Grantor within the meaning of Section 1504(a) of the Code if the words "80 percent" wherever they appear in that section were replaced by the words "50 percent." Upon the written acceptance by the Qualified Successor Trustee of the trust and upon approval of the resigning Trustee's final account by those entitled thereto, the resigning Trustee shall be discharged. (b) Upon the occurrence of a corporate transaction involving the ownership or assets of a Grantor, the affected Grantors upon written acknowledgment to the Trustee of their obligations under the Trust and Plans may in their sole discretion direct the Trustee to transfer or assign all or a portion of the assets of the Trust to a Qualified Successor Trustee. The Trust Administrative Committee shall instruct the Trustee regarding the assets to be transferred or assigned; provided, however, that no assets shall be transferred to such a Qualified Successor Trustee until the Trustee is satisfied that contributions required under the Plans have been made prior to or concurrent with this transfer or assignment. Notwithstanding the foregoing, the Trustee shall only be permitted to transfer or assign assets from the Trust to a Qualified Successor Trustee if the transfer and assignment are consistent with the purpose and intent of the Trust. 12. Trustee Compensation. The Trustee shall be entitled to receive as compensation for its services hereunder the compensation (a) as negotiated and agreed to by the Grantors and the Trustee, or (b) if not negotiated or if the parties are unable to reach agreement, as allowed a trustee under the laws of the State of Georgia in effect at the time such compensation is payable. Such compensation shall be paid by the Grantors; provided, however, that to the extent such compensation is not paid by the Grantors, subject to the provisions of Section 17(j) hereof, it shall be charged against and paid from the Trust and subject to Section 4 of this Trust Agreement, upon a Preliminary Change in Control, the Grantors shall reimburse the Trust for any such payment made from the Trust within 30 days of its receipt from the Trustee of written notice of such payment. 13. Trustee's Consent to Act and Indemnification of the Trustee. The Trustee hereby grants and consents to act as Trustee hereunder. The Grantors agree to indemnify the Trustee and hold it harmless from and against all claims, liabilities, legal fees and expenses that may be asserted against it, otherwise than on account of conduct of the Trustee which is found by a final judgment of a court of competent jurisdiction to be a breach of its fiduciary duty whether by reason of the Trustee's taking or refraining from taking any action in connection with the Trust, whether or not the Trustee is a party to a legal proceeding or otherwise. 14. Prohibition Against Assignment. No Beneficiary shall have any preferred claim on, or any beneficial ownership interest in, any assets of the Trust before such assets are paid to the Beneficiary as provided in Section 7, and all rights created under the Trust and the Plans shall be unsecured contractual rights of the Beneficiary against the Grantor which is his employer for purposes of the Plans. No part of, or claim against, the assets of the Trust may be assigned, anticipated, alienated, encumbered, garnished, attached or in any other manner disposed of by any of the Beneficiaries, and no such part or claim shall be subject to any legal process or claims of creditors of any of the Beneficiaries. 15. Annual Accounting. The Trustee shall keep accurate and detailed accounts of all investments, receipts and disbursements and other transactions hereunder, and, within ninety days following the close of each calendar year, and within ninety days after the Trustee's resignation or termination of the Trust as provided herein, the Trustee shall render a written account of its administration of the Trust to the Grantors by submitting a record of receipts, investments, disbursements, distributions, gains, losses, assets on hand at the end of the accounting period and other pertinent information, including a description of all securities and investments purchased and sold during such calendar year. Trustee shall separately account for each Grantor's interest in Trust assets. Written approval of an account shall, as to all matters shown in the account, be binding upon the Grantors and shall forever release and discharge the Trustee from any liability or accountability. The Grantors will be deemed to have given their written approval if he does not object in writing to the Trustee within one hundred and twenty days after the date of receipt of such account from the Trustee. The Trustee shall be entitled at any time to institute an action in a court of competent jurisdiction for a judicial settlement of its account. 16. Notices. Any notice or instructions required under any of the provisions of this Trust Agreement shall be deemed effectively given only if such notice is in writing and is delivered personally or by certified or registered mail, return receipt requested and postage prepaid, addressed to the addresses as set forth below of the parties hereto. The addresses of the parties are as follows: (i) The Grantors: Secretary Southern Company 270 Peachtree Street, Suite 1400 Atlanta, GA 30303 (ii) The Trustee: Wachovia Bank, N.A. Attn: Executive Services NC 31013 P.O. Box 3099 Winston-Salem, NC 27150 The Grantors or Trustee may at any time change the address to which notices are to be sent to it by giving written notice thereof in the manner provided above. 17. Miscellaneous Provisions. ------------------------ (a) This Trust Agreement shall be governed by and construed in accordance with the laws of the State of Georgia applicable to contracts made and to be performed therein and the Trustee shall not be required to account in any court other than one of the courts of such state. (b) The Trust Administrative Committee may give direction to Trustee on behalf of the Grantors with regard to those matters identified in writing by the Grantors. The Trustee will be fully protected in relying on such direction by the Trust Administrative Committee. (c) All section headings herein have been inserted for convenience of reference only and shall in no way modify, restrict or affect the meaning or interpretation of any of the terms or provisions of this Trust Agreement. (d) This Trust Agreement is intended as a complete and exclusive statement of the agreement of the parties hereto, supersedes all previous agreements or understandings among them and may not be modified or terminated orally. (e) The term "Trustee" shall include any successor Trustee. (f) If a Trustee or Custodian hereunder is a bank or trust company, any corporation resulting from any merger, consolidation or conversion to which such bank or trust company may be a party, or any corporation otherwise succeeding generally to all or substantially all of the assets or business of such bank or trust company, shall be the successor to it as Trustee or Custodian hereunder, as the case may be without the execution of any instrument or any further action on the part of any party hereto. (g) If any provision of this Trust shall be invalid and unenforceable, the remaining provisions hereof shall subsist and be carried into effect. (h) The Plans are by this reference expressly incorporated herein and made a part hereof with the same force and effect as if fully set forth at length. As of the date first stated above, the terms of the Plans are as set forth in Exhibit A attached hereto. (i) The assets of the Trust shall be subject only to the claims of the Grantor's general creditors in the event of one or more of the Grantors' bankruptcy or insolvency. A Grantor shall be considered "bankrupt" or "insolvent" if the Grantor is (A) unable to pay its debts when due or (B) engaged as a debtor in a proceeding under the Bankruptcy Code, 11 U.S.C. Section 101 et seq. The Board of Directors or the chief executive officer of a Grantor must notify the Trustee of the Grantor's bankruptcy or insolvency within three (3) days following the occurrence of such event. Upon receipt of such a notice, or, upon receipt of a written allegation from a person or entity claiming to be a creditor of a Grantor that such Grantor is bankrupt or insolvent, the Trustee shall discontinue payments to Beneficiaries. The Trustee shall, as soon as practicable after receipt of such notice or written allegation, determine whether such Grantor is bankrupt or insolvent. If the Trustee determines, based on such notice, written allegation, or such other information as it deems appropriate, that such Grantor is bankrupt or insolvent, the Trustee shall hold the assets of the Trust for the benefit of the general creditors of the Grantor or Grantors, and deliver any undistributed assets attributable to such Grantor or Grantors to satisfy the claims of such creditors as a court of competent jurisdiction may direct. The Trust Administrative Committee in conjunction with the Trustee shall identify the amount of assets attributable to any bankrupt or insolvent Grantor in order to segregate such assets for the benefit of such Grantor's creditors. The Trustee shall resume payments to Beneficiaries only after it has determined that the Grantor in issue is not bankrupt or insolvent, is no longer bankrupt or insolvent (if the Trustee determined that the Grantor was bankrupt or insolvent), pursuant to an order of a court of competent jurisdiction. Unless the Trustee has actual knowledge of the Grantor's bankruptcy or insolvency of the Grantor or Grantors, the Trustee shall have no duty to inquire whether such Grantor(s) is bankrupt or insolvent. The Trustee may in all events rely on such evidence concerning the pertinent Grantor's solvency as may be furnished to the Trustee that will give the Trustee a reasonable basis for making a determination concerning such Grantor's solvency. If the Trustee discontinues payment of benefits from the Trust pursuant to this Section 17(h) and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments which would have been made to each Beneficiary less the aggregate amount of payments made to the Beneficiary by the Grantor(s) in lieu of the payments provided for hereunder during any such period of discontinuance. In addition, interest at a rate equal to the average 90 day Treasury Bill rate during the period of such discontinuance shall be paid on the amount, if any, determined to be owed in accordance with the preceding sentence. (j) Any and all taxes, expenses (including, but not limited to, the Trustee's compensation) and costs of litigation relating to or concerning the adoption, administration and termination of the Trust shall be borne and promptly paid by the Grantors; provided, however, that, to the extent such taxes, expenses and costs relating to the Trust are due and owing and (A) are not paid by the Grantors, and (B) have not been paid for more than sixty (60) days, they shall be charged against and paid from the Trust, and, subject to Section 4 of this Trust Agreement, upon a Preliminary Change in Control, the Grantors shall reimburse the Trust for any such payment made from the Trust within 30 days of its receipt from the Trustee of written notice of such payment. (k) Any reference hereunder to a Beneficiary shall expressly be deemed to include, where relevant, the beneficiaries of a Beneficiary duly appointed under the terms of the Plans. A Beneficiary shall cease to have such status once any and all amounts due such Beneficiary under the Plan have been satisfied. (l) Any reference hereunder to the Grantors shall expressly be deemed to include a Grantor's successor and assigns. (m) Whenever used herein, and to the extent appropriate, the masculine, feminine or neuter gender shall include the other two genders, the singular shall include the plural and the plural shall include the singular. IN WITNESS WHEREOF, the parties hereto have executed this amended and restated Trust Agreement as of ____________________, 2001. TRUSTEE: WACHOVIA BANK, N.A. By: ------------------------ GRANTOR: ALABAMA POWER COMPANY By: ------------------------ GRANTOR: GEORGIA POWER COMPANY By: ------------------------ GRANTOR: GULF POWER COMPANY By: ------------------------ GRANTOR: MISSISSIPPI POWER COMPANY By: ------------------------ GRANTOR: SAVANNAH ELECTRIC AND POWER COMPANY By: ------------------------- GRANTOR: THE SOUTHERN COMPANY By: -------------------------- EXHIBIT A Plans and Arrangements Subject to the Trust1 Deferred Compensation Plan for Directors of Alabama Power Company Deferred Compensation Plan for Directors of Georgia Power Company Deferred Compensation Plan for Directors of Gulf Power Company Deferred Compensation Plan for Directors of Mississippi Power Company Deferred Compensation Plan for Directors of Savannah Electric and Power Company Deferred Compensation Plan for Directors of The Southern Company - -------- 1 The parenthetical reference sets forth the Trust provisions applicable to the respective Plans listed herein. EXHIBIT B Contacts and Addresses of Grantors Alabama Power Company William Zales, Jr. VP and Secretary 600 North 18th Street Birmingham, AL 35291 Georgia Power Company Janice Wolfe Corporate Secretary 241 Ralph McGill Boulevard Atlanta, GA 30308 Gulf Power Company Warren Tate Vice President, Secretary and Treasurer One Energy Place Pensacola, FL 32501 Mississippi Power Company Vicki Pierce Assistant Secretary and Assistant Treasurer 2992 West Beach Boulevard Gulfport, MS 39501 Savannah Electric and Power Company Nancy Frankenhauser Controller and Assistant Secretary 600 East Bay Street Savannah, GA 31401 Southern Company Tommy Chisholm VP, Associate General Counsel and Corporate Secretary 270 Peachtree Street Atlanta, GA 30303 EX-10 17 x10b26.txt DEFERRED COMPENSATION AGREEMENT Exhibit 10(b)26 DEFERRED COMPENSATION AGREEMENT THIS DEFERRED COMPENSATION AGREEMENT ("Agreement") made and entered into by and between ALABAMA POWER COMPANY (the "Company") and ELMER BESELER HARRIS ("Employee"). W I T N E S S E T H WHEREAS, Employee has been employed by the Company and its affiliates for approximately forty-four (44) years; WHEREAS, Employee is a highly compensated employee of the Company and is a member of its management; WHEREAS, in order to be eligible for benefits under this Agreement, the parties have agreed that Employee must terminate employment with the Company and resign from all positions he holds with the Company, its parent and its affiliates, including, but not limited to, memberships on the Boards of Directors of the Company and The Southern Company, on January 11, 2002; WHEREAS, the parties desire to delineate their respective rights, duties, and obligations attendant to such termination of employment and resignation from positions held with the Company, its parent and its affiliates, and desire to reach an accord and satisfaction of all claims arising from Employee's employment, his termination of employment and his resignation from positions held with the Company, its parent and its affiliates, with appropriate releases; and WHEREAS, the Company desires to provide deferred compensation to Employee for service he has provided for the Company; NOW, THEREFORE, in consideration of the premises, and the agreements of the parties set forth in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: 1. Termination and Resignation. Subject to the terms of this Agreement, upon Employee's execution of this Agreement, voluntary termination of employment with the Company and resignation from all positions he holds with the Company, its parent and its affiliates, including, but not limited to, his memberships on the Boards of Directors of the Company and The Southern Company, on January 11, 2002 (the Employee's "Termination Date"), and effectiveness of the Release attached hereto as Exhibit 1 (such effectiveness being no earlier than Employee's Termination Date), the Company agrees to pay to Employee or his spouse or his estate, as applicable, the amounts described in Paragraph 2 hereof. Employee covenants and agrees that the consideration set forth in Paragraph 2 is in full satisfaction of all sums owed to Employee, if any, by the Company, and constitutes good and complete consideration for his Release attached hereto as Exhibit 1, those non-disclosure and non-interference obligations under Paragraphs 5, 6, 7, 8 and 9 hereof and all other obligations and covenants of Employee contained herein, including, but not limited to, Paragraph 4. Employee agrees that this Agreement provides him certain benefits to which he would not otherwise be entitled. 2. Deferred Compensation Payments to Employee. (a) Lump Sum Payment. Subject to the terms of Paragraph 1 hereof, as soon as practicable following the effective date of the Release attached hereto as Exhibit 1 (such effective date being no earlier than Employee's Termination Date), the Company shall pay to Employee a lump sum amount equal to Two Million Five Hundred Thousand and No Cents ($2,500,000.00). (b) Installments. Subject to the terms of Paragraph 1 hereof, beginning as soon as practicable following the effective date of the Release attached hereto as Exhibit 1 (such effective date being no earlier than Employee's Termination Date), the Company shall commence payment to Employee of eighty-seven (87) monthly installments in an amount equal to Seventeen Thousand Six Hundred Forty Dollars and No Cents ($17,640.00) per monthly installment payment. In the event of a Southern Change in Control or a Subsidiary Change in Control affecting Employee as defined in the Southern Company Change in Control Benefit Plan Determination Policy, any unpaid installments shall be paid in a lump sum as soon as practicable after the occurrence of such an event. The lump sum shall be equal to the present value of the remaining monthly installments based on an effective interest rate of 7.5% per annum (0.6045% per month). In the event Employee dies before receiving payment of the amounts described in this Paragraph 2(b) hereof, such amounts shall be paid to Employee's spouse, if living, or if not, to the Employee's estate. Upon application made by the Employee, his spouse, or an authorized legal representative, as applicable, the Company may in its sole discretion determine to accelerate installment payments due under this Agreement. (c) Notwithstanding the foregoing, in the event Employee engages in Misconduct, as defined below, before or after Employee's Termination Date but prior to receiving all of the payments described in Paragraph 2(b) above, Company may cease making payments to Employee under this Paragraph 2, and Company shall have no further obligations with respect to any amounts under this Agreement. For purposes of this Paragraph 2(c), "Misconduct" shall mean (i) the final conviction of any felony, or (ii) the carrying out of any activity or the making of any public statement which materially diminishes or materially and untruthfully brings Southern into contempt, ridicule or materially and reasonably shocks or offends the community in which the Southern affiliate is located. (d) In accordance with Paragraph 19, Employee shall be responsible for all state and federal income taxes and his share of FICA taxes owed on the amounts described in subparagraphs (a) and (b) above, and Company shall make appropriate withholding of these amounts. 3. Publicity; No Disparaging Statement. Except as otherwise provided in Paragraph 12 hereof, Employee and the Company covenant and agree that they shall not engage in any communications which shall disparage one another or interfere with their existing or prospective business relationships. 4. No Employment. Employee agrees that he shall not hereafter seek any re-employment with the Company, its parent, its affiliates or its subsidiaries. 5. Business Protection Provision Definitions. (a) Preamble. As a material inducement to the Company to enter into this Agreement, and its recognition of the valuable experience, knowledge and proprietary information Employee gained from his employment with the Company and its affiliates, Employee warrants and agrees he will abide by and adhere to the following business protection provisions in Paragraphs 5, 6, 7, 8 and 9 herein. (b) Definitions. For purposes of Paragraphs 5, 6, 7, 8 and 9 herein, the following terms shall have the following meanings: (i) "Competitive Position" shall mean any employment, consulting, advisory, directorship, agency, promotional or independent contractor arrangement between the Employee and any person or Entity engaged wholly or in material part in the business that the Company is engaged in (the "Business") whereby the Employee is required to or does perform services on behalf of or for the benefit of such person or Entity which are substantially similar to the services Employee participated in or directed while employed by the Company, The Southern Company or any of their respective affiliates (collectively the "Southern Entities"). (ii) "Confidential Information" shall mean the proprietary or confidential data, information, documents or materials (whether oral, written, electronic or otherwise) belonging to or pertaining to the Company or other Southern Entities, other than "Trade Secrets" (as defined below), which is of tangible or intangible value to any of the Southern Entities and the details of which are not generally known to the competitors of the Southern Entities. Confidential Information shall also include: (A) any items that any of the Southern Entities have marked "CONFIDENTIAL" or some similar designation or are otherwise identified as being confidential; and (B) all non-public information known by or in the possession of Employee related to or regarding any proceedings involving or related to the Southern Entities before the Alabama Public Service Commission or other Entities. (iii) "Entity" or "Entities" shall mean any business, individual, partnership, joint venture, agency, governmental agency, body or subdivision, association, firm, corporation, limited liability company or other entity of any kind. (iv) "Territory" shall include the States of Georgia, Alabama, Mississippi or Florida. (v) "Trade Secrets" shall mean information or data of or about any of the Southern Entities, including, but not limited to, technical or non-technical data, formulas, patterns, compilations, programs, devices, methods, techniques, drawings, processes, financial data, financial plans, product plans or lists of actual or potential customers or suppliers that: (A) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (B) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. The Employee agrees that trade secrets include non-public information related to the rate making process of the Southern Entities and any other information which is defined as a "trade secret" under applicable law. (vi) "Work Product" shall mean all tangible work product, property, data, documentation, "know-how," concepts or plans, inventions, improvements, techniques and processes relating to the Southern Entities that were conceived, discovered, created, written, revised or developed by Employee during the term of his employment with the Southern Entities. 6. Nondisclosure: Ownership of Proprietary Property. (a) In recognition of the need of the Southern Entities to protect their legitimate business interests, Confidential Information and Trade Secrets, Employee hereby covenants and agrees that Employee shall regard and treat Trade Secrets and all Confidential Information as strictly confidential and wholly-owned by the Southern Entities and shall not, for any reason, in any fashion, either directly or indirectly, use, sell, lend, lease, distribute, license, give, transfer, assign, show, disclose, disseminate, reproduce, copy, misappropriate or otherwise communicate any such item or information to any third party or Entity for any purpose other than in accordance with this Agreement or as required by applicable law: (i) with regard to each item constituting a Trade Secret, at all times such information remains a "trade secret" under applicable law, and (ii) with regard to any Confidential Information, for a period of three (3) years following the Termination Date (hereafter the "Restricted Period"). (b) Employee shall exercise best efforts to ensure the continued confidentiality of all Trade Secrets and Confidential Information, and he shall immediately notify the Company of any unauthorized disclosure or use of any Trade Secrets or Confidential Information of which Employee becomes aware. Employee shall assist the Southern Entities, to the extent necessary, in the protection of or procurement of any intellectual property protection or other rights in any of the Trade Secrets or Confidential Information. (c) All Work Product shall be owned exclusively by the Southern Entities. To the greatest extent possible, any Work Product shall be deemed to be "work made for hire" (as defined in the Copyright Act, 17 U.S.C.A. ss. 101 et seq., as amended), and Employee hereby unconditionally and irrevocably transfers and assigns to the Company all right, title and interest Employee currently has or may have by operation of law or otherwise in or to any Work Product, including, without limitation, all patents, copyrights, trademarks (and the goodwill associated therewith), trade secrets, service marks (and the goodwill associated therewith) and other intellectual property rights. Employee agrees to execute and deliver to the Company any transfers, assignments, documents or other instruments which the Company may deem necessary or appropriate, from time to time, to protect the rights granted herein or to vest complete title and ownership of any and all Work Product, and all associated intellectual property and other rights therein, exclusively in the Company. (d) Employee represents and agrees that he will keep all terms and provisions of this Agreement completely confidential, except for possible disclosures to his legal or financial advisors or to the extent required by law, and Employee further agrees that he will not disclose the terms, provisions or information contained in or concerning this Agreement to anyone, including, but not limited to, any past, present, or prospective employee or applicant for employment with the Company. Employee agrees that he may only disclose to future, potential employers of Employee that he participates in a Deferred Compensation Agreement with the Company which imposes certain restrictions on him. 7. Non-Interference With Employees. Employee covenants and agrees that during the Restricted Period he will not, either directly or indirectly, alone or in conjunction with any other person or Entity: (A) actively recruit, solicit, attempt to solicit, or induce any person who, during such Restricted Period, or within one year prior to the Termination Date, was an exempt employee of any of the Southern Entities or was an officer of any of the other Southern Entities to leave or cease such employment for any reason whatsoever; or (B) hire or engage the services of any such person described in Paragraph 7(A) in any business substantially similar or competitive with that in which the Southern Entities were engaged during his employment. 8. Non-Interference With Customers. (a) Employee acknowledges that in the course of employment, he has learned about the Southern Entities' business, services, materials, programs and products and the manner in which they are developed, marketed, serviced and provided. Employee knows and acknowledges that the Southern Entities have invested considerable time and money in developing their programs, agreements, offices, representatives, services, products and marketing techniques and that they are unique and original. Employee further acknowledges that the Southern Entities must keep secret all pertinent information divulged to Employee and the Southern Entities' business concepts, ideas, programs, plans and processes, so as not to aid the Southern Entities' competitors. Accordingly, the Southern Entities are entitled to the following protection, which Employee agrees is reasonable: (b) Employee covenants and agrees that for a period of two (2) years following the Termination Date, he will not, on his own behalf or on behalf of any person or Entity, solicit, direct, appropriate, call upon, or initiate communication or contact with any person or entity or any representative of any person or entity, with whom Employee had contact during his employment, with a view toward the sale or the providing of any product, equipment or service sold or provided or under development by the Southern Entities during the period of two (2) years immediately preceding the date of Employee's termination and resignation. The restrictions set forth in this section shall apply only to persons or entities with whom Employee had actual contact during the two (2) years prior to termination of employment with a view toward the sale or providing of any product, equipment or service sold or provided or under development by the Southern Entities. 9. Non-Interference With Business. (a) Employee and Company expressly covenant and agree that the scope, territorial, time and other restrictions contained in this entire Agreement constitute the most reasonable and equitable restrictions possible to protect the business interest of the Company given: (i) the business of the Company; (ii) the competitive nature of the Company's industry; and (iii) that Employee's skills are such that he could easily find alternative, commensurate employment or consulting work in his field which would not violate any of the provisions of this Agreement. The Employee further acknowledges that the payments described in Paragraph 2 are also in consideration of his covenants and agreements contained in Paragraphs 5 through 9 hereof. (b) Employee covenants and agrees to not obtain or work in a Competitive Position within the Territory for a period of two (2) years from the Termination Date. 10. Return of Materials. Upon the Employee's termination and resignation, or at any point after that time upon the specific request of the Company, Employee shall return to the Company all written or descriptive materials of any kind belonging or relating to the Company or its affiliates, including, without limitation, any originals, copies and abstracts containing any Work Product, intellectual property, Confidential Information and Trade Secrets in Employee's possession or control. 11. Cooperation. The parties agree that as a result of Employee's duties and activities during his employment, Employee's reasonable availability may be necessary for the Southern Entities to meaningfully respond to or address actual or threatened litigation, or government inquiries or investigations, or required filings with state, federal or foreign agencies (hereinafter "Company Matters"). Upon request of the Company, and at any point following termination of employment and resignation from all positions, Employee will make himself available to any of the Southern Entities for reasonable periods and will cooperate with its agents and attorneys as reasonably required by such Company Matters. The Southern Entities will reimburse Employee for any reasonable out-of-pocket expenses associated with providing such cooperation. 12. Confidentiality and Legal Process. Employee represents and agrees that he will keep the terms, amount and fact of this Agreement confidential and that he will not hereafter disclose any information concerning this Agreement to any one other than his personal agents, including, but not limited to, any past, present, or prospective employee or applicant for employment with the Southern Entities. Notwithstanding the foregoing, nothing in this Agreement is intended to prohibit Employee from performing any duty or obligation that shall arise as a matter of law. Specifically, Employee shall continue to be under a duty to truthfully respond to any legal and valid subpoena or other legal process. This Agreement is not intended in any way to proscribe Employee's right and ability to provide information to any federal, state or local government in the lawful exercise of such governments' governmental functions. 13. Successors And Assigns; Applicable Law. This Agreement shall be binding upon and inure to the benefit of Employee and his heirs, administrators, representatives, executors, successors and assigns, and shall be binding upon and inure to the benefit of the Company and its officers, directors, employees, agents, shareholders, parent corporation and affiliates, and their respective predecessors, successors, assigns, heirs, executors and administrators and each of them, and to their heirs, administrators, representatives, executors, successors and assigns. This Agreement shall be construed and interpreted in accordance with the laws of the State of Alabama, United States of America (without giving effect to principles of conflicts of laws). 14. Complete Agreement. This Agreement shall constitute the full and complete Agreement between the parties concerning its subject matter and fully supersedes any and all other prior Agreements or understandings between the parties concerning the subject matter hereof. This Agreement shall not be modified or amended except by a written instrument signed by both Employee and an authorized representative of the Company. 15. Severability. The unenforceability or invalidity of any particular provision of this Agreement shall not affect its other provisions, and to the extent necessary to give such other provisions effect, they shall be deemed severable. The judicial body interpreting this Agreement shall be authorized and instructed to rewrite any of the sections which are enforceable as written in such a fashion so that they may be enforced to the greatest extent legally possible. Employee acknowledges and agrees that the covenants and agreements contained in this Agreement, including, without limitation, the covenants and agreements contained in Paragraphs 5, 6, 7, 8 and 9, shall be construed as covenants and agreements independent of each other or any other contract between the parties hereto and that the existence of any claim or cause of action by Employee against any of the Southern Entities, whether predicated upon this Agreement or any other contract, shall not constitute a defense to the enforcement by Company of said covenants and agreements. 16. Waiver Of Breach; Specific Performance. The waiver of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other breach. Each of the parties to this Agreement will be entitled to enforce its or his rights under this Agreement, specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in its or his favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its or his sole discretion apply to any court of law or equity of competent jurisdiction for specific performance or injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement. The prevailing party shall recover reasonable attorney fees and expenses. 17. Unsecured General Creditor. The Company shall neither reserve nor specifically set aside funds for the payment of its obligations under this Agreement, and such obligations shall be paid solely from the general assets of the Company. Notwithstanding that Employee may be entitled to receive the value of his benefit under the terms and conditions of this Agreement, the assets from which such amounts may be paid shall at all times be subject to the claims of the Company's creditors. 18. No Effect On Other Arrangements. It is expressly understood and agreed that the payments made in accordance with this Agreement are in addition to any other benefits or compensation to which Employee may be entitled or for which he may be eligible, whether funded or unfunded, by reason of his employment with the Company. 19. Tax Withholding. There shall be deducted from each payment under this Agreement the amount of any tax required by any governmental authority to be withheld and paid over by the Company to such governmental authority for the account of Employee. 20. Compensation. Any compensation contributed on behalf of Employee under this Agreement shall not be considered "compensation," as the term is defined in The Southern Company Employee Savings Plan, The Southern Company Employee Stock Ownership Plan, The Southern Company Performance Sharing Plan or The Southern Company Pension Plan. Payments under this Agreement shall not be considered wages, salaries or compensation under any other employee benefit plan. 21. Interpretation. The judicial body interpreting this Agreement shall not more strictly construe the terms of this Agreement against one party, it being agreed that both parties and/or their attorneys or agents have negotiated and participated in the preparation hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement, this ___ day of ________________, -----. "COMPANY" ALABAMA POWER COMPANY By: ----------------------------------- Its: ----------------------------------- "EMPLOYEE" ELMER BESELER HARRIS EXHIBIT 1 to Deferred Compensation Agreement with Elmer Beseler Harris RELEASE AGREEMENT THIS RELEASE ("Release") is made and entered into by and between ELMER BESELER HARRIS ("Employee") and ALABAMA POWER COMPANY, and its successor or assigns ("Company"). WHEREAS, Employee and Company have agreed that Employee shall voluntarily terminate employment with the Company and resign from all positions he holds with the Company, its parent and its affiliates, including, but not limited to, his memberships on the Boards of Directors of the Company and The Southern Company, on January 11, 2002; WHEREAS, Employee and the Company have previously entered into that certain Deferred Compensation Agreement, dated _________________, _____ ("Agreement"), that this Release is incorporated therein by reference; WHEREAS, Employee and Company desire to delineate their respective rights, duties and obligations attendant to such termination and resignation and desire to reach an accord and satisfaction of all claims arising from Employee's employment, his termination of employment and his resignation from all positions he holds with the Company, its parent and its affiliates, with appropriate releases, in accordance with the Agreement; WHEREAS, the Company desires to compensate Employee in accordance with the Agreement for service he has or will provide for the Company; NOW, THEREFORE, in consideration of the premises and the agreements of the parties set forth in this Release, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: 1. Release. Employee does hereby remise, release and forever discharge the Company and its officers, directors, employees, agents, shareholders, parent corporation and affiliates, and their respective predecessors, successors, assigns, heirs, executors and administrators (collectively, "Releasees"), of and from all manner of actions and causes of action, suits, debts, claims and demands whatsoever at law or in equity, known or unknown, actual or contingent, including, but not limited to, any claims which have been asserted, or could be asserted now or in the future, against any Releasees arising under any and all federal, state or local laws and any common law claims, and including, but not limited to, any claims Employee may have pursuant to the Age Discrimination in Employment Act and any claims to benefits under any and all offer letters, employment or Deferred Compensation Agreements, or bonus, severance, workforce reduction, early retirement, out-placement, or other similar plans sponsored by the Company, now or hereafter recognized (collectively, "Claims"), which he ever had or now has or may in the future have, by reason of any matter, cause or thing arising out of his employment relationship and privileges, his serving as an employee of the Company or the separation from his employment relationship or affiliation as an employee of the Company as of the date of this Release against each of the Releasees. Notwithstanding the foregoing, Employee does not release any Claims under the Age Discrimination in Employment Act that may arise after his execution of this Release. 2. No Assignment of Claim. Employee represents that he has not assigned or transferred, or purported to assign or transfer, any Claims or any portion thereof or interest therein to any party prior to the date of this Release. 3. Compensation. In accordance with the Deferred Compensation Agreement, the Company agrees to pay the Employee, his spouse or his estate, as the case may be, the amounts provided in Paragraph 2 of the Agreement. 4. No Admission Of Liability. This Release shall not in any way be construed as an admission by the Company or Employee of any improper actions or liability whatsoever as to one another, and each specifically disclaims any liability to or improper actions against the other or any other person, on the part of itself or himself, its or his employees or agents. 5. Voluntary Execution. Employee warrants, represents and agrees that he has been encouraged in writing to seek advice from anyone of his choosing regarding this Release, including his attorney and accountant or tax advisor prior to his signing it; that this Release represents written notice to do so; that he has been given the opportunity and sufficient time to seek such advice; and that he fully understands the meaning and contents of this Release. He further represents and warrants that he was not coerced, threatened or otherwise forced to sign this Release, and that his signature appearing hereinafter is voluntary and genuine. EMPLOYEE UNDERSTANDS THAT HE MAY TAKE UP TO TWENTY-ONE (21) DAYS TO CONSIDER WHETHER OR NOT HE DESIRES TO ENTER INTO THIS RELEASE. 6. Ability to Revoke Agreement. EMPLOYEE UNDERSTANDS THAT HE MAY REVOKE THIS RELEASE BY NOTIFYING THE COMPANY IN WRITING OF SUCH REVOCATION WITHIN SEVEN (7) DAYS OF HIS EXECUTION OF THIS RELEASE AND THAT THIS RELEASE IS NOT EFFECTIVE UNTIL THE EXPIRATION OF SUCH SEVEN (7) DAY PERIOD. HE UNDERSTANDS THAT UPON THE EXPIRATION OF SUCH SEVEN (7) DAY PERIOD THIS RELEASE WILL BE BINDING UPON HIM AND HIS HEIRS, ADMINISTRATORS, REPRESENTATIVES, EXECUTORS, SUCCESSORS AND ASSIGNS AND WILL BE IRREVOCABLE. Acknowledged and Agreed To: "COMPANY" ALABAMA POWER COMPANY By: ----------------------------------- Its: ----------------------------------- I UNDERSTAND THAT BY SIGNING THIS RELEASE, I AM GIVING UP RIGHTS I MAY HAVE. I UNDERSTAND THAT I DO NOT HAVE TO SIGN THIS RELEASE. "EMPLOYEE" ELMER BESELER HARRIS - -------------------------------------------- ------------------------ Date_____ _________ WITNESSED BY: - -------------------------------------------- - -------------------------------------------- Date EX-10 18 x10b28.txt DEFERRED COMPENSATION PLAN FOR DIRECTORS Exhibit 10(b)28 DEFERRED COMPENSATION PLAN FOR DIRECTORS OF ALABAMA POWER COMPANY Amended and Restated Effective January 1, 2001 SECTION 1 Definitions 1.1 "Beneficial Ownership" means beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act. 1.2 "Board" or "Board of Directors" means the Board of Directors of the Company. 1.3 "Business Combination" means a reorganization, merger or consolidation or sale of Southern, or a sale of all or substantially all of Southern's assets. 1.4 "Cash Compensation" means the annual retainer fees and meeting fees payable to a Director in cash. 1.5 "Code" means the Internal Revenue Code of 1986, as amended, or any successor statute. 1.6 "Committee" means the Compensation Committee of the Board, or such other committee as may be designated by the Board to be responsible for administering the Plan. 1.7 "Common Stock" means the common stock of Southern, including any shares into which it may be split, subdivided, or combined. 1.8 "Company" means Alabama Power Company, or any successor thereto. 1.9 "Company Change in Control" means the following: (a) The Consummation of an acquisition by any Person of Beneficial Ownership of 50% or more of the combined voting power of the then outstanding Voting Securities of the Company; provided, however, that for purposes of this Section 1.9, any acquisition by an Employee, or Group composed entirely of Employees, any qualified pension plan, any publicly held mutual fund or any employee benefit plan (or related trust) sponsored or maintained by Southern or any corporation Controlled by Southern shall not constitute a Change in Control; (b) Consummation of a reorganization, merger or consolidation of the Company (a "Company Business Combination"), in each case, unless, following such Company Business Combination, Southern Controls the corporation surviving or resulting from such Company Business Combination; or (c) Consummation of the sale or other disposition of all or substantially all of the assets of the Company to an entity which Southern does not Control. 1.10 "Compensation Payment Date" means the date on which compensation, including cash retainer, meeting fees, and the Stock Retainer, is payable to a Director or compensation would otherwise be payable to a Director if an election to defer such compensation had not been made. 1.11 "Consummation" means the completion of the final act necessary to complete a transaction as a matter of law, including, but not limited to, any required approvals by the corporation's shareholders and board of directors, the transfer of legal and beneficial title to securities or assets and the final approval of the transaction by any applicable domestic or foreign governments or agencies. 1.12 "Control" means, in the case of a corporation, Beneficial Ownership of more than 50% of the combined voting power of the corporation's Voting Securities, or in the case of any other entity, Beneficial Ownership of more than 50% of such entity's voting equity interests. 1.13 "Deferred Cash Trust" means the Deferred Cash Compensation Trust for Directors of The Southern Company and its Subsidiaries. 1.14 "Deferred Compensation Account" means the Prime Rate Investment Account, the Phantom Stock Investment Account, the Deferred Stock Account and/or the Stock Dividend Investment Account. 1.15 "Deferred Pension Election" means the election by a Director under Section 5.3 in connection with the deferral of receipt of the Director's Pension Benefit until termination from the Board. 1.16 "Deferred Stock Account" means the bookkeeping account established under Section 6.3 on behalf of a Director and includes shares of Common Stock credited thereto to reflect the reinvestment of dividends pursuant to Section 6.3(a)(iii). 1.17 "Deferred Stock Trust" means the Deferred Stock Trust for Directors of The Southern Company and its Subsidiaries. 1.18 "Director" means a member of the Board. 1.19 "Distribution Election" means the designation by a Director of the manner of distribution of the amounts and quantities held in the Director's Deferred Compensation Accounts upon the director's termination from the Board pursuant to Section 5.4. 1.20 "Effective Date" means January 1, 2002. 1.21 "Employee" means an employee of Southern or any of its subsidiaries that are "employing companies" as defined in the Southern Company Deferred Compensation Plan as amended and restated January 1, 2000, and as may be amended from time to time. 1.22 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 1.23 "Group" has the meaning set forth in Section 14(d) of the Exchange Act. 1.24 "Incumbent Board" means those individuals who constitute the Southern board of directors as of October 19, 1998, plus any individual who shall become a director subsequent to such date whose election or nomination for election by Southern's shareholders was approved by a vote of at least 75% of the directors then comprising the Incumbent Board. Notwithstanding the foregoing, no individual who shall become a director of the Southern board of directors subsequent to October 19, 1998, whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the regulations promulgated under the Exchange Act) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Southern board of directors shall be a member of the Incumbent Board. 1.25 "Market Value" means the average of the high and low prices of the Common Stock, as published in the Wall Street Journal in its report of New York Stock Exchange composite transactions, on the date such Market Value is to be determined, as specified herein (or the average of the high and low sale prices on the trading day immediately preceding such date if the Common Stock is not traded on the New York Stock Exchange on such date). 1.26 "Participant" means a Director or former Director who has an unpaid Deferred Compensation Account balance under the Plan. 1.27 "Participating Companies" means those companies whose boards of directors have authorized the establishment of trust(s) for the funding of their respective directors' Deferred Compensation Accounts under their respective Deferred Compensation Plans for Directors, including the Company. 1.28 "Pension Benefit" means the U.S. dollar amount of the actuarially-determined present value of benefits based on a Director's expected service at the required retirement date under The Southern Company Outside Directors Pension Plan, as calculated as of the Termination Date, plus accrued earnings on such amount calculated as if invested at the Prime Interest Rate from the Termination Date, until such amount is invested in Deferred Compensation Accounts pursuant to the provisions of Section 5.3. 1.29 "Pension Benefit Investment Date" means the date to be determined by the Committee, as of which the Director's Pension Benefit will be credited to a Deferred Compensation Account in accordance with the director's Deferred Pension Election under Section 5.3. 1.30 "Phantom Stock Investment Account" means the bookkeeping account established pursuant to Section 6.2 in which a Director may elect to defer Cash Compensation or make investments, and includes amounts credited thereto to reflect the reinvestment of dividends. 1.31 "Plan" means the Deferred Compensation Plan for Directors of Alabama Power Company as from time to time in effect. 1.32 "Plan Period" means the period designated in Section 4. 1.33 "Person" means any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act. 1.34 "Preliminary Change in Control" means the occurrence of any of the following as determined by the Southern Committee: (a) Southern or the Company has entered into a written agreement, such as, but not limited to, a letter of intent, which, if Consummated, would result in a Southern Change in Control or a Company Change in Control, as the case may be; (b) Southern, the Company or any Person publicly announces an intention to take or to consider taking actions which, if Consummated, would result in a Southern Change in Control or a Company Change in Control under circumstances where the Consummation of the announced action or intended action is legally and financially possible; (c) Any Person becomes the Beneficial Owner of fifteen percent (15%) or more of the Common Stock; or (d) The Southern board of directors or the board of directors of the Company has declared that a Preliminary Change in Control has occurred. 1.35 "Prime Interest Rate" means the prime rate of interest as determined by AmSouth Bank. 1.36 "Prime Rate Investment Account" means the bookkeeping account established pursuant to Section 6.1 in which a Director may elect to defer Cash Compensation or make investments, the investment return on which is computed at the Prime Interest Rate. 1.37 "Southern" means The Southern Company. 1.38 "Southern Change in Control" means any of the following: (a) The Consummation of an acquisition by any Person of Beneficial Ownership of 20% or more of Southern's Voting Securities; provided, however, that for purposes of this subsection (a), the following acquisitions of Southern's Voting Securities shall not constitute a Change in Control: (i) any acquisition directly from Southern, (ii) any acquisition by Southern, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Southern or any corporation controlled by Southern, (iv) any acquisition by a qualified pension plan or publicly held mutual fund, (v) any acquisition by an Employee or Group composed exclusively of Employees, or (vi) any Business Combination which would not otherwise constitute a Change in Control because of the application of clauses (i), (ii) and (iii) of Section 1.38(c); (b) A change in the composition of Southern's board of directors whereby individuals who constitute the Incumbent Board cease for any reason to constitute at least a majority of Southern's board of directors; or (c) Consummation of a Business Combination, unless, following such Business Combination, all of the following three conditions are met: (i) all or substantially all of the individuals and entities who held Beneficial Ownership, respectively, of Southern's Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, 65% or more of the combined voting power of the Voting Securities of the corporation surviving or resulting from such Business Combination, (including, without limitation, a corporation which as a result of such transaction holds Beneficial Ownership of all or substantially all of Southern's Voting Securities or all or substantially all of Southern's assets) (such surviving or resulting corporation to be referred to as "Surviving Company"), in substantially the same proportions as their ownership, immediately prior to such Business Combination, of Southern's Voting Securities; (ii) no Person (excluding any corporation resulting from such Business Combination, any qualified pension plan, publicly held mutual fund, Group composed exclusively of employees or employee benefit plan (or related trust) of Southern, its subsidiaries, or Surviving Company) holds Beneficial Ownership, directly or indirectly, of 20% or more of the combined voting power of the then outstanding Voting Securities of Surviving Company except to the extent that such ownership existed prior to the Business Combination; and (iii) at least a majority of the members of the board of directors of Surviving Company were members of the Incumbent Board at the earlier of the date of execution of the initial agreement, or of the action of the Southern board of directors, providing for such Business Combination. 1.39 "Southern Committee" means Chairman of the Southern board of directors, Chief Financial Officer of Southern, General Counsel of Southern, and the Chairman of the "Administrative Committee", as defined in Section 3.1 of the Southern Company Deferred Compensation Plan, as restated and amended effective January 1, 2000. 1.40 "Stock Dividend Investment Account" means the bookkeeping account(s) established pursuant to section 6.4 on behalf of a Director that is credited with shares of stock, other than Common Stock, paid as a dividend on shares of Common Stock. 1.41 "Stock Retainer" means the annual Board retainer fee that is paid to the Director in the form of Common Stock. 1.42 "Termination Date" means January 1, 1997, the date as of which The Southern Company Outside Directors Pension Plan was effectively terminated. 1.43 "Trust Administrator" means the individual or committee that is established in the Deferred Stock Trust and the Deferred Cash Trust, to administer such trusts on behalf of the Participating Companies. 1.44 "Voting Securities" shall mean the outstanding voting securities of a corporation entitling the holder thereof to vote generally in the election of such corporation's directors. Where the context requires, words in the masculine gender shall include the feminine gender, words in the singular shall include the plural, and words in the plural shall include the singular. SECTION 2 Purpose The Plan provides a method of deferring payment to a Director of his compensation until a date following the termination of his membership on the Board. SECTION 3 Eligibility An individual who serves as a Director and is not otherwise actively employed by the Company or any of its subsidiaries or affiliates is eligible to participate in the Plan. SECTION 4 Plan Periods Except as pertains to a Director's initial Plan Period, all Plan Periods shall be on a calendar year basis. The initial Plan Period applicable to any person elected to the Board who was not a Director on the preceding December 31, shall begin on the first day of such Director's membership on the Board. The initial Plan Period under this amended and restated plan shall begin January 1, 2002. Except as otherwise provided herein, the terms of the Plan in effect prior to the effective date of this Plan shall continue to be applicable to deferrals made pursuant to the Plan prior to January 1, 2002. SECTION 5 Elections 5.1 Cash Compensation (a) Prior to the beginning of a Plan Period, a Director may direct that payment of all or any portion of Cash Compensation that otherwise would be paid to the Director for the Plan Period, be deferred in amounts as designated by the Director, and credited to (i) a Prime Rate Investment Account, (ii) a Phantom Stock Investment Account, or, effective with compensation payable on or after January 1, 2001, (iii) a Deferred Stock Account. Upon the Director's termination from the Board of Directors, such deferred compensation and accumulated investment return held in the Director's Deferred Compensation Accounts shall be distributed to the Director in accordance with the Director's Distribution Election and the provisions of Section 7. (b) An election to defer Cash Compensation is irrevocable for a Plan Period. Such an election shall continue from Plan Period to Plan Period unless the Director changes his election to defer cash compensation payable in a future Plan Period prior to the beginning of such future Plan Period. (c) Cash Compensation deferred under this Section 5.1 shall be invested in Deferred Compensation Accounts as directed by the Director on the Compensation Payment Date. 5.2 Stock Retainer (a) Prior to the beginning of a Plan Period, a Director may direct that payment of all of the Stock Retainer that otherwise would be paid to the Director for the Plan Period, be deferred by the Director, and credited to his Deferred Stock Account, such deferred compensation and accumulated investment return held in the Director's Deferred Stock Account shall be distributed to the Director in accordance with the Director's Distribution Election and the provisions of Section 7. (b) An election to defer the Stock Retainer is irrevocable for a Plan Period. Such an election shall continue from Plan Period to Plan Period unless the Director changes his election to defer Stock Retainer paid in a future Plan Period prior to the beginning of such future Plan Period. (c) Stock Retainer deferred under this Section 5.2 shall be invested in Deferred Stock Account as directed by the Director on the Compensation Payment Date. 5.3 Deferred Pension Election Any Director, who had a Pension Benefit as of the Termination Date, made a single one-time election, to credit all of his Pension Benefit into (i) a Prime Rate Investment Account or (ii) a Phantom Stock Investment Account. Upon the Director's termination from the Board, such Pension Benefit and accumulated investment return held in the Director's Deferred Compensation Accounts shall be distributed to the Director in accordance with the Director's Distribution Election made in accordance with Section 5.4(b) and the provisions of Section 7. 5.4 Distribution Election (a) Except as set forth in Section 5.4(b), prior to the initial establishment of a Deferred Compensation Account for a Director, the Director must elect that upon termination from the Board of Directors the values and quantities held in the Directors Deferred Compensation Accounts be distributed to the Director, pursuant to the provisions of Section 7, in a lump sum or in a series of annual or quarterly installments not to exceed fifteen (15) years. The time for the commencement of distribution shall not be later than the first day of the month coinciding with or next following the second anniversary of termination of Board membership. (b) Any Director who made a Deferred Pension Election in accordance with Section 5.3 made a Distribution Election at the time the Deferred Pension Election was made, attributable to the Pension Benefit and any accumulated investment return. (c) Distribution Elections made under Sections 5.4 (a) and (b) are irrevocable except that a Director may amend either or both Distribution Elections then in effect not prior to the 390th day or later than the 360th day prior to his termination of Board membership. 5.5 Beneficiary Designation A Director or former Director may designate a beneficiary to receive distributions from the Plan in accordance with the provisions of Section 7 upon the death of the director. The beneficiary designation may be changed by a Director or former Director at any time, and without the consent of the prior beneficiary. 5.6 Form of Election All elections pursuant to the provisions of this Section 5 of the Plan shall be made in writing to the Secretary or Assistant Secretary of the Company on a form or forms available upon request of the Secretary or Assistant Secretary. SECTION 6 Accounts 6.1 Prime Rate Investment Account A Prime Rate Investment Account shall be established for each Director electing deferral or investment of Cash Compensation at the Prime Interest Rate. The amount directed by the Director to such account shall be credited to it as of the Pension Benefit Investment Date or Compensation Payment Date, as applicable, and credited thereafter with interest computed using the Prime Interest Rate. Interest shall be computed from the date such compensation is credited to the account and compounded quarterly at the end of each calendar quarter. The Prime Interest Rate in effect on the first day of a calendar quarter shall be deemed the Prime Interest Rate in effect for that entire quarter. Interest shall accrue and compound on any balance until the amount credited to the account is fully distributed. 6.2 Phantom Stock Investment Account The Phantom Stock Investment Account established for each Director electing deferral of Cash Compensation for investment at the Common Stock investment rate shall be credited with the number of shares (including fractional shares rounded to the nearest ten-thousandth) of Common Stock which could have been purchased on the Pension Benefit Investment Date or the Compensation Payment Date, as applicable, as determined by dividing the applicable compensation by the Market Value on such date. On the date of the payment of dividends on the Common Stock, the Director's Phantom Stock Investment Account shall be credited with additional shares (including fractional shares rounded to the nearest ten-thousandth) of Common Stock, as follows: (a) In the case of cash dividends, such additional shares as would have been purchased as of the Common Stock dividend record date as if the credited shares had been outstanding on such date and dividends reinvested thereon under the Southern Investment Plan; (b) In the case of dividends payable in property other than cash or Common Stock, such additional shares as could be purchased at the Market Value as of the date of payment with the fair market value of the property which would have been payable if the credited shares had been outstanding; and (c) In the case of dividends payable in Common Stock, such additional shares as would have been payable on the credited shares as if they had been outstanding. 6.3 Deferred Stock Account (a) A Director's Deferred Stock Account will be credited: (i) with the number of shares of Common Stock (rounded to the next highest number of full shares) determined by dividing the amount of Cash Compensation subject to deferral or investment in the Deferred Stock Account by the Market Value on the Pension Benefit Investment Date or the Compensation Payment Date, as applicable, (ii) as of the date on which Stock Retainer is paid, the shares of Common Stock payable to the Director as his Stock Retainer; and (iii) as of each date on which dividends are paid on the Common Stock, with the number of shares of Common Stock (rounded to the nearest ten thousandth of a share) determined by multiplying the number of shares of Common Stock credited in the Director's Deferred Stock Account on the dividend record date, by the dividend rate per share of Common Stock, and dividing the product by the price per share of Common Stock attributable to the reinvestment of dividends on the shares of Common Stock held in the Deferred Stock Trust on the applicable dividend payment date or, if the Trustee of the Deferred Stock Trust has not reinvested in shares of Common Stock on the applicable dividend reinvestment date, the product shall be divided by the Market Value on the dividend payment date. (b) If Southern enters into transactions involving stock splits, stock dividends, reverse splits or any other recapitalization transactions, the number of shares of Common Stock credited to a Director's Deferred Stock Account will be adjusted (rounded to the nearest ten thousandth of a share) so that the Director's Deferred Stock Account reflects the same equity percentage interest in Southern after the recapitalization as was the case before such transaction. (c) If at least a majority of Southern's stock is sold or exchanged by its shareholders pursuant to an integrated plan for cash or property (including stock of another corporation) or if substantially all of the assets of Southern are disposed of and, as a consequence thereof, cash or property is distributed to Southern's shareholders, each Director's Deferred Stock Account will, to the extent not already so credited under this Section 6.3, be (i) credited with the amount of cash or property receivable by a Southern shareholder directly holding the same number of shares of Common Stock as is credited to such Director's Deferred Stock Account and (ii) debited by that number of shares of Common Stock surrendered by such equivalent Southern shareholder. (c) Each Director who has a Deferred Stock Account also shall be entitled to provide directions to the Trust Administrator to cause such committee to similarly direct the Trustee of the Deferred Stock Trust to vote, on any matter presented for a vote to the shareholders of Southern, that number of shares of Common Stock held by the Deferred Stock Trust equivalent to the number of shares of Common Stock credited to the Director's Deferred Stock Account. Such committee shall arrange for distribution to all Directors in a timely manner of all communications directed generally to the Southern shareholders as to which their votes are solicited. 6.4 Stock Dividend Investment Account (a) A Director's Stock Dividend Investment Account will be credited as of the date on which a dividend is paid to the Company's common stockholders in stock other than Common Stock with the number of shares of the other corporation's stock receivable by a Southern stockholder directly holding the same number of shares of Common Stock as is credited to such Director's Deferred Stock Account. (b) Each Director who has a Stock Dividend Investment Account also shall be entitled to provide directions to the Trust Administrator to similarly direct the Trustee of the Deferred Stock Trust to vote on any matter presented for a vote to the applicable corporation's shareholders, that number of shares of the applicable corporation's common stock held by the Deferred Stock Trust equivalent to the number of shares credited to the Director's Stock Dividend Investment Account. The Trust Administrator shall arrange for distribution to all Directors in a timely manner of all communications directed generally to the applicable corporation's shareholders as to which their votes are solicited. SECTION 7 Distributions 7.1 Upon the termination of a Director's membership on the Board the amount credited to a Director's Deferred Compensation Accounts will be paid to the Director or his beneficiary, as applicable, in the following manner: (a) the amount credited to a Director's Prime Rate Investment Account and Common Phantom Stock Investment Account shall be paid in cash; (b) the amount credited to a Deferred Stock Account shall, except as otherwise provided in Section 6.3 and Section 89.5, or to the extent the Company is otherwise, in the reasonable judgment of the Committee, precluded from doing so, be paid in shares of Common Stock (with any fractional share interest therein paid in cash to the extent of the then Market Value thereof); and (c) the amount credited to a Stock Dividend Investment Account shall, except as otherwise provided in section 9.5, be paid from the assets in the Deferred Stock Trust in shares of the applicable corporation, however if there is not a sufficient number of shares held in the Trust, the remainder shall be paid in cash based upon the average of the high and low price of the stock as reported in the Wall Street Journal on the business day immediately proceeding the distribution date. Such payments shall be from the general assets of the Company (including the Deferred Cash Trust and the Deferred Stock Trust) in accordance with this Section 7. 7.2 Unless other arrangements are specified by the Committee on a uniform and nondiscriminatory basis, deferred amounts shall be paid in the form of (i) a lump sum payment, or (ii) in approximately equal annual or quarterly installments, as elected by the Director pursuant to the provisions of Section 5.4; provided, however, that payments shall be made only in a single lump sum if payment commences due to termination for cause. Such payments shall be made (or shall commence) as soon as practicable following the termination of Board membership or, if so elected in the Distribution Election, up to twenty-four (24) months following such termination. In the event a Director elected to receive the balance of his Deferred Compensation Accounts in a lump sum, distribution shall be made on the first day of the month selected by the Director on his Distribution Election, or as soon as reasonably possible thereafter. If the Director elected to receive installments, the first payment shall be made on the first day of the month selected by a Director, or as soon as reasonably possible thereafter, and shall be equal to the balance in the Director's Deferred Compensation Accounts on such date divided by the number of installment payments. Each subsequent payment shall be an amount equal to the balance in the Director's Deferred Compensation Accounts on the date of payment divided by the number of remaining payments. Notwithstanding a Director's election to receive his Deferred Compensation Account balance in installments, the Compensation Committee, upon request of the Director and in its sole discretion, may accelerate the payment of any such installments for cause, such as financial hardship or financial emergency. The Market Value of any shares of Common Stock credited to a Director's Phantom Stock Investment Account shall be determined as of the twenty-fifth (25th) day of the month immediately preceding the date of any lump sum or installment distribution. Upon the death of a Director, or a former Director prior to the payment of all amounts credited to the Director's Deferred Compensation Accounts, the unpaid balance shall be paid in the sole discretion of the Committee (i) in a lump sum to the designated beneficiary of such Director or former Director within thirty (30) days of the date of death (or as soon as reasonably possible thereafter) or (ii) in accordance with the Distribution Election made by such Director or former Director. In the event a beneficiary designation has not been made, or the designated beneficiary is deceased or cannot be located, payment shall be made to the estate of the Director or former Director. The Market Value of any shares of Common Stock credited to a Director's Phantom Stock Investment Account shall be determined as of the twenty-fifth (25th) day of the month immediately preceding the date of any lump sum or installment distribution. SECTION 8 Change in Control and Other Special Provisions 8.1 Notwithstanding any other terms of the Plan to the contrary, following a Southern Change in Control or a Company Change in Control, the provisions of this Section 8 shall apply to the payment of benefits under the Plan with respect to any Director who is a Participant on such date. 8.2 The Deferred Cash Trust and the Deferred Stock Trust (collectively "Trusts") have been established to hold assets of the Participating Companies under certain circumstances as a reserve for the discharge of the Company's obligations under the Plan. In the event of a Preliminary Change in Control of Southern or the Company, the Company shall be obligated to immediately contribute such amounts to the Trusts as may be necessary to fully fund all benefits payable under the Plan in accordance with the procedures set forth in Section 8.3 hereof. In addition, in order to provide the added protections for certain individuals in accordance with Paragraph 7(c) of the Trust, the Company may fund the Trusts prior to a Preliminary Change in Control of Southern or the Company in accordance with the terms of the Trusts. All assets held in the Trusts remain subject only to the claims of the Participating Companies' general creditors whose claims against the Participating Companies are not satisfied because of the Participating Companies' bankruptcy or insolvency (as those terms are defined in the Trust). No Participant has any preferred claim on, or beneficial ownership interest in, any assets of the Trusts before the assets are paid to the Participant and all rights created under the Trusts, as under the Plan, are unsecured contractual claims of the Participant against the Company. 8.3 As soon as practicable following either a Preliminary Change in Control of Southern or of the Company, the Company shall contribute an amount based upon the funding strategy adopted by the Trust Administrator necessary to fulfill the Company's obligations pursuant to this Section 8. In the event of a dispute over such actuary's determination, the Company and any complaining Participant(s) shall refer such dispute to an independent, third party actuarial consultant, chosen by the Company and such Participant. If the Company and the Participant cannot agree on an independent, third party actuarial consultant, the actuarial consultant shall be chosen by lot from an equal number of actuaries submitted by the Company and the applicable Trustee. Any such referral shall only occur once in total and the determination by the third-party actuarial consultant shall be final and binding upon both parties. The Company shall be responsible for all of the fees and expenses of the independent actuarial consultant. 8.4 In the event of a Southern Change in Control or a Company Change in Control, notwithstanding anything to the contrary in the Plan, upon termination as a Director, that amount in the Deferred Compensation Plan Account(s) of a Participant who was a Director determined as of such Change in Control shall be paid out in a lump sum if such Participant makes an election pursuant to procedures established by the Trust Administrator, in its sole and absolute discretion. If no such election is made, the Director shall receive payment of his Accounts solely in accordance with Section 7. SECTION 9 General Provisions 9.1 In the event that the Company shall decide to establish an advance accrual reserve on its books against the future expense of payments from any Deferred Compensation Accounts, such reserve shall not under any circumstances be deemed to be an asset of this Plan but, at all times, shall remain a part of the general assets of the Company, subject to claims of the Company's creditors. 9.2 A person entitled to any amount under this Plan shall be a general unsecured creditor of the Company with respect to such amount. Furthermore, a person entitled to a payment or distribution with respect to a Deferred Compensation Account shall have a claim upon the Company only to the extent of the balance in his Deferred Compensation Accounts. 9.3 All commissions, fees, and expenses that may be incurred in operating the Plan will be paid by the Company. 9.4 The Company will pay its prorated share of all commissions, fees, and expenses that may be incurred in operating any trust(s) established under the Plan (including the Deferred Stock Trust and the Deferred Cash Trust). 9.5 Notwithstanding any other provision of this Plan: (i) elections under this Plan may only be made by Directors while they are directors of the Company; (with the exception of the designation of beneficiaries) and (ii) distributions otherwise payable to a Director in the form of Common Stock shall be delayed and/or instead paid in cash in an amount equal to the fair market value thereof if such payment in Common Stock would violate any federal or State securities laws (including Section 16(b) of the Securities Exchange Act of 1934, as amended) and/or rules and regulations promulgated thereunder. 9.6 Directors, their legal representatives and their beneficiaries shall have no right to anticipate, alienate, sell, assign, transfer, pledge or encumber their interests in the Plan, nor shall such interests be subject to attachment, garnishment, levy or execution by or on behalf of creditors of the Directors or of their beneficiaries. SECTION 10 Administration Subject to the express provisions of the Plan, the Committee shall have the exclusive right to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it and to make all other determinations necessary or advisable for the administration of the Plan. The decisions, actions and records of the Committee shall be conclusive and binding upon the Company and all persons having or claiming to have any right or interest in or under the Plan. The Committee may delegate to such officers, employees, or departments of the Company or Southern, such authority, duties, and responsibilities of the Committee as it, in its sole discretion, considers necessary or appropriate for the proper and efficient operation of the Plan, including, without limitation, (i) interpretation of the Plan, (ii) approval and payment of claims, and (iii) establishment of procedures for administration of the Plan. SECTION 11 Amendment, Termination and Effective Date 11.1 Amendment of the Plan Except for the provisions of Section 8, which may not be amended following a Southern Change in Control or Company Change in Control, and subject to the provisions of Section 11.3, the Plan may be wholly or partially amended or otherwise modified at any time by written action of the Board of Directors. 11.2 Termination of the Plan Subject to the provisions of Section 11.3 herein, the Plan may be terminated at any time by written action of the Board of Directors. 11.3 No Impairment of Benefits Notwithstanding the provisions of Sections 11.1 and 11.2, herein no amendment to or termination of the Plan shall impair any rights to benefits that have accrued hereunder. 11.4 Governing Law This Plan shall be construed in accordance with and governed by the laws of the State of Alabama. IN WITNESS WHEREOF, the Plan, as amended and restated effective January 1, 2001, has been executed pursuant to resolutions of the Board of Directors of Alabama Power Company, this 27th day of April, 2001. ALABAMA POWER COMPANY By: ________________________________ Attest: By: ___________________________ EX-10 19 x10c59.txt SEPARATION AGREEMENT Exhibit 10(c)59 SEPARATION AGREEMENT THIS SEPARATION AGREEMENT ("Agreement") made and entered into by and between GEORGIA POWER COMPANY (the "Company") and ROBERT H. HAUBEIN, JR. ("Employee"). W I T N E S S E T H WHEREAS, Employee has been employed by the Company for approximately thirty-four (34) years; WHEREAS, Employee is a highly compensated employee of the Company and is a member of its management; WHEREAS, in order to be eligible for benefits under this Agreement, the parties have agreed that Employee must terminate employment with the Company on April 30, 2002; WHEREAS, the parties desire to delineate their respective rights, duties, and obligations attendant to such termination of employment, and desire to reach an accord and satisfaction of all claims arising from Employee's employment and his termination of employment, with appropriate releases; and WHEREAS, the Company desires to compensate Employee for service he has provided or will provide for the Company; NOW, THEREFORE, in consideration of the premises, and the agreements of the parties set forth in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: 1. Termination of Employment. Upon Employee's execution of this Agreement, voluntary termination of employment with the Company on April 30, 2002 (the Employee's "Termination Date"), and effectiveness of the Release attached hereto as Exhibit 1 (such effectiveness being no earlier than Employee's Termination Date), the Company agrees to pay to Employee or his spouse or his estate, as applicable, the amounts described in Paragraph 2 hereof. Employee covenants and agrees that the consideration set forth in Paragraph 2 is in full satisfaction of all sums owed to Employee, if any, by the Company, and constitutes good and complete consideration for his Release attached hereto as Exhibit 1, those non-disclosure and non-interference obligations under Paragraphs 5, 6, 7, 8 and 9 hereof and all other obligations and covenants of Employee contained herein, including, but not limited to, Paragraph 4. Employee agrees that this Agreement provides him certain benefits to which he would not otherwise be entitled. 2. Severance Payment to Employee. On the first day of the first month following both the Employee's Termination Date and the effective date of the Release attached hereto as Exhibit 1 (such effective date being no earlier than Employee's Termination Date), the Company shall pay to Employee an amount equal to Seven Hundred Seventy-Three Thousand Dollars ($773,000). In the event of a Southern Change in Control or a Subsidiary Change in Control affecting Employee as defined in the Southern Company Change in Control Benefit Plan Determination Policy, any unpaid amounts shall be paid in a lump sum as soon as practicable after the occurrence of such an event. In the event Employee dies before receiving payment of the amounts described in this Paragraph 2 hereof, such amounts shall be paid to Employee's spouse, if living, or if not, to the Employee's estate. In accordance with Paragraph 20, Employee shall be responsible for all state and federal income taxes and his share of FICA taxes owed on the foregoing amounts, and Company shall make appropriate withholding of these amounts. 3. Publicity; No Disparaging Statement. Except as otherwise provided in Paragraph 13 hereof, Employee and the Company covenant and agree that they shall not engage in any communications which shall disparage one another or interfere with their existing or prospective business relationships. 4. No Employment. Employee agrees that he shall not seek re-employment as an employee or independent contractor with the Company or The Southern Company or any of its subsidiaries or affiliates (collectively, for purposes of this Paragraph 4, "The Southern Company System"), for a period of twenty-four (24) months following the execution of the Release attached hereto as Exhibit 1. The Company or any member of The Southern Company System shall not rehire the Employee as an employee or independent contractor for a period of twenty-four (24) months following the Employee's execution of the Release attached hereto as Exhibit 1, unless an exceptional business reason exists for rehiring the Employee and a committee, comprised of (i) an officer from the business unit seeking to rehire the Employee and (ii) the Southern Company Vice President, Employee Relations & Associate General Counsel, approves of such rehiring. 5. Business Protection Provision Definitions. (a) Preamble. As a material inducement to the Company to enter into this Agreement, and its recognition of the valuable experience, knowledge and proprietary information Employee gained from his employment with the Company, Employee warrants and agrees he will abide by and adhere to the following business protection provisions in Paragraphs 5, 6, 7, 8 and 9 herein. (b) Definitions. For purposes of Paragraphs 5, 6, 7, 8 and 9 herein, the following terms shall have the following meanings: (i) "Competitive Position" shall mean any employment, consulting, advisory, directorship, agency, promotional or independent contractor arrangement between the Employee and any person or Entity engaged wholly or in material part in the business that the Company is engaged in (the "Business") whereby the Employee is required to or does perform services on behalf of or for the benefit of such person or Entity which are substantially similar to the services Employee participated in or directed while employed by the Company, The Southern Company or any of their respective affiliates (collectively the "Southern Entities"). (ii) "Confidential Information" shall mean the proprietary or confidential data, information, documents or materials (whether oral, written, electronic or otherwise) belonging to or pertaining to the Company or other Southern Entities, other than "Trade Secrets" (as defined below), which is of tangible or intangible value to any of the Southern Entities and the details of which are not generally known to the competitors of the Southern Entities. Confidential Information shall also include: (A) any items that any of the Southern Entities have marked "CONFIDENTIAL" or some similar designation or are otherwise identified as being confidential; and (B) all non-public information known by or in the possession of Employee related to or regarding any proceedings involving or related to the Southern Affiliates before the Georgia Public Service Commission or other Entities. (iii) "Entity" or "Entities" shall mean any business, individual, partnership, joint venture, agency, governmental agency, body or subdivision, association, firm, corporation, limited liability company or other entity of any kind. (iv) "Territory" shall include the States of Georgia, Alabama, Mississippi or Florida. (v) "Trade Secrets" shall mean information or data of or about any of the Southern Entities, including, but not limited to, technical or non-technical data, formulas, patterns, compilations, programs, devices, methods, techniques, drawings, processes, financial data, financial plans, product plans or lists of actual or potential customers or suppliers that: (A) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (B) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. The Employee agrees that trade secrets include non-public information related to the rate making process of the Southern Entities and any other information which is defined as a "trade secret" under applicable law. (vi) "Work Product" shall mean all tangible work product, property, data, documentation, "know-how," concepts or plans, inventions, improvements, techniques and processes relating to the Southern Entities that were conceived, discovered, created, written, revised or developed by Employee during the term of his employment with the Company. 6. Nondisclosure: Ownership of Proprietary Property. (a) In recognition of the need of the Company to protect its legitimate business interests, Confidential Information and Trade Secrets, Employee hereby covenants and agrees that Employee shall regard and treat Trade Secrets and all Confidential Information as strictly confidential and wholly-owned by the Company and shall not, for any reason, in any fashion, either directly or indirectly, use, sell, lend, lease, distribute, license, give, transfer, assign, show, disclose, disseminate, reproduce, copy, misappropriate or otherwise communicate any such item or information to any third party or Entity for any purpose other than in accordance with this Agreement or as required by applicable law: (i) with regard to each item constituting a Trade Secret, at all times such information remains a "trade secret" under applicable law, and (ii) with regard to any Confidential Information, for a period of three (3) years following the Termination Date (hereafter the "Restricted Period"). (b) Employee shall exercise best efforts to ensure the continued confidentiality of all Trade Secrets and Confidential Information, and he shall immediately notify the Company of any unauthorized disclosure or use of any Trade Secrets or Confidential Information of which Employee becomes aware. Employee shall assist the Company, to the extent necessary, in the protection of or procurement of any intellectual property protection or other rights in any of the Trade Secrets or Confidential Information. (c) All Work Product shall be owned exclusively by the Company. To the greatest extent possible, any Work Product shall be deemed to be "work made for hire" (as defined in the Copyright Act, 17 U.S.C.A. ss. 101 et seq., as amended), and Employee hereby unconditionally and irrevocably transfers and assigns to the Company all right, title and interest Employee currently has or may have by operation of law or otherwise in or to any Work Product, including, without limitation, all patents, copyrights, trademarks (and the goodwill associated therewith), trade secrets, service marks (and the goodwill associated therewith) and other intellectual property rights. Employee agrees to execute and deliver to the Company any transfers, assignments, documents or other instruments which the Company may deem necessary or appropriate, from time to time, to protect the rights granted herein or to vest complete title and ownership of any and all Work Product, and all associated intellectual property and other rights therein, exclusively in the Company. (d) Employee represents and agrees that he will keep all terms and provisions of this Agreement completely confidential, except for possible disclosures to his legal advisors or to the extent required by law, and Employee further agrees that he will not disclose the terms, provisions or information contained in or concerning this Agreement to anyone, including, but not limited to, any past, present, or prospective employee or applicant for employment with the Company. Employee agrees that he may only disclose to future, potential employers of Employee that he participates in a Separation Agreement with the Company which imposes certain restrictions on him. 7. Non-Interference With Employees. Employee covenants and agrees that during the Restricted Period he will not, either directly or indirectly, alone or in conjunction with any other person or Entity: (A) actively recruit, solicit, attempt to solicit, or induce any person who, during such Restricted Period, or within one year prior to the Termination Date, was an exempt employee of the Company or any of its subsidiaries, or was an officer of any of the other Southern Entities to leave or cease such employment for any reason whatsoever; or (B) hire or engage the services of any such person described in Paragraph 7(A) in any business substantially similar or competitive with that in which the Southern Entities were engaged during his employment. 8. Non-Interference With Customers. (a) Employee acknowledges that in the course of employment, he has learned about Company's business, services, materials, programs and products and the manner in which they are developed, marketed, serviced and provided. Employee knows and acknowledges that the Company has invested considerable time and money in developing its programs, agreements, offices, representatives, services, products and marketing techniques and that they are unique and original. Employee further acknowledges that the Company must keep secret all pertinent information divulged to Employee and Company's business concepts, ideas, programs, plans and processes, so as not to aid Company's competitors. Accordingly, Company is entitled to the following protection, which Employee agrees is reasonable: (b) Employee covenants and agrees that for a period of two (2) years following the Termination Date, he will not, on his own behalf or on behalf of any person or Entity, solicit, direct, appropriate, call upon, or initiate communication or contact with any person or entity or any representative of any person or entity, with whom Employee had contact during his employment, with a view toward the sale or the providing of any product, equipment or service sold or provided or under development by Company during the period of two (2) years immediately preceding the date of Employee's termination. The restrictions set forth in this section shall apply only to persons or entities with whom Employee had actual contact during the two (2) years prior to termination of employment with a view toward the sale or providing of any product, equipment or service sold or provided or under development by Company. 9. Non-Interference With Business. (a) Employee and Company expressly covenant and agree that the scope, territorial, time and other restrictions contained in this entire Agreement constitute the most reasonable and equitable restrictions possible to protect the business interest of the Company given: (i) the business of the Company; (ii) the competitive nature of the Company's industry; and (iii) that Employee's skills are such that he could easily find alternative, commensurate employment or consulting work in his field which would not violate any of the provisions of this Agreement. The Employee further acknowledges that the payments described in Paragraph 2 are also in consideration of his covenants and agreements contained in Paragraphs 5 through 9 hereof. (b) Employee covenants and agrees to not obtain or work in a Competitive Position within the Territory for a period of two (2) years from the Termination Date. 10. Return of Materials. Upon the Employee's termination, or at any point after that time upon the specific request of the Company, Employee shall return to the Company all written or descriptive materials of any kind belonging or relating to the Company or its affiliates, including, without limitation, any originals, copies and abstracts containing any Work Product, intellectual property, Confidential Information and Trade Secrets in Employee's possession or control. 11. Cooperation. The parties agree that as a result of Employee's duties and activities during his employment, Employee's reasonable availability may be necessary for the Company to meaningfully respond to or address actual or threatened litigation, or government inquiries or investigations, or required filings with state, federal or foreign agencies (hereinafter "Company Matters"). Upon request of the Company, and at any point following termination of employment, Employee will make himself available to the Company for reasonable periods consistent with his future employment, if any, by other Entities and will cooperate with its agents and attorneys as reasonably required by such Company Matters. The Company will reimburse Employee for any reasonable out-of-pocket expenses associated with providing such cooperation. 12. Termination with Cause. In the event of Employee's termination of employment for Cause at any time, the Employee shall forfeit the entire benefit provided in Paragraph 2 and the Company shall have no further obligations with respect to any amount under this Agreement. As used in this Agreement, the term "Cause" shall mean gross negligence or willful misconduct in the performance of the duties and services required in the course of employment by the Company; the final conviction of a felony or misdemeanor involving moral turpitude; the carrying out of any activity or the making of any statement which would prejudice the good name and standing of any of the Southern Entities or would bring any of the Southern Entities into contempt, ridicule or would reasonably shock or offend any community in which any of the Southern Entities is located; a material breach of the fiduciary obligations owed by an officer and an employee to any of the Southern Entities; or the Employee's unsatisfactory performance of the duties and services required by his or her employment. 13. Confidentiality and Legal Process. Employee represents and agrees that he will keep the terms, amount and fact of this Agreement confidential and that he will not hereafter disclose any information concerning this Agreement to any one other than his personal agents, including, but not limited to, any past, present, or prospective employee or applicant for employment with Company. Notwithstanding the foregoing, nothing in this Agreement is intended to prohibit Employee from performing any duty or obligation that shall arise as a matter of law. Specifically, Employee shall continue to be under a duty to truthfully respond to any legal and valid subpoena or other legal process. This Agreement is not intended in any way to proscribe Employee's right and ability to provide information to any federal, state or local government in the lawful exercise of such governments' governmental functions. 14. Successors And Assigns; Applicable Law. This Agreement shall be binding upon and inure to the benefit of Employee and his heirs, administrators, representatives, executors, successors and assigns, and shall be binding upon and inure to the benefit of the Company and its officers, directors, employees, agents, shareholders, parent corporation and affiliates, and their respective predecessors, successors, assigns, heirs, executors and administrators and each of them, and to their heirs, administrators, representatives, executors, successors and assigns. This Agreement shall be construed and interpreted in accordance with the laws of the State of Georgia, United States of America (without giving effect to principles of conflicts of laws). 15. Complete Agreement. This Agreement shall constitute the full and complete Agreement between the parties concerning its subject matter and fully supersedes any and all other prior Agreements or understandings between the parties concerning the subject matter hereof. This Agreement shall not be modified or amended except by a written instrument signed by both Employee and an authorized representative of the Company. 16. Severability. The unenforceability or invalidity of any particular provision of this Agreement shall not affect its other provisions, and to the extent necessary to give such other provisions effect, they shall be deemed severable. The judicial body interpreting this Agreement shall be authorized and instructed to rewrite any of the sections which are enforceable as written in such a fashion so that they may be enforced to the greatest extent legally possible. Employee acknowledges and agrees that the covenants and agreements contained in this Agreement, including, without limitation, the covenants and agreements contained in Paragraphs 5, 6, 7, 8 and 9, shall be construed as covenants and agreements independent of each other or any other contract between the parties hereto and that the existence of any claim or cause of action by Employee against Company, whether predicted upon this Agreement or any other contract, shall not constitute a defense to the enforcement by Company of said covenants and agreements. 17. Waiver Of Breach; Specific Performance. The waiver of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other breach. Each of the parties to this Agreement will be entitled to enforce its or his rights under this Agreement, specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in its or his favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its or his sole discretion apply to any court of law or equity of competent jurisdiction for specific performance or injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement. 18. Unsecured General Creditor. The Company shall neither reserve nor specifically set aside funds for the payment of its obligations under this Agreement, and such obligations shall be paid solely from the general assets of the Company. Notwithstanding that Employee may be entitled to receive the value of his benefit under the terms and conditions of this Agreement, the assets from which such amount may be paid shall at all times be subject to the claims of the Company's creditors. 19. No Effect On Other Arrangements. It is expressly understood and agreed that the payments made in accordance with this Agreement are in addition to any other benefits or compensation to which Employee may be entitled or for which he may be eligible, whether funded or unfunded, by reason of his employment with the Company. 20. Tax Withholding. There shall be deducted from each payment under this Agreement the amount of any tax required by any governmental authority to be withheld and paid over by the Company to such governmental authority for the account of Employee. 21. Compensation. Any compensation contributed on behalf of Employee under this Agreement shall not be considered "compensation," as the term is defined in The Southern Company Employee Savings Plan, The Southern Company Employee Stock Ownership Plan, The Southern Company Performance Sharing Plan or The Southern Company Pension Plan. Payments under this Agreement shall not be considered wages, salaries or compensation under any other employee benefit plan. 22. No Guarantee of Employment. No provision of this Agreement shall be construed to affect in any manner the existing rights of the Company to suspend, terminate, alter, modify, whether or not for cause, the employment relationship of Employee and the Company. 23. Interpretation. The judicial body interpreting this Agreement shall not more strictly construe the terms of this Agreement against one party, it being agreed that both parties and/or their attorneys or agents have negotiated and participated in the preparation hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement, this ___ day of ________________, . "COMPANY" GEORGIA POWER COMPANY By: --------------------------------------- Its: --------------------------------------- "EMPLOYEE" ROBERT H. HAUBEIN, JR. EXHIBIT 1 to Separation Agreement with Robert H. Haubein, Jr. RELEASE AGREEMENT THIS RELEASE ("Release") is made and entered into by and between ROBERT H. HAUBEIN, JR. ("Employee") and GEORGIA POWER COMPANY, and its successor or assigns ("Company"). WHEREAS, Employee and Company have agreed that Employee's employment with Georgia Power Company shall terminate on April 30, 2002; WHEREAS, Employee and the Company have previously entered into that certain Separation Agreement, dated _________________, ______ ("Agreement"), that this Release is incorporated therein by reference; WHEREAS, Employee and Company desire to delineate their respective rights, duties and obligations attendant to such termination and desire to reach an accord and satisfaction of all claims arising from Employee's employment, and his termination of employment, with appropriate releases, in accordance with the Agreement; WHEREAS, the Company desires to compensate Employee in accordance with the Agreement for service he has or will provide for the Company; NOW, THEREFORE, in consideration of the premises and the agreements of the parties set forth in this Release, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: 1. Release. Employee does hereby remise, release and forever discharge the Company and its officers, directors, employees, agents, shareholders, parent corporation and affiliates, and their respective predecessors, successors, assigns, heirs, executors and administrators (collectively, "Releasees"), of and from all manner of actions and causes of action, suits, debts, claims and demands whatsoever at law or in equity, known or unknown, actual or contingent, including, but not limited to, any claims which have been asserted, or could be asserted now or in the future, against any Releasees arising under any and all federal, state or local laws and any common law claims, and including, but not limited to, any claims Employee may have pursuant to the Age Discrimination in Employment Act and any claims to benefits under any and all offer letters, employment or separation agreements, or bonus, severance, workforce reduction, early retirement, out-placement, or other similar plans sponsored by the Company, now or hereafter recognized (collectively, "Claims"), which he ever had or now has or may in the future have, by reason of any matter, cause or thing arising out of his employment relationship and privileges, his serving as an employee of the Company or the separation from his employment relationship or affiliation as an employee of the Company as of the date of this Release against each of the Releasees. Notwithstanding the foregoing, Employee does not release any Claims under the Age Discrimination in Employment Act that may arise after his execution of this Release. 2. No Assignment of Claim. Employee represents that he has not assigned or transferred, or purported to assign or transfer, any Claims or any portion thereof or interest therein to any party prior to the date of this Release. 3. Compensation. In accordance with the Separation Agreement, the Company agrees to pay the Employee, his spouse or his estate, as the case may be, the amounts provided in Paragraph 2 of the Agreement. 4. No Admission Of Liability. This Release shall not in any way be construed as an admission by the Company or Employee of any improper actions or liability whatsoever as to one another, and each specifically disclaims any liability to or improper actions against the other or any other person, on the part of itself or himself, its or his employees or agents. 5. Voluntary Execution. Employee warrants, represents and agrees that he has been encouraged in writing to seek advice from anyone of his choosing regarding this Release, including his attorney and accountant or tax advisor prior to his signing it; that this Release represents written notice to do so; that he has been given the opportunity and sufficient time to seek such advice; and that he fully understands the meaning and contents of this Release. He further represents and warrants that he was not coerced, threatened or otherwise forced to sign this Release, and that his signature appearing hereinafter is voluntary and genuine. EMPLOYEE UNDERSTANDS THAT HE MAY TAKE UP TO TWENTY-ONE (21) DAYS TO CONSIDER WHETHER OR NOT HE DESIRES TO ENTER INTO THIS RELEASE. 6. Ability to Revoke Agreement. EMPLOYEE UNDERSTANDS THAT HE MAY REVOKE THIS RELEASE BY NOTIFYING THE COMPANY IN WRITING OF SUCH REVOCATION WITHIN SEVEN (7) DAYS OF HIS EXECUTION OF THIS RELEASE AND THAT THIS RELEASE IS NOT EFFECTIVE UNTIL THE EXPIRATION OF SUCH SEVEN (7) DAY PERIOD. HE UNDERSTANDS THAT UPON THE EXPIRATION OF SUCH SEVEN (7) DAY PERIOD THIS RELEASE WILL BE BINDING UPON HIM AND HIS HEIRS, ADMINISTRATORS, REPRESENTATIVES, EXECUTORS, SUCCESSORS AND ASSIGNS AND WILL BE IRREVOCABLE. Acknowledged and Agreed To: "COMPANY" GEORGIA POWER COMPANY By: ----------------------------------- Its: ----------------------------------- I UNDERSTAND THAT BY SIGNING THIS RELEASE, I AM GIVING UP RIGHTS I MAY HAVE. I UNDERSTAND THAT I DO NOT HAVE TO SIGN THIS RELEASE. "EMPLOYEE" ROBERT H. HAUBEIN, JR. Date_____ _________ WITNESSED BY: - -------------------------------------------- - -------------------------------------------- Date FIRST AMENDMENT TO SEPARATION AGREEMENT This First Amendment to Separation Agreement made and entered into by and between GEORGIA POWER COMPANY ("Company") and ROBERT H. HAUBEIN, JR. ("Mr. Haubein"), effective as of the 21st day of December, 2001. W I T N E S S E T H: WHEREAS, Company and Mr. Haubein previously entered into a Separation Agreement ("Agreement"); and WHEREAS, Company and Mr. Haubein desire to amend the Agreement to (i) clarify that the payment under the Agreement is in exchange for services Mr. Haubein provided to the Company as an employee of the Company, as well as services Mr. Haubein provided to the Company as an employee of any other affiliate or subsidiary of The Southern Company, and (ii) provide for the payment of benefits in the event Mr. Haubein terminates from the Company or any other affiliate or subsidiary of The Southern Company on April 30, 2002. NOW, THEREFORE, in consideration of the premises, the agreements of the parties set forth in this First Amendment to Separation Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: 1. Each reference to "Employee" in the Agreement is deleted, and "Mr. Haubein" shall be inserted in lieu thereof. 2. All of the "Whereas" provisions in the Agreement are deleted in their entirety, and the following is inserted in lieu thereof: WHEREAS, Mr. Haubein has been employed by the Company or another affiliate or subsidiary of The Southern Company for approximately thirty-four (34) years; WHEREAS, Mr. Haubein was a highly compensated employee of the Company and was a member of its management; WHEREAS, in order to be eligible for benefits under this Agreement, the parties have agreed that Mr. Haubein must terminate employment with the Company or any other affiliate or subsidiary of The Southern Company on April 30, 2002; WHEREAS, the parties desire to delineate their respective rights, duties, and obligations attendant to such termination of employment, and desire to reach an accord and satisfaction of all claims arising from Mr. Haubein's employment and his termination of employment, with appropriate releases; and WHEREAS, the Company desires to compensate Mr. Haubein for services he has provided and will provide for the Company as an employee of the Company and as an employee of any other affiliate or subsidiary of The Southern Company; 3. Paragraph 1 of the Agreement is deleted in its entirety, and the following is inserted in lieu thereof: 1. Termination of Employment. Upon Mr. Haubein's execution of this Agreement, voluntary termination of employment with the Company or any other affiliate or subsidiary of The Southern Company on April 30, 2002 (Mr. Haubein's "Termination Date"), and effectiveness of the Release attached hereto as Exhibit 1 (such effectiveness being no earlier than Mr. Haubein's Termination Date), the Company agrees to pay to Mr. Haubein or his spouse or his estate, as applicable, the amounts described in Paragraph 2 hereof. Mr. Haubein covenants and agrees that the consideration set forth in Paragraph 2 is in full satisfaction of all sums owed to Mr. Haubein, if any, by the Company, and constitutes good and complete consideration for his Release attached hereto as Exhibit 1, those non-disclosure and non-interference obligations under Paragraphs 5, 6, 7, 8 and 9 hereof and all other obligations and covenants of Mr. Haubein contained herein, including, but not limited to, Paragraph 4. Mr. Haubein agrees that this Agreement provides him certain benefits to which he would not otherwise be entitled. 4. Paragraph 12 of the Agreement is deleted in its entirety and the following is inserted in lieu thereof: 12. Termination with Cause. In the event of Mr. Haubein's termination of employment from the Company or any other affiliate or subsidiary of The Southern Company for Cause at any time, Mr. Haubein shall forfeit the entire benefit provided in Paragraph 2 and the Company shall have no further obligations with respect to any amount under this Agreement. As used in this Agreement, the term "Cause" shall mean gross negligence or willful misconduct in the performance of the duties and services required in the course of employment by the Company or any other affiliate or subsidiary of the Southern Company; the final conviction of a felony or misdemeanor involving moral turpitude; the carrying out of any activity or the making of any statement which would prejudice the good name and standing of any of the Southern Entities or would bring any of the Southern Entities into contempt, ridicule or would reasonably shock or offend any community in which any of the Southern Entities is located; a material breach of the fiduciary obligations owed by an officer and an employee to any of the Southern Entities; or Mr. Haubein's unsatisfactory performance of the duties and services required by his employment. 5. Paragraph 22 of the Agreement is deleted in its entirety, and the current Paragraph 23 shall be renumbered Paragraph 22. 6. The Release Agreement attached to the Agreement as Exhibit 1 is deleted in its entirety, and the Release Agreement attached hereto is inserted in lieu thereof. 7. All parts of the Agreement not inconsistent herewith shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this First Amendment to Separation Agreement this ____ day of _____________, 2002. GEORGIA POWER COMPANY By: ----------------------------- Its: ---------------------------- ROBERT H. HAUBEIN, JR. EXHIBIT 1 to Separation Agreement with Robert H. Haubein, Jr. RELEASE AGREEMENT THIS RELEASE ("Release") is made and entered into by and between ROBERT H. HAUBEIN, JR. ("Mr. Haubein") and GEORGIA POWER COMPANY, and its successor or assigns ("Company"). WHEREAS, Mr. Haubein and Company have agreed that Mr. Haubein's employment with Georgia Power Company or any other subsidiary or affiliate of The Southern Company shall terminate on April 30, 2002; WHEREAS, Mr. Haubein and the Company have previously entered into that certain Separation Agreement, dated December 21, 2001, and the related First Amendment to Separation Agreement, dated _________________, ______ (collectively, "Agreement"), that this Release is incorporated therein by reference; WHEREAS, Mr. Haubein and Company desire to delineate their respective rights, duties and obligations attendant to such termination and desire to reach an accord and satisfaction of all claims arising from Mr. Haubein's employment, and his termination of employment, with appropriate releases, in accordance with the Agreement; WHEREAS, the Company desires to compensate Mr. Haubein in accordance with the Agreement for service he has or will provide for the Company as an employee of the Company or as an employee of any other affiliate or subsidiary of The Southern Company; NOW, THEREFORE, in consideration of the premises and the agreements of the parties set forth in this Release, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: 1. Release. Mr. Haubein does hereby remise, release and forever discharge the Company and its officers, directors, employees, agents, shareholders, parent corporation and affiliates, and their respective predecessors, successors, assigns, heirs, executors and administrators (collectively, "Releasees"), of and from all manner of actions and causes of action, suits, debts, claims and demands whatsoever at law or in equity, known or unknown, actual or contingent, including, but not limited to, any claims which have been asserted, or could be asserted now or in the future, against any Releasees arising under any and all federal, state or local laws and any common law claims, and including, but not limited to, any claims Mr. Haubein may have pursuant to the Age Discrimination in Employment Act and any claims to benefits under any and all offer letters, employment or separation agreements, or bonus, severance, workforce reduction, early retirement, out-placement, or other similar plans sponsored by the Company, now or hereafter recognized (collectively, "Claims"), which he ever had or now has or may in the future have, by reason of any matter, cause or thing arising out of his employment relationship and privileges, his serving as an employee of the Company or the separation from his employment relationship or affiliation as an employee of the Company as of the date of this Release against each of the Releasees. Notwithstanding the foregoing, Mr. Haubein does not release any Claims under the Age Discrimination in Employment Act that may arise after his execution of this Release. 2. No Assignment of Claim. Mr. Haubein represents that he has not assigned or transferred, or purported to assign or transfer, any Claims or any portion thereof or interest therein to any party prior to the date of this Release. 3. Compensation. In accordance with the Separation Agreement, the Company agrees to pay Mr. Haubein, his spouse or his estate, as the case may be, the amounts provided in Paragraph 2 of the Agreement. 4. No Admission Of Liability. This Release shall not in any way be construed as an admission by the Company or Mr. Haubein of any improper actions or liability whatsoever as to one another, and each specifically disclaims any liability to or improper actions against the other or any other person, on the part of itself or himself, its or his employees or agents. 5. Voluntary Execution. Mr. Haubein warrants, represents and agrees that he has been encouraged in writing to seek advice from anyone of his choosing regarding this Release, including his attorney and accountant or tax advisor prior to his signing it; that this Release represents written notice to do so; that he has been given the opportunity and sufficient time to seek such advice; and that he fully understands the meaning and contents of this Release. He further represents and warrants that he was not coerced, threatened or otherwise forced to sign this Release, and that his signature appearing hereinafter is voluntary and genuine. EMPLOYEE UNDERSTANDS THAT HE MAY TAKE UP TO TWENTY-ONE (21) DAYS TO CONSIDER WHETHER OR NOT HE DESIRES TO ENTER INTO THIS RELEASE. 6. Ability to Revoke Agreement. EMPLOYEE UNDERSTANDS THAT HE MAY REVOKE THIS RELEASE BY NOTIFYING THE COMPANY IN WRITING OF SUCH REVOCATION WITHIN SEVEN (7) DAYS OF HIS EXECUTION OF THIS RELEASE AND THAT THIS RELEASE IS NOT EFFECTIVE UNTIL THE EXPIRATION OF SUCH SEVEN (7) DAY PERIOD. HE UNDERSTANDS THAT UPON THE EXPIRATION OF SUCH SEVEN (7) DAY PERIOD THIS RELEASE WILL BE BINDING UPON HIM AND HIS HEIRS, ADMINISTRATORS, REPRESENTATIVES, EXECUTORS, SUCCESSORS AND ASSIGNS AND WILL BE IRREVOCABLE. Acknowledged and Agreed To: "COMPANY" GEORGIA POWER COMPANY By: --------------------------------- Its: --------------------------------- I UNDERSTAND THAT BY SIGNING THIS RELEASE, I AM GIVING UP RIGHTS I MAY HAVE. I UNDERSTAND THAT I DO NOT HAVE TO SIGN THIS RELEASE. "EMPLOYEE" ROBERT H. HAUBEIN, JR. Date_____ _________ WITNESSED BY: - -------------------------------------------- - -------------------------------------------- Date EX-10 20 x10c60.txt SEPARATION AGREEMENT Exhibit 10(c)60 SEPARATION AGREEMENT THIS SEPARATION AGREEMENT ("Agreement") made and entered into by and between GEORGIA POWER COMPANY (the "Company") and FRED D. WILLIAMS ("Employee"). W I T N E S S E T H WHEREAS, Employee has been employed by the Company for approximately thirty-two (32) years; WHEREAS, Employee is a highly compensated employee of the Company and is a member of its management; WHEREAS, in order to be eligible for benefits under this Agreement, the parties have agreed that Employee must terminate employment with the Company on April 30, 2002; WHEREAS, the parties desire to delineate their respective rights, duties, and obligations attendant to such termination of employment, and desire to reach an accord and satisfaction of all claims arising from Employee's employment and his termination of employment, with appropriate releases; and WHEREAS, the Company desires to compensate Employee for service he has provided or will provide for the Company; NOW, THEREFORE, in consideration of the premises, and the agreements of the parties set forth in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: 1. Termination of Employment. Upon Employee's execution of this Agreement, voluntary termination of employment with the Company on April 30, 2002 (the Employee's "Termination Date"), and effectiveness of the Release attached hereto as Exhibit 1 (such effectiveness being no earlier than Employee's Termination Date), the Company agrees to pay to Employee or his spouse or his estate, as applicable, the amounts described in Paragraphs 2, 3 and 4 hereof. Employee covenants and agrees that the consideration set forth in Paragraphs 2, 3 and 4 is in full satisfaction of all sums owed to Employee, if any, by the Company, and constitutes good and complete consideration for his Release attached hereto as Exhibit 1, those non-disclosure and non-interference obligations under Paragraphs 7, 8, 9, 10 and 11 hereof and all other obligations and covenants of Employee contained herein, including, but not limited to, Paragraph 6. Employee agrees that this Agreement provides him certain benefits to which he would not otherwise be entitled. 2. Lump Sum Payment to Employee. On the first day of the first month following both the Employee's Termination Date and the effective date of the Release attached hereto as Exhibit 1 (such effective date being no earlier than Employee's Termination Date), the Company shall pay to Employee a lump sum amount equal to Seventy-One Thousand Dollars ($71,000). In the event Employee dies before receiving payment of the amounts described in this Paragraph 2, such amounts shall be paid to Employee's spouse, if living, or if not, to the Employee's estate. 3. Extended Payments to Employee. Subject to the terms and conditions of this Agreement including paragraph 4 hereof, the Company shall pay to Employee the following amounts: a. Prior to Age 62. Beginning on the first day of the first month following both the Employee's Termination Date and the effective date of this Agreement, the Company agrees to pay to Employee a monthly benefit determined pursuant to Schedule "A" attached hereto and by this reference incorporated herein; b. After Age 62. Beginning on the first day of the first month following the Employee's attainment of age 62, the Employee's Termination Date and the effective date of this Agreement and ending on the first day of the month during which the Employee dies, the Company agrees to pay to Employee a monthly benefit determined pursuant to Schedule "B" attached hereto and by this reference incorporated herein. c. Change in Control and Other Provisions. With respect to this Paragraph 3 and Paragraph 4 below, in the event of a Southern Change in Control or a Subsidiary Change in Control affecting Employee as defined in the Southern Company Change in Control Benefit Plan Determination Policy, any unpaid amounts shall be paid in a lump sum determined consistent with Paragraph 4(c) as soon as practicable after the occurrence of such an event. Upon application made by the Employee, his spouse, or an authorized legal representative, as applicable, the Company may in its sole discretion determine to accelerate payments due under this Agreement in a manner also determined by the Company. In accordance with Paragraph 22, Employee shall be responsible for all state and federal income taxes and his share of FICA taxes owed on the amounts set forth in Paragraphs 2, 3 and 4, and Company shall make appropriate withholding of these amounts. 4. Payments to Provisional Payee in the Event of Employee's Death. Employee shall only be entitled to the benefit payments set forth in Paragraph 3 above that become due and payable between the Employee's Termination Date and his death. Upon the death of Employee, the provisional payee designated by the Employee (or designated for him by default) under The Southern Company Pension Plan ("Pension Plan"), if then living, shall be entitled to the following amounts: a. Prior to Date Employee Would Have Reached Age 62. Beginning on the first day of the first month following the Employee's Termination Date, the Employee's death and the effective date of this Agreement and ending upon the first day of the month during which the Employee would have attained age 62, the Company agrees to pay to such provisional payee a monthly benefit determined pursuant to Schedule "C" attached hereto and by this reference incorporated herein; b. After the Date Employee Would Have Reached Age 62. Beginning on the first day of the first month following the Employee's death, the date the Employee would have attained age 62, the Employee's Termination Date and the effective date of this Agreement and ending on the first day of the month of the provisional payee's death, the Company agrees to pay to such provisional payee a monthly benefit determined pursuant to Schedule "D" attached hereto and by this reference incorporated herein. c. Residual Benefit. Upon the later to die of the Employee or the provisional payee if such a person having this status survives the Employee, a Lump Sum Death Benefit shall be payable to his or her designated heirs or assigns. For purposes of the preceding sentence, "Lump Sum Death Benefit" means Six Hundred Forty Thousand Dollars ($640,000), less the amount of any payments under Paragraphs 2, 3 and 4 actually made to Employee and his provisional payee. 5. Publicity; No Disparaging Statement. Except as otherwise provided in Paragraph 15 hereof, Employee and the Company covenant and agree that they shall not engage in any communications which shall disparage one another or interfere with their existing or prospective business relationships. 6. No Employment. Employee agrees that he shall not seek re-employment as an employee or independent contractor with the Company or The Southern Company or any of its subsidiaries or affiliates (collectively, for purposes of this Paragraph 6, "The Southern Company System"), for a period of twenty-four (24) months following the execution of the Release attached hereto as Exhibit 1. The Company or any member of The Southern Company System shall not rehire the Employee as an employee or independent contractor for a period of twenty-four (24) months following the Employee's execution of the Release attached hereto as Exhibit 1, unless an exceptional business reason exists for rehiring the Employee and a committee, comprised of (i) an officer from the business unit seeking to rehire the Employee and (ii) the Southern Company Vice President, Employee Relations & Associate General Counsel, approves of such rehiring. 7. Business Protection Provision Definitions. (a) Preamble. As a material inducement to the Company to enter into this Agreement, and its recognition of the valuable experience, knowledge and proprietary information Employee gained from his employment with the Company, Employee warrants and agrees he will abide by and adhere to the following business protection provisions in Paragraphs 7, 8, 9, 10 and 11 herein. (b) Definitions. For purposes of Paragraphs 7, 8, 9, 10 and 11 herein, the following terms shall have the following meanings: (i) "Competitive Position" shall mean any employment, consulting, advisory, directorship, agency, promotional or independent contractor arrangement between the Employee and any person or Entity engaged wholly or in material part in the business that the Company is engaged in (the "Business") whereby the Employee is required to or does perform services on behalf of or for the benefit of such person or Entity which are substantially similar to the services Employee participated in or directed while employed by the Company, The Southern Company or any of their respective affiliates (collectively the "Southern Entities"). (ii) "Confidential Information" shall mean the proprietary or confidential data, information, documents or materials (whether oral, written, electronic or otherwise) belonging to or pertaining to the Company or other Southern Entities, other than "Trade Secrets" (as defined below), which is of tangible or intangible value to any of the Southern Entities and the details of which are not generally known to the competitors of the Southern Entities. Confidential Information shall also include: (A) any items that any of the Southern Entities have marked "CONFIDENTIAL" or some similar designation or are otherwise identified as being confidential; and (B) all non-public information known by or in the possession of Employee related to or regarding any proceedings involving or related to the Southern Affiliates before the Georgia Public Service Commission or other Entities. (iii) "Entity" or "Entities" shall mean any business, individual, partnership, joint venture, agency, governmental agency, body or subdivision, association, firm, corporation, limited liability company or other entity of any kind. (iv) "Territory" shall include the States of Georgia, Alabama, Mississippi or Florida. (v) "Trade Secrets" shall mean information or data of or about any of the Southern Entities, including, but not limited to, technical or non-technical data, formulas, patterns, compilations, programs, devices, methods, techniques, drawings, processes, financial data, financial plans, product plans or lists of actual or potential customers or suppliers that: (A) derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (B) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. The Employee agrees that trade secrets include non-public information related to the rate making process of the Southern Entities and any other information which is defined as a "trade secret" under applicable law. (vi) "Work Product" shall mean all tangible work product, property, data, documentation, "know-how," concepts or plans, inventions, improvements, techniques and processes relating to the Southern Entities that were conceived, discovered, created, written, revised or developed by Employee during the term of his employment with the Company. 8. Nondisclosure: Ownership of Proprietary Property. (a) In recognition of the need of the Company to protect its legitimate business interests, Confidential Information and Trade Secrets, Employee hereby covenants and agrees that Employee shall regard and treat Trade Secrets and all Confidential Information as strictly confidential and wholly-owned by the Company and shall not, for any reason, in any fashion, either directly or indirectly, use, sell, lend, lease, distribute, license, give, transfer, assign, show, disclose, disseminate, reproduce, copy, misappropriate or otherwise communicate any such item or information to any third party or Entity for any purpose other than in accordance with this Agreement or as required by applicable law: (i) with regard to each item constituting a Trade Secret, at all times such information remains a "trade secret" under applicable law, and (ii) with regard to any Confidential Information, for a period of three (3) years following the Termination Date (hereafter the "Restricted Period"). (b) Employee shall exercise best efforts to ensure the continued confidentiality of all Trade Secrets and Confidential Information, and he shall immediately notify the Company of any unauthorized disclosure or use of any Trade Secrets or Confidential Information of which Employee becomes aware. Employee shall assist the Company, to the extent necessary, in the protection of or procurement of any intellectual property protection or other rights in any of the Trade Secrets or Confidential Information. (c) All Work Product shall be owned exclusively by the Company. To the greatest extent possible, any Work Product shall be deemed to be "work made for hire" (as defined in the Copyright Act, 17 U.S.C.A. ss. 101 et seq., as amended), and Employee hereby unconditionally and irrevocably transfers and assigns to the Company all right, title and interest Employee currently has or may have by operation of law or otherwise in or to any Work Product, including, without limitation, all patents, copyrights, trademarks (and the goodwill associated therewith), trade secrets, service marks (and the goodwill associated therewith) and other intellectual property rights. Employee agrees to execute and deliver to the Company any transfers, assignments, documents or other instruments which the Company may deem necessary or appropriate, from time to time, to protect the rights granted herein or to vest complete title and ownership of any and all Work Product, and all associated intellectual property and other rights therein, exclusively in the Company. (d) Employee represents and agrees that he will keep all terms and provisions of this Agreement completely confidential, except for possible disclosures to his legal advisors or to the extent required by law, and Employee further agrees that he will not disclose the terms, provisions or information contained in or concerning this Agreement to anyone, including, but not limited to, any past, present, or prospective employee or applicant for employment with the Company. Employee agrees that he may only disclose to future, potential employers of Employee that he participates in a Separation Agreement with the Company which imposes certain restrictions on him. 9. Non-Interference With Employees. Employee covenants and agrees that during the Restricted Period he will not, either directly or indirectly, alone or in conjunction with any other person or Entity: (A) actively recruit, solicit, attempt to solicit, or induce any person who, during such Restricted Period, or within one year prior to the Termination Date, was an exempt employee of the Company or any of its subsidiaries, or was an officer of any of the other Southern Entities to leave or cease such employment for any reason whatsoever; or (B) hire or engage the services of any such person described in Paragraph 9(A) in any business substantially similar or competitive with that in which the Southern Entities were engaged during his employment. 10. Non-Interference With Customers. (a) Employee acknowledges that in the course of employment, he has learned about Company's business, services, materials, programs and products and the manner in which they are developed, marketed, serviced and provided. Employee knows and acknowledges that the Company has invested considerable time and money in developing its programs, agreements, offices, representatives, services, products and marketing techniques and that they are unique and original. Employee further acknowledges that the Company must keep secret all pertinent information divulged to Employee and Company's business concepts, ideas, programs, plans and processes, so as not to aid Company's competitors. Accordingly, Company is entitled to the following protection, which Employee agrees is reasonable: (b) Employee covenants and agrees that for a period of two (2) years following the Termination Date, he will not, on his own behalf or on behalf of any person or Entity, solicit, direct, appropriate, call upon, or initiate communication or contact with any person or entity or any representative of any person or entity, with whom Employee had contact during his employment, with a view toward the sale or the providing of any product, equipment or service sold or provided or under development by Company during the period of two (2) years immediately preceding the date of Employee's termination. The restrictions set forth in this section shall apply only to persons or entities with whom Employee had actual contact during the two (2) years prior to termination of employment with a view toward the sale or providing of any product, equipment or service sold or provided or under development by Company. 11. Non-Interference With Business. (a) Employee and Company expressly covenant and agree that the scope, territorial, time and other restrictions contained in this entire Agreement constitute the most reasonable and equitable restrictions possible to protect the business interest of the Company given: (i) the business of the Company; (ii) the competitive nature of the Company's industry; and (iii) that Employee's skills are such that he could easily find alternative, commensurate employment or consulting work in his field which would not violate any of the provisions of this Agreement. The Employee further acknowledges that the payments described in Paragraphs 2, 3 and 4 are also in consideration of his covenants and agreements contained in Paragraphs 7 through 11 hereof. (b) Employee covenants and agrees to not obtain or work in a Competitive Position within the Territory for a period of two (2) years from the Termination Date. 12. Return of Materials. Upon the Employee's termination, or at any point after that time upon the specific request of the Company, Employee shall return to the Company all written or descriptive materials of any kind belonging or relating to the Company or its affiliates, including, without limitation, any originals, copies and abstracts containing any Work Product, intellectual property, Confidential Information and Trade Secrets in Employee's possession or control. 13. Cooperation. The parties agree that as a result of Employee's duties and activities during his employment, Employee's reasonable availability may be necessary for the Company to meaningfully respond to or address actual or threatened litigation, or government inquiries or investigations, or required filings with state, federal or foreign agencies (hereinafter "Company Matters"). Upon request of the Company, and at any point following termination of employment, Employee will make himself available to the Company for reasonable periods consistent with his future employment, if any, by other Entities and will cooperate with its agents and attorneys as reasonably required by such Company Matters. The Company will reimburse Employee for any reasonable out-of-pocket expenses associated with providing such cooperation. 14. Termination with Cause. In the event of Employee's termination of employment for Cause at any time, the Employee shall forfeit the entire benefit provided in Paragraphs 2, 3 and 4 and the Company shall have no further obligations with respect to any amount under this Agreement. As used in this Agreement, the term "Cause" shall mean gross negligence or willful misconduct in the performance of the duties and services required in the course of employment by the Company; the final conviction of a felony or misdemeanor involving moral turpitude; the carrying out of any activity or the making of any statement which would prejudice the good name and standing of any of the Southern Entities or would bring any of the Southern Entities into contempt, ridicule or would reasonably shock or offend any community in which any of the Southern Entities is located; a material breach of the fiduciary obligations owed by an officer and an employee to any of the Southern Entities; or the Employee's unsatisfactory performance of the duties and services required by his or her employment. 15. Confidentiality and Legal Process. Employee represents and agrees that he will keep the terms, amount and fact of this Agreement confidential and that he will not hereafter disclose any information concerning this Agreement to any one other than his personal agents, including, but not limited to, any past, present, or prospective employee or applicant for employment with Company. Notwithstanding the foregoing, nothing in this Agreement is intended to prohibit Employee from performing any duty or obligation that shall arise as a matter of law. Specifically, Employee shall continue to be under a duty to truthfully respond to any legal and valid subpoena or other legal process. This Agreement is not intended in any way to proscribe Employee's right and ability to provide information to any federal, state or local government in the lawful exercise of such governments' governmental functions. 16. Successors And Assigns; Applicable Law. This Agreement shall be binding upon and inure to the benefit of Employee and his heirs, administrators, representatives, executors, successors and assigns, and shall be binding upon and inure to the benefit of the Company and its officers, directors, employees, agents, shareholders, parent corporation and affiliates, and their respective predecessors, successors, assigns, heirs, executors and administrators and each of them, and to their heirs, administrators, representatives, executors, successors and assigns. This Agreement shall be construed and interpreted in accordance with the laws of the State of Georgia, United States of America (without giving effect to principles of conflicts of laws). 17. Complete Agreement. This Agreement shall constitute the full and complete Agreement between the parties concerning its subject matter and fully supersedes any and all other prior Agreements or understandings between the parties concerning the subject matter hereof. This Agreement shall not be modified or amended except by a written instrument signed by both Employee and an authorized representative of the Company. 18. Severability. The unenforceability or invalidity of any particular provision of this Agreement shall not affect its other provisions, and to the extent necessary to give such other provisions effect, they shall be deemed severable. The judicial body interpreting this Agreement shall be authorized and instructed to rewrite any of the sections which are enforceable as written in such a fashion so that they may be enforced to the greatest extent legally possible. Employee acknowledges and agrees that the covenants and agreements contained in this Agreement, including, without limitation, the covenants and agreements contained in Paragraphs 7, 8, 9, 10 and 11, shall be construed as covenants and agreements independent of each other or any other contract between the parties hereto and that the existence of any claim or cause of action by Employee against Company, whether predicted upon this Agreement or any other contract, shall not constitute a defense to the enforcement by Company of said covenants and agreements. 19. Waiver Of Breach; Specific Performance. The waiver of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other breach. Each of the parties to this Agreement will be entitled to enforce its or his rights under this Agreement, specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in its or his favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its or his sole discretion apply to any court of law or equity of competent jurisdiction for specific performance or injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement. 20. Unsecured General Creditor. The Company shall neither reserve nor specifically set aside funds for the payment of its obligations under this Agreement, and such obligations shall be paid solely from the general assets of the Company. Notwithstanding that Employee may be entitled to receive the value of his benefit under the terms and conditions of this Agreement, the assets from which such amount may be paid shall at all times be subject to the claims of the Company's creditors. 21. No Effect On Other Arrangements. It is expressly understood and agreed that the payments made in accordance with this Agreement are in addition to any other benefits or compensation to which Employee may be entitled or for which he may be eligible, whether funded or unfunded, by reason of his employment with the Company. 22. Tax Withholding. There shall be deducted from each payment under this Agreement the amount of any tax required by any governmental authority to be withheld and paid over by the Company to such governmental authority for the account of Employee. 23. Compensation. Any compensation contributed on behalf of Employee under this Agreement shall not be considered "compensation," as the term is defined in The Southern Company Employee Savings Plan, The Southern Company Employee Stock Ownership Plan, The Southern Company Performance Sharing Plan or The Southern Company Pension Plan. Payments under this Agreement shall not be considered wages, salaries or compensation under any other employee benefit plan. 24. No Guarantee of Employment. No provision of this Agreement shall be construed to affect in any manner the existing rights of the Company to suspend, terminate, alter, modify, whether or not for cause, the employment relationship of Employee and the Company. 25. Interpretation. The judicial body interpreting this Agreement shall not more strictly construe the terms of this Agreement against one party, it being agreed that both parties and/or their attorneys or agents have negotiated and participated in the preparation hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement, this ___ day of ________________, ------. "COMPANY" GEORGIA POWER COMPANY By: -------------------------- Its: -------------------------- "EMPLOYEE" FRED D. WILLIAMS SCHEDULE "A" MONTHLY BENEFIT PAYMENTS FROM TERMINATION DATE TO ATTAINMENT OF AGE 62 The Schedule "A" sum shall equal the "Replacement Benefit" plus the "Social Security Bridge Benefit" as such terms are defined below. REPLACEMENT BENEFIT "Replacement Benefit" shall mean an amount equal to the monthly Early Retirement Reduction Percentage of Employee's Accrued Retirement Income under the Pension Plan (determined without regard to the limitations described under Sections 401(a)(17), 415(b) or 415(e) of the Internal Revenue Code of 1986 ("Code")), adjusted to reflect the Provisional Payee's option selected or deemed selected under the Pension Plan, plus an amount equal to the reduction of the Employee's monthly SERP Benefit under Section 5.1 (a)(1) of The Southern Company Supplemental Retirement Plan, effective January 1, 1997, for commencement of benefits prior to Employee's Normal Retirement Date under the Pension Plan. SOCIAL SECURITY BRIDGE BENEFIT "Social Security Bridge Benefit" shall mean the monthly Social Security benefit the Employee would become entitled to beginning at age sixty-five (65) based upon the Social Security law in effect for the year of his termination and his Southern Company System Social Security earnings through his Termination Date. SCHEDULE "B" MONTHLY BENEFIT PAYMENTS FROM DATE OF ATTAINMENT OF AGE 62 TO DATE OF DEATH REPLACEMENT BENEFIT The Schedule "B" amount shall equal the amount of the Replacement Benefit as such term is defined on Schedule "A" adjusted to reflect the Provisional Payee option selected or deemed selected by Employee under the Pension Plan. SCHEDULE "C" PROVISIONAL PAYEE'S CONTRACTUAL MONTHLY BENEFIT IN THE EVENT OF EMPLOYEE'S DEATH BENEFITS PRIOR TO THE DATE EMPLOYEE WOULD HAVE ATTAINTED THE AGE OF 62 The Schedule "C" sum shall equal the Replacement Benefit plus the Social Security Bridge Benefit as such terms are defined below. REPLACEMENT BENEFIT If Employee elects a Provisional Payee option or is deemed to do so under the Pension Plan, Replacement Benefit shall mean an amount equal to the Early Retirement Reduction Percentage of Employee's Accrued Retirement Income (determined without regard to the limitations imposed by Sections 401(a)(17), 415(b), or 415(e) of the Code)) adjusted to reflect the Provisional Payee's Option selected or deemed selected under the Pension Plan, plus an amount equal to the reduction of the Employee's monthly SERP Benefit under Section 5.1(a)(1) of The Southern Company Supplemental Retirement Plan, effective January 1, 1997, for commencement of benefits prior to Employee's Normal Retirement Date under the Pension Plan, adjusted to reflect the Provisional Payee option selected or deemed selected by Employee on the same basis as the benefit payable to a Provisional Payee is adjusted pursuant to the Pension Plan. In addition, if Employee does not elect or is not deemed to elect a Provisional Payee option, the Replacement Benefit amount shall equal $-0- for purposes of this Schedule. SOCIAL SECURITY BRIDGE BENEFIT Social Security Bridge Benefit shall mean, if Employee elects a Provisional Payee option under the Pension Plan, the Social Security Bridge Amount as such amount is defined on Schedule "A". If Employee does not elect or is not deemed to elect a Provisional Payee option under the Pension Plan, the Social Security Bridge Benefit amount shall equal $-0- for purposes of this Schedule. SCHEDULE "D" PROVISIONAL PAYEE'S CONTRACTUAL MONTHLY BENEFIT IN THE EVENT OF EMPLOYEE'S DEATH BENEFITS AFTER THE DATE EMPLOYEE WOULD HAVE ATTAINTED THE AGE OF 62 The Schedule "D" amount shall equal the Replacement Benefit as such term is defined in Schedule "C". EXHIBIT 1 to Separation Agreement with Fred D. Williams RELEASE AGREEMENT THIS RELEASE ("Release") is made and entered into by and between FRED D. WILLIAMS ("Employee") and GEORGIA POWER COMPANY, and its successor or assigns ("Company"). WHEREAS, Employee and Company have agreed that Employee's employment with Georgia Power Company shall terminate on April 30, 2002; WHEREAS, Employee and the Company have previously entered into that certain Separation Agreement, dated _________________, ______ ("Agreement"), that this Release is incorporated therein by reference; WHEREAS, Employee and Company desire to delineate their respective rights, duties and obligations attendant to such termination and desire to reach an accord and satisfaction of all claims arising from Employee's employment, and his termination of employment, with appropriate releases, in accordance with the Agreement; WHEREAS, the Company desires to compensate Employee in accordance with the Agreement for service he has or will provide for the Company; NOW, THEREFORE, in consideration of the premises and the agreements of the parties set forth in this Release, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: 1. Release. Employee does hereby remise, release and forever discharge the Company and its officers, directors, employees, agents, shareholders, parent corporation and affiliates, and their respective predecessors, successors, assigns, heirs, executors and administrators (collectively, "Releasees"), of and from all manner of actions and causes of action, suits, debts, claims and demands whatsoever at law or in equity, known or unknown, actual or contingent, including, but not limited to, any claims which have been asserted, or could be asserted now or in the future, against any Releasees arising under any and all federal, state or local laws and any common law claims, and including, but not limited to, any claims Employee may have pursuant to the Age Discrimination in Employment Act and any claims to benefits under any and all offer letters, employment or separation agreements, or bonus, severance, workforce reduction, early retirement, out-placement, or other similar plans sponsored by the Company, now or hereafter recognized (collectively, "Claims"), which he ever had or now has or may in the future have, by reason of any matter, cause or thing arising out of his employment relationship and privileges, his serving as an employee of the Company or the separation from his employment relationship or affiliation as an employee of the Company as of the date of this Release against each of the Releasees. Notwithstanding the foregoing, Employee does not release any Claims under the Age Discrimination in Employment Act that may arise after his execution of this Release. 2. No Assignment of Claim. Employee represents that he has not assigned or transferred, or purported to assign or transfer, any Claims or any portion thereof or interest therein to any party prior to the date of this Release. 3. Compensation. In accordance with the Separation Agreement, the Company agrees to pay the Employee, his spouse or his estate, as the case may be, the amounts provided in Paragraphs 2, 3 and 4 of the Agreement. 4. No Admission Of Liability. This Release shall not in any way be construed as an admission by the Company or Employee of any improper actions or liability whatsoever as to one another, and each specifically disclaims any liability to or improper actions against the other or any other person, on the part of itself or himself, its or his employees or agents. 5. Voluntary Execution. Employee warrants, represents and agrees that he has been encouraged in writing to seek advice from anyone of his choosing regarding this Release, including his attorney and accountant or tax advisor prior to his signing it; that this Release represents written notice to do so; that he has been given the opportunity and sufficient time to seek such advice; and that he fully understands the meaning and contents of this Release. He further represents and warrants that he was not coerced, threatened or otherwise forced to sign this Release, and that his signature appearing hereinafter is voluntary and genuine. EMPLOYEE UNDERSTANDS THAT HE MAY TAKE UP TO TWENTY-ONE (21) DAYS TO CONSIDER WHETHER OR NOT HE DESIRES TO ENTER INTO THIS RELEASE. 6. Ability to Revoke Agreement. EMPLOYEE UNDERSTANDS THAT HE MAY REVOKE THIS RELEASE BY NOTIFYING THE COMPANY IN WRITING OF SUCH REVOCATION WITHIN SEVEN (7) DAYS OF HIS EXECUTION OF THIS RELEASE AND THAT THIS RELEASE IS NOT EFFECTIVE UNTIL THE EXPIRATION OF SUCH SEVEN (7) DAY PERIOD. HE UNDERSTANDS THAT UPON THE EXPIRATION OF SUCH SEVEN (7) DAY PERIOD THIS RELEASE WILL BE BINDING UPON HIM AND HIS HEIRS, ADMINISTRATORS, REPRESENTATIVES, EXECUTORS, SUCCESSORS AND ASSIGNS AND WILL BE IRREVOCABLE. Acknowledged and Agreed To: "COMPANY" GEORGIA POWER COMPANY By: ------------------------- Its: ------------------------- I UNDERSTAND THAT BY SIGNING THIS RELEASE, I AM GIVING UP RIGHTS I MAY HAVE. I UNDERSTAND THAT I DO NOT HAVE TO SIGN THIS RELEASE. "EMPLOYEE" FRED D. WILLIAMS Date_____ _________ WITNESSED BY: - -------------------------------------------- - -------------------------------------------- Date EX-24 21 x24a.txt POWER OF ATTORNEY Exhibit 24(a) February 18, 2002 Tommy Chisholm, and Wayne Boston Dear Sirs: The Southern Company proposes to file or join in the filing of reports under the Securities Exchange Act of 1934, as amended, with the Securities and Exchange Commission with respect to the following: (1) the filing of this Company's Annual Report on Form 10-K for the year ended December 31, 2001 and (2) the filing of Quarterly Reports on Form 10-Q during 2002 and any Current Reports on Form 8-K. The Southern Company and the undersigned directors and officers of said Company, individually as a director and/or as an officer of the Company, hereby make, constitute and appoint each of you our true and lawful Attorney for each of us and in each of our names, places and steads to sign and cause to be filed with the Securities and Exchange Commission in connection with the foregoing said Annual Report on Form 10-K, said Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any necessary or appropriate amendment or amendments to any such reports, to be accompanied in each case by any necessary or appropriate exhibits or schedules thereto. Yours very truly, THE SOUTHERN COMPANY By /s/H. Allen Franklin H. Allen Franklin Chairman of the Board, President and Chief Executive Officer - 2 - /s/Daniel P. Amos /s/Zack T. Pate Daniel P. Amos Zack T. Pate /s/Dorrit J. Bern /s/Gerald J. St. Pe' Dorrit J. Bern Gerald J. St. Pe' /s/Thomas F. Chapman /s/G. Edison Holland, Jr. Thomas F. Chapman G. Edison Holland, Jr. /s/H. Allen Franklin /s/Gale E. Klappa H. Allen Franklin Gale E. Klappa /s/Tommy Chisholm /s/Bruce S. Gordon Tommy Chisholm Bruce S. Gordon /s/L. G. Hardman III L. G. Hardman III /s/W. Dean Hudson W. Dean Hudson /s/Donald M. James Donald M. James Extract from minutes of meeting of the board of directors of The Southern Company. - - - - - - - - - - RESOLVED: That for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 2001, 2002 Form 10-Q's and Form 8-K's and any necessary or appropriate amendment or amendments to any such reports, this Company, the members of its board of directors, and its officers, are authorized to give their several powers of attorney to Tommy Chisholm and Wayne Boston. - - - - - - - - - - The undersigned officer of The Southern Company does hereby certify that the foregoing is a true and correct copy of a resolution duly and regularly adopted at a meeting of the board of directors of The Southern Company, duly held on February 18, 2002, at which a quorum was in attendance and voting throughout, and that said resolution has not since been rescinded but is still in full force and effect. Dated March 25, 2002 THE SOUTHERN COMPANY By /s/Tommy Chisholm Tommy Chisholm Secretary EX-24 22 x24b.txt POWER OF ATTORNEY Exhibit 24(b) Alabama Power Company 600 North 18th Street Birmingham, Alabama 35291 January 25, 2002 Gale E. Klappa Wayne Boston 270 Peachtree Street, N.W. 241 Ralph McGill Blvd. NE Atlanta, Georgia 30303 Atlanta, Georgia 30308-3374 Dear Sirs: Alabama Power Company proposes to file with the Securities and Exchange Commission, under the Securities Exchange Act of 1934, (1) its Annual Report on Form 10-K for the year ended December 31, 2001, and (2) its quarterly reports on Form 10-Q during 2002. Alabama Power Company and the undersigned directors and officers of said Company, individually as a director and/or as an officer of the Company, hereby make, constitute and appoint Gale E. Klappa and Wayne Boston our true and lawful Attorneys for each of us and in each of our names, places and steads to sign and cause to be filed with the Securities and Exchange Commission in connection with the foregoing said Annual Report on Form 10-K, quarterly reports on Form 10-Q, and any appropriate amendment or amendments thereto and any necessary exhibits. Yours very truly, ALABAMA POWER COMPANY By /s/Charles D. McCrary Charles D. McCrary President and Chief Executive Officer - 2 - /s/Whit Armstrong /s/Mayer Mitchell Whit Armstrong Mayer Mitchell /s/David J. Cooper /s/William V. Muse David J. Cooper William V. Muse /s/H. Allen Franklin /s/Robert D. Powers H. Allen Franklin Robert D. Powers /s/R. Kent Henslee ______________________________ R. Kent Henslee Andreas Renschler ______________________________ /s/C. Dowd Ritter Carl E. Jones, Jr C. Dowd Ritter /s/Patricia M. King /s/James H. Sanford Patricia M. King James H. Sanford /s/James K. Lowder /s/John Cox Webb, IV James K. Lowder John Cox Webb, IV /s/Wallace D. Malone, Jr. /s/James W. Wright Wallace D. Malone, Jr. James W. Wright /s/Charles D. McCrary /s/William B. Hutchins, III Charles D. McCrary William B. Hutchins, III /s/Thomas C. Meredith /s/Art P. Beattie Thomas C. Meredith Art P. Beattie Extract from minutes of meeting of the board of directors of Alabama Power Company. - - - - - - - - - - RESOLVED: That for the purpose of signing and filing with the Securities and Exchange Commission under the Securities Exchange Act of 1934, Alabama Power Company's annual report on Form 10-K for the year ended December 31, 2001, and its 2002 quarterly reports on Form 10-Q, and of remedying any deficiencies with respect thereto by appropriate amendment or amendments, Alabama Power Company, the members of its Board of Directors, and its officers are authorized to give their several powers of attorney to Gale E. Klappa and Wayne Boston, in substantially the form of power of attorney presented to this meeting. - - - - - - - - - - The undersigned officer of Alabama Power Company does hereby certify that the foregoing is a true and correct copy of resolution duly and regularly adopted at a meeting of the board of directors of Alabama Power Company, duly held on January 25, 2002, at which a quorum was in attendance and voting throughout, and that said resolution has not since been rescinded but is still in full force and effect. Dated March 25, 2002 ALABAMA POWER COMPANY By /s/Wayne Boston Wayne Boston Assistant Secretary EX-24 23 x24c.txt POWER OF ATTORNEY Exhibit 24(c) February 20, 2002 Thomas A. Fanning, Gale Klappa and Wayne Boston Dear Sirs: Georgia Power Company proposes to file or join in the filing of reports under the Securities Exchange Act of 1934 with the Securities and Exchange Commission with respect to the following: (1) the filing of its Annual Report on Form 10-K for the year ended December 31, 2001, and (2) the filing of its quarterly reports on Form 10-Q during 2002. Georgia Power Company and the undersigned directors and officers of said Company, individually as a director and/or as an officer of the Company, hereby make, constitute and appoint each of you our true and lawful Attorney for each of us and in each of our names, places and steads to sign and cause to be filed with the Securities and Exchange Commission in connection with the foregoing said Annual Report on Form 10-K, quarterly reports on Form 10-Q and any appropriate amendment or amendments thereto and any necessary exhibits. Yours very truly, GEORGIA POWER COMPANY By /s/David M. Ratcliffe David M. Ratcliffe President and Chief Executive Officer - 2 - /s/Juanita P. Baranco /s/Richard W. Ussery Juanita P. Baranco Richard W. Ussery /s/Anna R. Cablik /s/William Jerry Vereen Anna R. Cablik William Jerry Vereen /s/William A. Fickling, Jr. /s/Carl Ware William A. Fickling, Jr. Carl Ware /s/H. Allen Franklin /s/E. Jenner Wood, III H. Allen Franklin E. Jenner Wood, III /s/L. G. Hardman III /s/Thomas A. Fanning L. G. Hardman III Thomas A. Fanning /s/James R. Lientz, Jr. /s/Cliff S. Thrasher James R. Lientz, Jr. Cliff S. Thrasher ______________________________ /s/Janice G. Wolfe G. Joseph Prendergast Janice G. Wolfe /s/David M. Ratcliffe David M. Ratcliffe Extract from minutes of meeting of the board of directors of Georgia Power Company. - - - - - - - - - - RESOLVED: That for the purpose of signing reports under the Securities Exchange Act of 1934 to be filed with the Securities and Exchange Commission with respect to (a) the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2001, and (b) quarterly filings on Form 10-Q during 2002; and of remedying any deficiencies with respect thereto by appropriate amendment or amendments, this Company and the members of its Board of Directors authorize their several powers of attorney to Thomas A. Fanning, Gale E. Klappa and Wayne Boston. - - - - - - - - - - The undersigned officer of Georgia Power Company does hereby certify that the foregoing is a true and correct copy of resolution duly and regularly adopted at a meeting of the board of directors of Georgia Power Company, duly held on February 20, 2002, at which a quorum was in attendance and voting throughout, and that said resolution has not since been rescinded but is still in full force and effect. Dated March 25, 2002 GEORGIA POWER COMPANY By /s/Wayne Boston Wayne Boston Assistant Secretary EX-24 24 x24d.txt POWER OF ATTORNEY Exhibit 24(d) Gulf Power Company One Energy Place Pensacola, Florida 32520 February 20, 2002 Mr. Gale E. Klappa Mr. Wayne Boston The Southern Company Southern Company Services, Inc. 270 Peachtree Street, N.W. 241 Ralph McGill Blvd. NE Atlanta GA 30303 Atlanta GA 30308-3374 Dear Sirs: Re: Forms 10-K and 10-Q Gulf Power Company proposes to file or join in the filing of reports under the Securities Exchange Act of 1934 with the Securities and Exchange Commission with respect to the following: (1) its Annual Report on Form 10-K for the year ended December 31, 2001, and (2) its 2002 quarterly reports on Form 10-Q. Gulf Power Company and the undersigned Directors and Officers of said Company, individually as a Director and/or as an Officer of the Company, hereby make, constitute and appoint each of you our true and lawful Attorney for each of us and in each of our names, places and steads to sign and cause to be filed with the Securities and Exchange Commission in connection with the foregoing said Annual Report on Form 10-K, quarterly reports on Form 10-Q and any appropriate amendment or amendments thereto and any necessary exhibits. Sincerely, By /s/Travis J. Bowden Travis J. Bowden President and Chief Executive Officer - 2 - /s/C. LeDon Anchors /s/W. D. Hull, Jr. C. LeDon Anchors W. D. Hull, Jr. /s/Travis J. Bowden /s/William A. Pullum Travis J. Bowden William A. Pullum /s/Fred C. Donovan /s/Ronnie R. Labrato Fred C. Donovan Ronnie R. Labrato /s/H. Allen Franklin /s/Warren E. Tate H. Allen Franklin Warren E. Tate /s/Joseph K. Tannehill Joseph K. Tannehill Extract from minutes of meeting of the board of directors of Gulf Power Company. - - - - - - - - - - RESOLVED, That for the purpose of signing the reports under the Securities Exchange Act of 1934 to be filed with the Securities and Exchange Commission with respect to the filing of this Company's Annual Report on Form 10-K for the year ended December 31, 2001, and its 2002 quarterly reports on Form 10-Q, and of remedying any deficiencies with respect thereto by appropriate amendment or amendments, this Company, the members of its Board of Directors, and its Officers, are authorized to give their several powers of attorney to Gale E. Klappa and Wayne Boston. - - - - - - - - - - The undersigned officer of Gulf Power Company does hereby certify that the foregoing is a true and correct copy of resolution duly and regularly adopted at a meeting of the board of directors of Gulf Power Company, duly held on February 20, 2002, at which a quorum was in attendance and voting throughout, and that said resolution has not since been rescinded but is still in full force and effect. Dated March 25, 2002 GULF POWER COMPANY By /s/Wayne Boston Wayne Boston Assistant Secretary EX-24 25 x24e.txt POWER OF ATTORNEY Exhibit 24(e) February 27, 2002 Gale E. Klappa and Wayne Boston Dear Sirs: Mississippi Power Company proposes to file or join in the filing of reports under the Securities Exchange Act of 1934 with the Securities and Exchange Commission with respect to the following: (1) the filing of its Annual Report on Form 10-K for the year ended December 31, 2001, and (2) the filing of its quarterly reports on Form 10-Q during 2002. Mississippi Power Company and the undersigned directors and officers of said Company, individually as a director and/or as an officer of the Company, hereby make, constitute and appoint each of you our true and lawful Attorney for each of us and in each of our names, places and steads to sign and cause to be filed with the Securities and Exchange Commission in connection with the foregoing said Annual Report on Form 10-K, quarterly reports on Form 10-Q and any appropriate amendment or amendments thereto and any necessary exhibits. Yours very truly, MISSISSIPPI POWER COMPANY By /s/ Michael D. Garrett Michael D. Garrett President and Chief Executive Officer - 2 - /s/Tommy E. Dulaney ______________________________ Tommy E. Dulaney Philip J. Terrell /s/Michael D. Garrett /s/Gene Warr Michael D. Garrett Gene Warr ________________________ /s/Michael W. Southern Linda T. Howard Michael W. Southern /s/Aubrey K. Lucas /s/Frances V. Turnage Aubrey K. Lucas Frances V. Turnage /s/Malcolm Portera /s/Vicki L. Pierce Malcolm Portera Vicki L. Pierce /s/George A. Schloegel George A. Schloegel Extract from minutes of meeting of the board of directors of Mississippi Power Company. - - - - - - - - - - RESOLVED: That this Company, the members of this Company's Board of Directors and its officers are authorized to give their several powers of attorney to Gale E. Klappa and Wayne Boston for the purpose of signing the reports under the Securities Exchange Act of 1934 to be filed with the Securities and Exchange Commission with respect to the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2001, and the filing of this Company's quarterly reports to the Securities and Exchange Commission on Form 10-Q for the year 2002. - - - - - - - - - - The undersigned officer of Mississippi Power Company does hereby certify that the foregoing is a true and correct copy of resolution duly and regularly adopted at a meeting of the board of directors of Mississippi Power Company, duly held on February 27, 2002, at which a quorum was in attendance and voting throughout, and that said resolution has not since been rescinded but is still in full force and effect. Dated March 25, 2002 MISSISSIPPI POWER COMPANY By /s/Wayne Boston Wayne Boston Assistant Secretary EX-24 26 x24f.txt POWER OF ATTORNEY Exhibit 24(f) February 28, 2002 Gale E. Klappa and Wayne Boston Dear Sirs: Savannah Electric and Power Company proposes to file with the Securities and Exchange Commission, under the Securities Exchange Act of 1934, (1) its Annual Report on Form 10-K for the year ended December 31, 2001, and (2) its quarterly reports on Form 10-Q during 2002. Savannah Electric and Power Company and the undersigned directors and officers of said Company, individually as a director and/or as an officer of the Company, hereby make, constitute and appoint Gale E. Klappa and Wayne Boston our true and lawful Attorneys for each of us and in each of our names, places and steads to sign and cause to be filed with the Securities and Exchange Commission in connection with the foregoing said Annual Report on Form 10-K, quarterly reports on Form 10-Q, and any appropriate amendment or amendments thereto and any necessary exhibits. Yours very truly, SAVANNAH ELECTRIC AND POWER COMPANY By /s/Anthony R. James Anthony R. James President and Chief Executive Officer - 2 - /s/Gus H. Bell III /s/Robert B. Miller III Gus H. Bell III Robert B. Miller III /s/Anthony R. James /s/Arnold M. Tenenbaum Anthony R. James Arnold M. Tenenbaum /s/Archie H. Davis /s/K. R. Willis Archie H. Davis K. R. Willis /s/Walter D. Gnann /s/Nancy E. Frankenhauser Walter D. Gnann Nancy E. Frankenhauser Extract from minutes of meeting of the board of directors of Savannah Electric and Power Company. - - - - - - - - - - RESOLVED: That for the purpose of signing reports required to be filed by the Company under the Securities Exchange Act of 1934 to be filed with the Securities and Exchange Commission including (a) the filing of this Company's Annual Report on Form 10-K for the year ended December 31, 2001, and (b) quarterly reports on Form 10-Q during calendar year 2002; and of remedying any deficiencies with respect thereto by appropriate amendment or amendments, this Company and the members of its Board of Directors, and its officers, be and they are hereby authorized to give their several powers of attorney to Gale E. Klappa and Wayne Boston for the purposes set out above. - - - - - - - - - - The undersigned officer of Savannah Electric and Power Company does hereby certify that the foregoing is a true and correct copy of resolution duly and regularly adopted at a meeting of the board of directors of Savannah Electric and Power Company, duly held on February 28, 2002, at which a quorum was in attendance and voting throughout, and that said resolution has not since been rescinded but is still in full force and effect. Dated March 25, 2002 SAVANNAH ELECTRIC AND POWER COMPANY By /s/Wayne Boston Wayne Boston Assistant Secretary -----END PRIVACY-ENHANCED MESSAGE-----