-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, aVBFDTygmFeJuExJRuD5FbT8wxMd0SfkjAhJDn7iasmNzSgbTgl9Dr/Nj3mLmlL0 WmowLAq1PIBJjNUsaDiMXQ== 0000092122-94-000036.txt : 19940509 0000092122-94-000036.hdr.sgml : 19940509 ACCESSION NUMBER: 0000092122-94-000036 CONFORMED SUBMISSION TYPE: U-1/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19940506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN CO CENTRAL INDEX KEY: 0000092122 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 580690070 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: U-1/A SEC ACT: 1935 Act SEC FILE NUMBER: 070-08173 FILM NUMBER: 94526360 BUSINESS ADDRESS: STREET 1: 64 PERIMETER CTR EAST CITY: ATLANTA STATE: GA ZIP: 30346 BUSINESS PHONE: 4043930650 U-1/A 1 AMENDMENT NO. 1 TO FORM U-1 File No. 70-8173 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Amendment No. 1 Form U-1 APPLICATION OR DECLARATION under The Public Utility Holding Company Act of 1935 THE SOUTHERN COMPANY 64 Perimeter Center East Atlanta, Georgia 30346 THE SOUTHERN DEVELOPMENT AND INVESTMENT GROUP, INC. 64 Perimeter Center East Atlanta, Georgia 30346 (Name of company or companies filing this statement and addresses of principal executive offices) THE SOUTHERN COMPANY (Name of top registered holding company parent of each applicant or declarant) Tommy Chisholm, Secretary The Southern Company 64 Perimeter Center East Atlanta, Georgia 30346 (Name and address of agent for service) The Commission is requested to mail signed copies of all orders, notices and communications to: W.L. Westbrook John F. Young Financial Vice President Vice President The Southern Company Southern Company Services, Inc. 64 Perimeter Center East One Wall Street, 42nd Floor Atlanta, Georgia 30346 New York, New York 10005 John D. McLanahan, Esq. Troutman Sanders 600 Peachtree Street, N.E. Suite 5200 NationsBank Plaza Atlanta, Georgia 30308-2216 INFORMATION REQUIRED The Application or Declaration as filed in this proceeding is amended and restated in its entirety as follows: Item 1. Description of Proposed Transactions. 1.1 Background. The Southern Company ("Southern") is a registered holding company under the Public Utility Holding Company Act of 1935 (the "Act"). Among its subsidiaries are Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company and Savannah Electric and Power Company, each conducting in its respective service area the business of an operating electric utility company (collectively, the "Operating Companies"), and Southern Company Services, Inc. ("Services"), a subsidiary service company. Southern also owns all of the common stock of two non- utility subsidiaries, Southern Electric International, Inc. ("SEI") and The Southern Development and Investment Group, Inc. ("Development"). In accordance with its original authorization (Holding Company Act Release Nos. 22132 and 22315A, dated July 17 and December, 18, 1981, respectively) (the "Original SEI Orders"), SEI provides technical services to industrial and commercial concerns, unaffiliated utilities and foreign governments in both domestic and international markets, and markets "Intellectual Property" (as defined in such orders), acquired or created by Southern System companies to unaffiliated third parties. Pursuant to authorization granted in 1987, SEI -1- also engages in the development of independent power projects, including investments therein, and provides construction, operating and other services to associate project entities (Holding Company Act Release No. 24476, dated October 20, 1987) (the "1987 Order"). In accordance with its original authorization (Holding Company Act Release No. 23440, dated October 1, 1984) (the "1984 Order"), Development (formerly Southern Investments Group, Inc.) engages in the preliminary study, investigation, research and development of new business or investment opportunities and the direction, coordination and conduct of such activities. Under the 1984 Order, Southern was also authorized to purchase up to 75,000 shares of the outstanding common stock of Integrated Communications Systems, Inc. ("ICS"), a company that was organized for the purpose of financing and developing computer software and hardware for a two-way communications system over local telephone lines with a capability of providing a wide range of energy-related services in the residential and small commercial markets. As a part of a plan to reorganize and redirect the focus of certain of Southern's non-utility business activities along functional lines, Southern and SEI are proposing in a separate proceeding to restate SEI's operational and financing authority. (See File No. 70-7932). Generally, it is proposed that SEI's businesses will be limited to domestic and foreign power project development activities, including making investments therein, rendering services related to such activities, and to certain -2- other related activities. It is proposed in this proceeding that certain businesses and activities currently conducted by SEI pursuant to the Original SEI Orders will be assumed by Development, and that, in conjunction therewith, the operational and financing authority of Development will also be restated in its entirety in order to include other new activities and business functions in which neither SEI nor Development is currently engaged. 1.2 Summary of Requested Authorization. In this Application, Southern and Development are requesting authority for Development to engage in the following activities and businesses: a. Research and Development Activities b. Commercialization of and Investments in POWERcall(TM) Technology c. Investments in a Prototype Energy Management System d. Providing Other Energy Management and Efficiency Services e. Technical Consulting Activities f. Licensing of Intellectual Property to Non-Affiliates g. Development of/Investments in Energy Recovery Facilities In connection with the foregoing activities and businesses, Southern is proposing herein to make additional investments in Development of up to $275 million from time to time through December 31, 1998. Such additional investments are required for the following purposes: (i) to enable Development to develop, construct, and acquire the energy management prototype network -3- described below; (ii) to fund the estimated costs of commercializing the POWERcall(TM) technology; (iii) to finance the costs of equipment and/or provide customer financing of equipment in connection with energy management and efficiency services provided by Development; (iv) to pay predevelopment costs associated with potential investments in other energy management facilities and energy recovery facilities, as described below; and (v) to provide Development with necessary working capital in connection with its research and development and technical consulting activities, as well as to pay other general and administrative expenses. It is proposed that the Commission's order approving the transactions proposed in this Application replace and supersede the authority heretofore granted in the 1984 Order and relevant portions of the Original SEI Orders. 1.3 Development's Proposed Business Activities. (a) Research and Development. It is proposed herein that Development will continue to engage in the activities authorized under the 1984 Order, namely, the preliminary study, investigation, research and development of new business or investment opportunities and the direction, coordination and conduct of such activities. The kinds of new business opportunities that Development will explore may include, among others, new ventures utilizing new communications technologies, including but not limited to continuing efforts to develop the ICS system and new technologies and equipment related to the efficient use, conservation, production, transmission and -4- distribution of energy. Development is now studying and being called upon by associate companies in the Southern System to support preliminary evaluation and development activities relating to several technologies, such as computerized utility information systems, remote meter reading, power usage monitoring and other rapidly developing technologies. For example, Development has participated in a pilot test to determine the commercial potential for a utility customer service, referred to as POWERcall(TM), which would involve the installation of a device at a customer's premises which would monitor and automatically report power outages to a utility's operations center. This pilot test is now underway in two localities in Alabama Power Company's Birmingham service division, and was designed and implemented with a view to determining the capabilities and limitations of the equipment and associated software and the potential for POWERcall(TM), by itself or in combination with other features, as a commercial venture. The POWERcall(TM) technology and Development's proposal to make certain investments therein to commercialize it are discussed in greater detail in Item 1.3(b), below. Development is also continuing to study and test numerous potential business opportunities, particularly in the areas of communications, load management, and information systems. Specifically, Development will continue to fund research and development of remote meter reading technologies and communications modes which facilitate utility-related -5- technologies, energy efficiency, conservation and demand reduction technologies, and uses of optical fiber cables. Ultimately, it is Southern's intention to concentrate in Development all of the new business research and development activities of the Southern System companies in these areas. Among its activities in this area, Development will continue to monitor the progress of ICS and its system, as well as inventions competitive therewith. Advancements in technology call for continuing evaluation. As an example, the ICS system may work in conjunction with a variety of thermostats useful in home heating. Thus, Development must constantly evaluate new generations of thermostats that become available. In addition, an ICS-like system may be useful in connection with remote or automated meter reading. In consequence, Development has been called upon from time to time to participate in the evaluation of a wide range of remote or automated meter reading devices, in some cases in connection with local telephone companies that have systems which are complementary to, or exclusive of, the ICS system, and in other instances in connection with radio or wireless control automated meter reading devices, or technologies which incorporate use of fiber optic connections. Development has also studied solutions utilizing radio in conjunction with vehicles traveling along the streets. Another question relating to the ICS-type system is the extent to which advancements in communications technologies will or are likely to affect the potential use or obsolescence of the twisted pair copper wire telephone system now in place, the -6- potential use of fiber optics for communication in conjunction with the ICS system or comparable technologies, or the use of satellite or radio technologies. All of these are the subject of continuous development, frequent new proposals to Southern, and the need for coordinated study and evaluation. Development has also participated in the development of a computer software program known as Enerlink, which would enable consumers of electric energy to monitor time-of-use pricing of electricity and plan their operations based upon time-of-use pricing. SEI is currently attempting to license this energy optimization program to some commercial accounts within the Southern System, and has licensed the program to Boston Edison for use in a test to evaluate its efficacy and market acceptance. It is anticipated that Enerlink will prove commercially viable and will become the basis of a commercial venture to be undertaken by Development. The software may also be licensed to third parties as Intellectual Property in accordance with the proposed authorization of Development discussed in Item 1.3(f) hereof. Development is also evaluating a variety of other new and existing communications technologies for possible use in utility related applications. For example, it has examined and considered competing equipment and systems for radio communications in the 800 MHz band, as well as a variety of devices that would enhance the use of fiber optic and coaxial cables, such as technologies developed or in the process of development by First Pacific Networks, AT&T, BellSouth and -7- Scientific Atlanta, as examples. Finally, Development is examining and conducting investigation and research with respect to the potential use of waste as fuels (biomass) and technologies associated therewith. (b) Commercialization of POWERcall(TM) The device that has been utilized in the POWERcall(TM) pilot test in the Birmingham area, as discussed above, is essentially off-the-shelf equipment incorporating certain design specifications required by Alabama Power Company. It was selected for the Birmingham pilot test primarily because of the ease with which it can be integrated with Alabama Power Company's existing computerized interactive voice response units. The device plugs directly into a standard telephone jack on the customer's premises, and a transformer/power supply cord which is connected to the device plugs into a standard duplex outlet. The device will sense any loss of power at the location and, after a delay, dial a preprogrammed telephone number which will be answered by Alabama Power Company's computerized interactive voice response units. The device and technology are adaptable to the interactive voice response units of other utilities, including those of the other Operating Companies. POWERcall(TM) provides utility customers with the assurance that power outages are reported automatically to their serving electric utility, whether or not a customer is at home. Development believes that if a sufficient number of such devices are deployed within an area, the utility will be better able to determine the locations of problems that are causing outages and -8- will thus be able to improve the promptness, efficiency and safety of the service restoration process. Realization of this operational improvement is, however, heavily dependent upon a sufficiently large number of customers in an area subscribing to POWERcall(TM). Development's market studies, which have been confirmed in the Birmingham area pilot test, indicate that residential and other utility customers would be interested in POWERcall(TM) but that the demand for this service by itself is not sufficiently large to realize the operational improvements desired by the Operating Companies or to generate an adequate revenue stream. In order to increase customer usage and acceptance, therefore, Development is investigating the additional capabilities of the monitoring device and its related software to determine the commercial feasibility of providing certain monitoring services in addition to POWERcall(TM). Such additional services would include both energy-related services, such as automated meter reading and temperature monitoring, and other services, such as fire, intrusion and health alarm monitoring services. The off- the-shelf device which met Alabama Power Company's specifications is already capable of performing many of these functions and will provide some of them with its existing capability unless they are deactivated. In this regard, Development believes that multi-functional equipment similar to that used in the Birmingham area pilot test is available or, with minor modifications, can be obtained on commercially reasonable terms. The equipment may utilize -9- existing telephone lines at a customer location, as in the pilot program, or it may be designed to communicate over television cables, other dedicated cables, or via radio channels. It is contemplated that POWERcall(TM) would be offered to customers for a standard monthly charge that would cover a basic package of information services, including the power outage monitoring feature, but that customers may subscribe to one or more additional services. In any case, the objective will be to design equipment and related software programs that incorporate as much functionality and flexibility as possible, subject only to cost and technology constraints. Development contemplates that the POWERcall(TM) equipment would be installed in a subscribing customer's home or business for a charge and that the monthly monitoring and service fee would be collected as an add-on to the customer's electric bill. Although neither the equipment nor the installation service will involve a significant investment, Development anticipates the need to make and warehouse volume purchases of the POWERcall(TM) device in order to obtain available manufacturer discounts. Development will contract with its associate companies in the Southern System or with interconnected utilities, as the case may be, to perform the actual installation, servicing, monitoring and customer billing functions. Development will also utilize independent contractors extensively for the installation of the equipment. Development will reimburse any associate Operating Company currently for the full cost of such services in accordance with Rules 90 and 91. The Operating Companies will -10- not make any associated investment in the POWERcall(TM) devices, will not provide any warranties or agree to assume any liabilities in connection with the quality or performance of the POWERcall(TM) devices and related programs offered, and will be indemnified by Development for all costs, liabilities, or other claims of third parties relating in any way to POWERcall(TM). Development requests authorization herein to undertake activities, including advertising and marketing studies, additional pilot tests, testing of various manufacturers' equipment, and purchases of equipment and software enhancements, among other activities, with a view to commercializing POWERcall(TM) and related customer services throughout Alabama and Georgia and in the Gulf region of Mississippi and Florida. Development also requests authority to enter into agreements with utilities that are interconnected with Southern System companies pursuant to which Development would offer POWERcall(TM) and related services to the customers of such non-affiliated utilities. Development estimates the need to expend up to $10 million in connection with these activities. Development states that, to the extent POWERcall(TM) is offered to customers of affiliated or non-affiliated utilities with enhancements enabling monitoring of home security systems, Development will maintain a list of approved independent contractors. This would permit a utility customer to arrange for a contractor of the customer's choice to provide and install sensors or other related equipment and services. (c) Development and Investment in Energy Management -11- Prototype System. Development also requests authority to develop, purchase, construct, own and operate a prototype energy management communications network at various locations within the Southern System. Utilizing this communications network, Development proposes to offer to customers power usage and outage monitoring services (including POWERcall(TM)), two-way customer/utility communications, automated billing, energy and conservation information, including "Good Cents" messages and information, and communications-based programs, such as "distance learning," that may be offered in conjunction with a utility's industrial development activities, among other potential utility and utility-related interactive communications services. The network may also be used for internal system communication of voice and data. Development will sell communications services of the type described to Services and the Operating Companies on an "at cost" basis in compliance with Rules 90 and 91, or to the extent applicable, based upon tariffs normally subject to public regulation pursuant to Rule 81. Sales of such services directly to customers will be charged at fair market value or tariff. This communications network will incorporate technologies developed by Development under its existing development arrangements with ICS, technologies acquired from or developed with First Pacific Network, and other available interactive technologies, such as those under development by Scientific Atlanta, Microsoft and AT&T. The prototype network would consist of fiber optic lines, coaxial cables, computers, software and other intellectual properties and other related -12- telecommunications facilities and equipment. Initially, Development contemplates that the networks would be constructed at up to eight locations, including Gulfport, Panama City and Pensacola, where Development has already conducted certain preliminary studies, Birmingham, metropolitan Atlanta, Augusta and Savannah. Development estimates that its equity investment in the prototype systems, which would cover design and marketing costs and the costs of building, purchasing, or leasing fiber and coaxial cable lines and related equipment, facilities and properties, will be approximately $175 million. Because the capacities associated with certain communications mediums, particularly optical fiber, are so great, the capacity of the communications network described herein will be significantly greater than necessary for the utility and utility-related applications described above. In this regard, however, Development states that it intends to utilize or reserve for future utilization at least 50% of the bandwidth of the fiber optic communications network exclusively for such utility and utility-related applications. Development proposes to make available the balance of the bandwidth capacity to other communications providers of voice, data, and video services, such as cable television companies, local and long distance telephone companies, computer networkers, commercial merchants (e.g., home shopping networks), or large private users, such as banks, pursuant to leases, network sharing agreements or licensing transactions negotiated at arms' length for varying terms at -13- market values. In connection with the foregoing, Development will provide the necessary system operations and maintenance services and will charge third party communications providers the fair market value of such services based on their level of use of the system. Access to and use of Development's equipment and facilities will likewise be negotiated with third party communications providers on the same basis, where feasible. (d) Other Energy Management/Efficiency Services. Development also proposes to offer to utility customers directly, or indirectly through public utility companies, a broader range of energy management services, including demand-side management ("DSM") measures, and, in connection therewith, proposes to invest in energy management equipment and/or provide customer financing for the purchase of equipment from third party vendors and suppliers. Development believes that there is a significant demand for energy management services in the Southern System service territory, and states that certain of the Operating Companies have adopted a range of DSM programs, including energy audits of customer sites, design review of new construction and major renovations, direct installation of energy conservation equipment at customer sites and subsidies for the installation of energy conservation equipment. Energy management measures would include evaluation of energy conservation measures and evaluation of the efficiency of various programs. Accurate monitoring and knowledgeable evaluation of installed energy conservation measures and devices are essential components to achieving cost- effective conservation. Development's technical and management -14- experience in designing and implementing DSM programs is directly applicable to monitoring and evaluating installed measures. Such services would also include evaluation of the potential impact of energy conservation measures on the use of other resources in a customer's process or facility (e.g., water, labor, maintenance, materials). For example, in the provision of energy management services, there is often an economic trade-off between conserving energy and conserving water in a customer's process or facility. Since the costs of water and sewer services are rising sharply in many areas, energy management services firms must also address these costs in their work in order to minimize the customer's total costs and identify the most economically efficient approach. An example of one such conservation measure is the recovery of heat from waste hot water. In auditing a facility and implementing a conservation program, the energy management services firm acquires in-depth knowledge of the customer's systems and operation. This knowledge enables the energy management firm to solve systems and process design issues more creatively and effectively than other outside firms. Therefore, effective energy management services means taking an integrated approach that addresses all resources used in a process or by a facility. Based on its evaluation of the market for energy management services and its experience and skills in related fields, Development requests that its authorization include all of the following specific services: -15- 1. Energy Management Services including: (i) the identification of energy and other resource (water, labor, maintenance, materials) cost reduction opportunities; (ii) design of facility and process modifications and/or enhancements to realize such opportunities; (iii) design of new and retrofit heating, ventilating and air conditioning, electrical and power systems, motors, pumps, lighting, water and plumbing systems and related structures to realize energy and other resource efficiency; (iv) the management or direct installation of energy conservation equipment; (v) performance contracts, i.e., contracts under which Development is paid for its services and the equipment it installs based on the energy savings that result from such services and equipment; (vi) assistance in identifying and arranging third-party financing for energy conservation programs; (vii) training of client personnel in the operation of equipment; (viii) system commissioning, i.e., observing the operation of the installed system to insure that it meets design specifications; and (ix) reporting of system results. 2. DSM services including: (i) design of energy conservation programs; (ii) implementation of energy conservation programs; (iii) performance contracts for DSM work; and (iv) monitoring and/or evaluation of DSM programs, including metering and site inspections. -16- Development requests authority to provide the energy management and DSM services described above to customers, without limitation, located in the Southern System service territory and to provide limited services outside this area, with the restriction that revenues attributable to customers outside of the Southern System service territory do not exceed the revenues attributable to customers inside this region (the "50% Revenue Restriction"). The 50% Revenue Restriction would assure that Development's energy management and DSM activities will primarily serve the Southern System by helping to maximize (through conservation and load management) existing generating and transmission resources, thereby delaying the future need for additional generating and transmission capacity. Subject to the 50% Revenue Restriction, Development would provide energy management and DSM services outside the Southern System service territory to fully utilize its resources and skills and to profit from attractive opportunities to employ its excess resources. See e.g., Jersey Central Power & Light Company Order Authorizing Licensing of Computer Programs, HCA Rel No. 35-24348 (March 18, 1987). In addition, Development requests authority to use up to $50 million of the funds provided by Southern, as discussed in Item 1.4(b), below, to make investments in energy efficiency and conservation assets and/or loans to customers to enable such customers to finance the purchase of such assets. Such assets would consist of, among other things, manufactured energy savings and conservation products and other facilities and equipment -17- directed at the efficient use of energy. The assets so acquired may be leased or sold to customers at prices to be negotiated based upon the fair market value thereof. Such assets would also be used by Development in connection with providing energy conservation and efficiency services to the Operating Companies in accordance with Rules 90 and 91, or in connection with services to non-affiliated entities, including industrial and retail customers of the Operating Companies, at prices based on the fair market value thereof. Development may retain title to the facilities and equipment it uses to engage in these activities. Customer financing in conjunction with its energy management services business will enable Development's customers to purchase goods and services from third party vendors and suppliers of their own choosing on terms and conditions negotiated directly by them. Loans to customers for this purpose will be evidenced by the customers' promissory notes. (e) Consulting Services. Southern and Development also request authority for Development to provide the following general types of technical consulting services (the "Consulting Services") to non-affiliated entities, including utilities, industrial and commercial concerns and governments: management expertise, such as strategic planning, finance, feasibility studies, organization, energy efficiency, safety, environmental and conservation matters, policy matters and management services; technical services and expertise, such as design, engineering, procurement, construction -18- supervision, information systems and services, environmental and conservation planning, auditing, engineering and construction, engineering and construction planning and procedures, data processing, system planning and operational planning; training expertise, including training in the area of operation, equipment repair, and maintenance; and technical and procedural resources and systems, such as are embedded in computer, information, and communications systems, programs or manuals developed or acquired by Southern System companies. Contracts for such services will be negotiated and entered into on an arms' length basis. The Consulting Services described also include certain services that SEI now provides in accordance with the Original SEI Orders to public utility companies and others having need for the procurement of materials, machinery, equipment, services and supplies used in the generation, transmission, and distribution of electric power and the maintenance of inventories of spare parts, such as through joint procurement organizations (e.g. "PIMS,"or Pooled Inventory Management Services), which may include, as members, participants, or shareholders, companies that are subsidiaries of Southern. Development seeks authority to render such Consulting Services in the future and to assume SEI's obligations under existing contracts to the extent that they can be assigned. Consulting Services offered by Development, as proposed herein, will generally be different in type and character from the services that SEI is proposing to offer in File No. 70-7932, although both SEI and Development may render services to similar -19- kinds of clients or customers (e.g., unaffiliated utilities). However, while SEI's proposed consulting activities will generally be limited to providing services and expertise in connection with power plant design, construction and operations, independent power project development, and utility system transmission and distribution, among others, Development will pursue consulting opportunities in other, primarily non-utility, fields, such as in communications, resource recovery, and energy efficiency and management. Accordingly, Southern and Development believe that there will be very few, if any, instances in which Development and SEI would engage in consulting activities that are in direct competition with each other. Further, Development and SEI intend to coordinate their respective business development activities to avoid or minimize any such competition, including taking appropriate steps to screen potential business opportunities for possible referral to one another. Development will not, without obtaining the prior approval of the Commission in a separate proceeding, render services to any associate company that is an "exempt wholesale generator" or "foreign utility company" within the meaning of Sections 32 and 33 of the Act, respectively. (f) Marketing of Intellectual Property. Under the Original SEI Orders, SEI is authorized to resell or license to third parties "Intellectual Property," defined therein as "any process, program or technique which is protected by the copyright, patent or trademark laws, or as a trade secret, and which has been specifically and knowingly incorporated into, -20- exhibited in, or reduced to a tangible writing, drawing, manual, computer program, product or similar manifestation or thing." If Intellectual Property is sold or licensed to a third party and, as a result thereof, it is no longer available to Services or the Operating Company providing it, then such company is entitled to receive seventy percent (70%) of the net profits therefrom (after deducting marketing and other applicable expenses) and SEI is entitled to receive 30% of the net profits as a commission. If such Intellectual Property is made available for disposition or licensing to third parties but use thereof is retained by the associate company providing it, SEI is obligated to reimburse its associate company only for the actual expenses incurred.1 Development, Services and the Operating Companies propose to continue these arrangements for the use and disposition of Intellectual Property, subject to the following changes. First, in the event that an Operating Company invests in the development of Intellectual Property which is not ultimately used by it, resulting in a disallowance of any associated development costs by state regulatory authorities having jurisdiction, and such Intellectual Property is thereafter sublicensed by Development to third parties, Development will pay a royalty of thirty percent (30%) of net sublicense revenues (after deduction of costs and expenses of Development) until the development costs have been 1The existing Service Agreement between Development and Services contains an identical definition of "Intellectual Property," and the terms approved in the 1984 Order for compensating other Southern System companies which have developed such Intellectual Property are also identical. -21- fully reimbursed to such Operating Company. And second, where Development and Services or one or more of its associate Operating Companies agree to jointly develop or acquire Intellectual Property with the specific understanding that such Intellectual Property would be both used by Services or such Operating Company and remarketed to third parties by Development, Development will pay for fifty percent (50%) of the cost of the acquisition or development thereof, but shall have no further financial obligation to Services or such Operating Company, as the case may be. Subject to the foregoing modifications, Development requests authorization to continue to offer to third parties Intellectual Property created or acquired by its associate companies within the Southern System. The terms of such arrangements regarding the use and disposition of Intellectual Property are contained in the proposed form of amended Service Agreements filed herewith as Exhibits B-1 and B- 2, as applicable. g. Development of and Investments in Energy and Resource Recovery Facilities. Development also proposes to undertake preliminary development activities with respect to potential investments in energy and resource recovery facilities and technologies, including but not limited to coal gasification facilities and other synthetic fuels technologies, landfill gas recovery, refuse derived fuels, and other alternative fuels technologies. Initially, Development's activities would be limited to design and concept review, engineering, siting and environmental studies, negotiation of various "off-take" or joint -22- venture contracts with potential users, financial modeling and feasibility studies, due diligence, and other similar kinds of activities incidental to the development and financing of such facilities. Fuels or other energy sources produced using any of the foregoing technologies may be sold to utilities (including any of the Operating Companies) for power generation and to industrial users as boiler fuel. Development will seek to maximize the use of available income tax credits that may be available for investments in such facilities. Development proposes that not more than 50% of its investments in energy and resource recovery facilities of the types described above shall be located outside the four state area served by the Operating Companies. Development will not make any capital investment in any such facility exceeding $1 million individually or $10 million in the aggregate, except in accordance with an order of the Commission in a separate proceeding. 1.4 Requested Financing Authority. Southern hereby requests authority to commit up to an aggregate of $275,000,000 outstanding at any one time through December 31, 1998 through any combination of purchases of Development's common stock, cash capital contributions or loans to Development, conversions of any such loans to equity investments, guarantees of loans to Development by banks or other lending institutions, or guarantees by Southern of other recourse liabilities (e.g., payments under leases or installment purchase -23- obligations) of Development. To the extent such investments involve loans from Southern to Development, such loans will be made from time to time prior to December 31, 1998, with maturities no later than December 31, 2003. Such loans will bear an interest rate equal to a rate not to exceed the prime rate in effect on the date of the loan at a bank designated by Southern. Where non-affiliate loans to Development are involved, the loans will be made with maturities of no later than December 31, 2003 and with an interest rate not to exceed 3% over the lender bank's prime rate. It is anticipated that any notes sold to a lender other than Southern may be guaranteed by Southern as to principal, premium, if any, and interest. In connection with any such sale, a commitment fee may be paid in an amount not greater than 1/2 of 1% of the principal amount of any note. The name or names of the lender or lenders other than Southern, principal amounts and terms of other notes will be filed quarterly as a part of Development's quarterly certificates under Rule 24, as more fully described in Item 1.9, below. Based upon the current prime rate of 6%, notes issued to Southern would bear a rate not exceeding 6% and notes issued to lenders other than Southern would bear a rate not exceeding 9%. It is further proposed that any notes issued to Southern hereunder may, at the option of Southern, be converted to capital contributions to Development through Southern's forgiveness of the debt represented thereby. Investments by Southern in Development would be utilized by -24- Development in order to fund its authorized investments and activities, as follows: (a) Investments Relating to Energy Management Prototype Network. Southern and Development anticipate that up to $175 million will be required by Development from time to time through December 31, 1998, in order to develop, design, engineer, acquire and construct the proposed energy management prototype network, as described in Item 1.3(c) hereof. (b) Investments in or Financing of Other Energy Management Measures. Investments by Southern will also be utilized by Development to purchase energy conservation and efficiency equipment and/or to provide customer financing. Southern anticipates that the aggregate amount of loans and other advances to Development for such purposes would not exceed $50 million at any one time outstanding. Notes issued to Southern to enable Development to provide customer financing in connection with the sale of energy management services may be unsecured, or secured by Development's customer contracts. Further, Development may assign evidences of customer indebtedness to Southern in consideration of a reduction in the amount of outstanding notes, in which case the aggregate amount of outstanding customer indebtedness held by Southern would be added to the aggregate amount of outstanding notes issued by Development and held by Southern for purposes of the proposed $50 million limit. (c) Working Capital Authority. Southern estimates that aggregate investments of up to $50 million at any time -25- outstanding will be required in order to enable Development to finance the estimated costs associated with commercializing POWERcall(TM) (estimated at $10 million) and predevelopment costs associated with potential investments in other energy management and recovery facilities; to permit Development to invest in energy and resource recovery facilities not exceeding $1 million in an individual project and $10 million in the aggregate; to provide Development with working capital needed in connection with Development's consulting and energy management services activities; and to pay certain ongoing general and administrative costs, including personnel, accounting, marketing, engineering, legal, financial and other necessary support functions, required in connection with developing and administering its business lines. 1.5 Indemnifications and Guarantees. Southern also proposes, from time to time, to guarantee or to act as surety itself on bonds, indebtedness and performance and other obligations issued or undertaken by Development in connection with its business. In the ordinary course of its business, it is anticipated that Development will be required to furnish various types of bonds including bid bonds, performance bonds, and material and payment bonds, and must provide commercial sureties for its obligations under certain of such bonds. The proposed indemnification by Southern of such sureties will facilitate Development in obtaining the necessary bonds when needed and at more favorable rates than if such obligations were not guaranteed. -26- In the past, Southern has been called upon from time to time to provide performance guarantees and to undertake other contractual obligations with respect to the performance and other obligations of SEI under contracts and bids involving consulting activities. Similarly, Southern believes that the inability of Development to provide such parent guarantees of Development's performance and other obligations in the future would prevent Development in many cases from participating in projects, or make its participation more costly. Thus, Southern believes that it will be necessary to provide guarantees of Development's performance and other obligations under contracts and bids with third parties in order to facilitate Development in obtaining such contracts and to enhance the competitiveness of Development in the marketplace. In addition, in order to maintain this competitiveness in the marketplace, Development must have the ability to bid on or otherwise pursue multiple contracts or bids on a simultaneous basis and to provide evidence of its authority to provide the proposed guarantees or indemnifications of sureties by Southern at the time of contract negotiation or bid. Southern's theoretical exposure on such guarantees and indemnifications of sureties will be limited by the fact that many of these guarantees provided at the time of bid will not be activated unless and until Development actually receives a contract award and by the relatively low likelihood that Development will be awarded contracts on all bids. Southern's exposure will also be limited to the extent that Development may participate in any -27- particular project through a joint venture arrangement with third parties in which the partners share the responsibility of such guarantees and indemnifications of sureties. These forms of credit enhancement or assurance are typical in the marketplace. As an example, preliminary bids or proposals often must be accompanied by bid bonds so as to evidence the seriousness and financial responsibility of the bidder. In the case of such bids by Development, the bid may be conditioned upon governmental approval, including any approval that may be required under the Act, as well as other business and legal conditions. A bid bond merely assures that the bidder, if successful, will act in accordance with the terms of the bid or forfeit the bond. However, the warranties and degree of credit support are the result of arms' length bargaining and are usually subject to limitations as to duration and amount and normally exclude consequential damages. It is often the case that the amount of liability is related to all or a portion of the consulting contract price or stipulated liquidated damages, rather than the value of the project. Despite the fact that Southern has guaranteed or agreed to act as surety or indemnitor on SEI's behalf pursuant to long- standing Commission authorization under the 1987 Order, there has not been a single claim against any bonds, guarantees or suretyships which have been issued. They exist, nevertheless, as a necessary commercial practice, particularly with reference to engineering, design, construction and operational assurances which are required in the commercial marketplace. -28- It is therefore proposed that Southern have the authority under this Item 1.5 to provide such guarantees of and similar provisions and arrangements concerning Development's performance and undertaking of other obligations, in an aggregate amount outstanding at any one time of $200,000,000 through December 31, 2003; provided, that any guarantees or indemnifications outstanding at December 31, 2003 shall continue until expiration or termination in accordance with their terms. For purposes of computing the above limitations, neither Southern's agreements to provide guarantees or indemnifications of sureties of Development which have not actually been issued, nor the respective shares of any such obligations or indemnification of sureties held by any joint venture partner of Development, will be counted. It is further proposed that, because Development's need for such Southern guarantees and indemnifications cover a range of contracts too broad to describe all of their natures at this time, Southern and Development have the flexibility to negotiate specific guarantees and similar provisions and arrangements with third parties, and indemnifications of sureties, as the need to do so arises, without further Commission authorization. 1.6 Authorization of Transactions with Associate Companies. Development will maintain its staff of employees who will deal primarily with the management, marketing, development, accounting and administrative functions of the corporation.2 Utilizing a 2 Upon receipt of the Commission's order in this proceeding, approximately 30 of the 200 current employees of SEI will be transferred to Development. -29- work order procedure, this staff will request the Operating Companies and Services to provide such personnel and other resources as are needed, from time to time, to consult and assist in marketing, engineering and other required functions in connection with Development authorized business activities. Additional required personnel and resources not then obtainable from within the Southern System will be obtained or hired from external sources. Development proposes to enter into new service agreements (the "Service Agreements") with Services and each of the Operating Companies that will be substantially identical to the existing agreements between Development and Services, with the changes discussed elsewhere in this filing. Drafts of these agreements are attached hereto as Exhibits B-1 and B-2. Selection of the Southern System personnel to be utilized in connection with Development's activities will be based upon projected personnel availability for the duration of an activity, expertise in the type of work involved and access to resources within the Southern System needed to perform the work. However, the Service Agreements will provide that any Southern System company may, in its absolute discretion, elect not to participate, either through personnel or other resources, in any of Development's projects. Services will also continue to provide assistance in connection with financial, accounting, and internal auditing functions for Development, utilizing those accounting systems which are economically justifiable under the circumstances. The -30- accounts of Development will continue to be subject to audit by the independent accountants of Southern. The use of available expertise and personnel of the Southern System to support Development's authorized business activities will enable Southern to optimize the efficient and economic utilization of existing human resources and other capabilities. It will also enable affiliates to have the benefit of knowledge and experience gained by Development from its outside activities. An important result of this efficient allocation of technical resources within the Southern System is that it will keep such expertise and capabilities available to the Operating Companies, as well as enabling Southern and Development to earn a profit on and minimize the cost of maintaining such resources which are considered necessary to the adequate servicing of existing Southern System plants and capacity. Under the terms of the existing Service Agreement between Development and Services, Development is obligated to make any "Intellectual Property" developed in the course of its business available for utilization by Services without charge, except for the actual expenses incurred in making the same available, to the extent that Development has or retains proprietary rights therein. Likewise, Development has the reciprocal right to receive from Services without charge any such Intellectual Property, except for the actual expenses incurred in making the same available. This system of compensation and reciprocal availability of Intellectual Property has existed for many years. It provides a -31- benefit to the Operating Companies and consumers as well as to Development and ensures that there is no subsidization of Development at the expense of the Operating Companies. Southern System companies providing services to Development will be reimbursed promptly for their costs incurred in connection therewith. The accounting procedures previously approved in the Original SEI Orders will be utilized by Development. For its part, each Southern System company providing services for or material to Development will utilize cost accounting procedures designed to identify promptly all direct and indirect costs, including overheads, which are applicable to the work being performed by or with such Southern System company personnel, material or other assets. Services will account for, allocate and charge its costs to Development, using procedures permitted under Rules 90 and 91 and currently applicable methods of allocation. All transactions between Development and any other Southern System company (except as noted below in the case of projects which are co-owed by Southern or an associate of Southern and unaffiliated parties) will be at cost in compliance with Section 13 and Rules 90 and 91. 1.7 Accounting for Transactions with Non-Associate Companies. Fees for Consulting Services and Energy Management and Efficiency Services provided by Development to clients or customers who are not affiliated with Southern or which are co- owners or investors in projects with Southern or its associate companies (other than any of the Operating Companies), will be -32- calculated to reimburse all applicable costs, including overheads, plus produce a profit for Development. All of Development's costs will be identified and expensed promptly. Development will continue to use portions of systems also employed by Services to account for those costs and segregate them by project and Southern System company performing the services. Development will retain such earnings as remain after reimbursement to the Southern System companies of these costs and payment or funding of other costs, liabilities, fees or charges. These retained earnings will then be used to offset capital needs of Development or will be paid to Southern. 1.8 Other Matters. The consolidated federal income tax liability of the Southern System is allocated among the members of the consolidated group in accordance with the provisions of subparagraph (a)(1) of Section 1552 of the Internal Revenue Code of 1986, as amended, and the applicable requirements of Rule 45(c), as modified by certain orders of the Commission. Development will continue to be allocated a portion of the consolidated federal income tax liability based upon those provisions. 1.9 Reporting Obligations. Southern and Development agree that the Commission's order to be issued in connection with this filing shall be subject to the terms and conditions prescribed in Rule 24 promulgated under the Act, except that it is proposed that certificates regarding the activities of Development required to be filed thereunder may continue to be filed on a quarterly basis, not later than 30 days after the end of each -33- quarterly period. Such certificates shall include the following: (1) Amounts and forms of investments by Development, and obligations of each project undertaken in furtherance of Development's authorized activities; (2) Amounts and forms of: (i) guarantees and similar provisions and arrangements concerning Development's performance and undertaking of other obligations; and (ii) indemnifications of and with respect to persons acting as sureties on bonds or other obligations on behalf of Development which Southern has agreed to grant in the event a bid by Development is accepted; and (3) Amounts and forms of: (i) guarantees and similar provisions and arrangements concerning Development's performance and undertaking of other obligations, which Southern has granted and are currently effective; and (ii) indemnifications of and with respect to persons acting as sureties on bonds or other obligations on behalf of Development which Southern has granted and are currently effective. In addition, Southern will file on behalf of Development an annual report on Form U-13-60 (as modified), in the form heretofore filed on behalf of SEI, as an exhibit to Southern's annual report on Form U5S. Item 2. Fees, Commissions and Expenses. Fees, commissions and expenses expected to be incurred by Development in connection with the Application are as follows: Holding Company Act filing fee ......... $ 2,000 Counsel fees: Troutman Sanders .................. $15,000* Miscellaneous and incidental expenses .. $ 1,000* -34- *Estimated amount Total $18,000 Item 3. Applicable Statutory Provisions. The issuance and sale by Development of common stock and notes is subject to Sections 6 and 7 of the Act, and the acquisition thereof by Southern is subject to Sections 9(a) and 10. The making of cash capital contributions by Southern to Development and the proposed guaranty by Southern of notes issued by or other recourse liabilities of Development to third parties are subject to Section 12(b) and Rule 45 thereunder. The issuance by Development of notes will be excepted from the competitive bidding requirements of Rule 50 pursuant to paragraphs (a)(2) or (a)(3) thereof, as applicable. The conversion of borrowings by Development from Southern to capital contributions is also considered subject to Section 12(b) of the Act and Rule 45. The proposals by Development to engage in the various different lines of business summarized in this filing are subject to Sections 9(a) and 10 of the Act. The acquisition by Development of promissory notes evidencing the indebtedness of customers in connection with financing energy management and efficiency equipment is subject to Sections 9(a)(1) and 10, but may be exempted therefrom pursuant to Rule 40(a)(4) under the Act. The rendering of services and other contemplated transactions between Development, on the one hand, and Services -35- and the Operating Companies, on the other, at cost or subject to tariff, is subject to Sections 13(b) and Rules 81, 87, 90 and 91 thereunder. The proposed transactions will be carried out in accordance with the procedures specified in Rule 24 of the Act and pursuant to an order of the Commission with respect thereto. Item 4. Regulatory Approval. The proposed transactions are not subject to the jurisdiction of any state commission or of any federal commission other than the Commission. Item 5. Procedure. Development and Southern request that the Commission's order be issued as soon as the rules allow, and that there be no thirty-day waiting period between the issuance of the Commission's order and the date on which it is to become effective. Development and Southern hereby waive a recommended decision by a hearing officer or other responsible officer of the Commission and hereby consent that the Division of Investment Management may assist in the preparation of the Commission's decision and/or order in the matter unless such Division opposes the matters covered hereby. Item 6. Exhibits. Exhibits. A - Form of Note from Development to Southern. (To be filed by amendment). B-1 - Form of Service Agreement between Development -36- and Services. (To be filed by amendment). B-2 - Form of Service Agreement between Development and an Operating Company. (To be filed by amendment). C - None. D - None. E - None. F - Opinion of Troutman Sanders. (To be filed by amendment). G - Form of Notice. Item 7. Information as to Environmental Effects. (a) In view of the nature of the proposed transactions as described in Item 1 hereof, the Commission's action in this matter will not constitute any major federal action significantly affecting the quality of the human environment. (b) No other federal agency has prepared or is preparing an environmental impact statement with regard to the proposed transactions. -37- SIGNATURE Pursuant to the requirements of the Public Utility Holding Company Act of 1935, the undersigned companies have duly caused this Statement to be signed on their behalf by the undersigned thereunto duly authorized. Dated: May 6, 1994 THE SOUTHERN COMPANY By:/s/ Tommy Chisholm Tommy Chisholm Secretary THE SOUTHERN DEVELOPMENT AND INVESTMENT GROUP, INC. By:/s/Tommy Chisholm Tommy Chisholm Vice President and Secretary -38- EX-99 2 EXHIBIT G EXHIBIT G FORM OF NOTICE The Southern Company, The Southern Development and Investment Group, Inc. (70-8173) The Southern Company ("Southern"), 64 Perimeter Center East, Atlanta, Georgia 30346 and its wholly owned subsidiary, The Southern Development and Investment Group, Inc. ("Development"), 64 Perimeter Center East, Atlanta, Georgia 30346 have filed an application-declaration citing Sections 6, 7, 9, 10, 12, 13 of the Act and Rules 40, 45, 50, 87, 90 and 91 thereunder as applicable thereto. Since 1984, Development has engaged in the preliminary study, investigation, research and development of new business or investment opportunities. Southern and Development are now proposing to restate Development's operational authority to include, in addition to such preliminary study, investigation, research and development activities, the following activities: providing certain technical consulting services to non- affiliates; providing energy management and efficiency services, including sales of energy management equipment and customer financing in connection therewith; development, ownership, operation and servicing of an energy management communications network; marketing of a remote power outage monitoring device and related services; licensing of intellectual property; and development of and investments in certain energy recovery facilities. The sale of technical consulting services, as described in - 2 - the application, would include the provision of such services to unaffiliated parties for a fee to be based upon the fair market value thereof. Such services would involve use of existing expertise and resources within the Southern System, including management expertise, in areas such as strategic planning, organizational planning, policy matters and management services; technical expertise, such as design, engineering, procurement, construction supervision, engineering and construction planning and procedures, system planning and operational planning; training expertise; and technical and procedural resources, such as are embedded in computer, information and communication systems, programs or manuals. Development would also engage in the resale or licensing of intellectual property acquired or created by other Southern System companies. Such consulting services and marketing of intellectual property are businesses that have heretofore been engaged in by Southern Electric International, Inc. ("SEI"), an associate company. Development proposes to invest in, market and service monitoring devices that would be installed in utility customers' homes and businesses for the purpose of monitoring and automatically reporting to the utility serving them any loss of electric service. The device would also have the capability of providing other kinds of energy-related services, such as automated meter reading, supervisory control and data acquisition for distribution automation, safety and fire and intrusion monitoring services, among other potential uses. Development - 3 - anticipates the need to expend up to $10 million in this venture. Development is also proposing to invest up to $175 million to develop, design, acquire, construct and manage prototype energy management communications networks, initially at up to eight locations in Southern's service area. The network would be used to offer customers electricity usage and outage monitoring services, automated billing, and energy conservation and management information. The network would consist of various different communications mediums, including optical fiber and coaxial cable lines, and would incorporate technologies developed by Development and third parties. Development proposes to sell or lease to non-affiliates excess capacity associated with the communications networks. Development proposes to provide energy management and efficiency services, including demand side measures, for a charge, and to lease or sell manufactured energy savings and conservation products, and other facilities and equipment directed at the efficient use of energy. Development proposes to invest up to $50 million in such assets and/or in customer financing of such assets purchased from third parties. Development would generally retain title to the facilities and equipment it uses to engage in these activities. Finally, Development is proposing to develop energy recovery facilities, such as synthetic fuels facilities, refuse derived fuels, and landfill gas production facilities. Any acquisitions of such facilities and any related financing would be the subject - 4 - of separate filings, except to the extent such investments do not exceed $1 million individually and $10 million in the aggregate. Development and its associate companies will reimburse each other for the full cost of all services, personnel and facilities provided to Development for its business, determined in accordance with Rules 90 and 91 of the Act as well as other applicable rules and regulations. The reimbursed cost of services identified through a work order system shall include all direct changes and a pro rata share of Southern's service company, Southern Company Services, Inc., and its other costs based upon an allocation formula filed with the Commission. Southern proposes to make investments of up to $275 million in Development from time to time through December 31, 1998 to enable Development to fund its authorized business activities and to pay general and administrative costs and expenses required to support Development's business lines. Such investments would be made through any combination of purchases of Development's common stock, cash capital contributions or loans to Development, or guarantees of third party loans to Development. Notes sold to Southern shall bear interest at a rate equal to the prime rate in effect on the date of the loan at a bank designated by Southern. Where non-affiliate loans to Development are involved, the notes would bear interest at a rate not to exceed 3% over the lending bank's prime rate. It is also proposed that notes issued to Southern may, at the option of Southern, be converted to capital contributions to Development - 5 - through Southern's forgiveness of the debt represented thereby. Southern proposes to provide Development such guarantees of and similar provisions and arrangements concerning Development's performance and undertaking of other obligations relating to authorized activities of Development, and to provide such indemnifications of and with respect to persons acting as surety on bonds or other obligations relating to authorized activities of Development on behalf of Development, all as described above, in an aggregate amount outstanding at any one time of $200 million through December 31, 2003, provided that any guarantees or indemnifications outstanding at December 31, 2003 shall continue until expiration or termination in accordance with their terms. For purposes of computing the above limitation, neither Southern's agreements to provide guarantees or indemnifications of sureties of Development which have not actually been issued, nor Development's joint venture partner's respective shares of any joint venture obligations or indemnification of sureties of the joint venture, shall be counted. -----END PRIVACY-ENHANCED MESSAGE-----