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U.S. Securities and Exchange Commission


(Release No. 35-27698; 70-9771)

The Southern Company, et al.

Memorandum Opinion and Order Approving Plan of Reorganization of Public-Utility Company Under Section 11(f) and Registered Holding Company's Participation in Subsidiary's Plan of Reorganization and Related Transactions; and Issuing Report Under Section 11(g)

July 18, 2003


The Southern Company ("Southern"), a registered holding company, its wholly owned subsidiary, Mobile Energy Services Holdings, Inc. ("Holdings"), and Holdings' wholly owned subsidiary, Mobile Energy Services Company, L.L.C. ("Mobile Energy"), all of Atlanta, Georgia (collectively, "Applicants"), have filed an application-declaration, as amended ("Application") under sections 6(a), 7, 11(f), 11(g) and 12 of the Public Utility Holding Company Act of 1935, as amended ("Act") and rules 44, 45, 54, 62, 63 and 64 under the Act.

On October 16, 2000, the Securities and Exchange Commission ("Commission") issued an initial notice of the filing.1 The initial notice described the First Amended Joint Plan of Reorganization dated September 15, 2000 ("First Plan"). On April 11, 2001, the Commission issued a supplemental notice of the amended filing.2 The supplemental

notice described the Second Amended Joint Plan of Reorganization dated February 21, 2001. On August 30, 2002, the Commission issued a second supplemental notice of the amended filing.3 The second supplemental notice described the Third Joint Plan of Reorganization, as Modified ("Third Plan"). No request for a hearing was received.

I. Background

Southern is a registered public-utility holding company that holds the securities, directly or indirectly, of six operating public-utility companies.4 The Southern system provides electric power in the majority of the states of Alabama and Georgia and portions of Florida and Mississippi, operating centrally dispatched electric power generation transmission and distribution assets. Southern also holds, directly or indirectly, the securities of energy-related companies, exempt telecommunications companies, exempt wholesale generators and foreign utility companies and authorized intermediate and special purpose subsidiaries.

Mobile Energy owns the energy facilities which are located in an "Industrial Complex" in Mobile, Alabama that is largely devoted to the production of paper products. The Industrial Complex is comprised of the "Energy Complex" (described below), a pulp mill, a paper mill and a tissue mill. Kimberly Clark Corporation ("Kimberly-Clark") owns both the tissue mill and the pulp mill. S.D. Warren Company Alabama, LLC ("S.D. Warren") owns the paper mill. The Energy Complex was constructed specifically to serve the mill operations. 5

The Scott Paper Company ("Scott") constructed some of the energy facilities in the early 1960s; additional generation capacity was added in the mid-1980s; and a new recovery boiler was added in 1994. Some of the facilities (e.g., recovery boiler capacity) were financed with Industrial Revenue Bonds issued by the Industrial Development Board ("IDB") of the City of Mobile, Alabama, and leased to Scott. Bonds issued by the IDB are discussed in section III(C)(3), infra. In 1985, the Federal Energy Regulatory Commission ("FERC") determined that the then-existing facilities constituted a qualifying cogeneration facility ("QF") under the Public Utility Regulatory Policies Act of 1978 ("PURPA").6

In 1994, the Commission authorized Southern to organize Holdings as a new subsidiary and to acquire all of its common stock.7 Thereafter, Scott sold the energy facilities, black liquor recovery equipment, and related assets, permits and agreements ("Energy Complex")8 to Holdings. Upon acquisition of the Energy Complex, Holdings entered into three separate 25-year energy services agreements with the owners of each of the pulp, paper and tissue mills within the Industrial Complex. Under these agreements, Holdings was obligated to provide power and steam processing services to each of those mills and liquor processing services to the pulp mill.

In 1995, Southern formed Mobile Energy as a limited liability company subsidiary of Holdings.9 Thereafter, Mobile Energy acquired ownership of the Energy Complex from Holdings.10 Mobile Energy owns and operates the Energy Complex and provides power and steam processing services to the mills located in the Industrial Complex.

In late 1995, Scott was merged into a subsidiary of Kimberly-Clark and the resulting entity was renamed Kimberly Clark Tissue Company ("KCTC"). As a consequence of the merger, KCTC became Mobile Energy's largest customer, representing approximately 75% of Mobile Energy's revenues in 1998. The pulp mill accounted for approximately 50% of Mobile Energy's revenues. The pulp mill also provided 85% of the fuel used by the Energy Complex in the form of biomass and black liquor.

In 1998, KCTC notified Mobile Energy that KCTC would close its pulp mill and terminate its contract to purchase energy services from Mobile Energy for the pulp mill, effective September 1, 1999.11 In addition to causing Mobile Energy to lose its largest customer, closure of the pulp mill meant that the by-products of pulping operations (such as biomass and black liquor), which had served as a plentiful and inexpensive source of fuel for the Energy Complex would no longer be available. Mobile Energy and Holdings thus filed voluntarily for protection under Chapter 11 of the United States Bankruptcy Code ("Bankruptcy Code"), 11 U.S.C. §101 et seq., in the United States Bankruptcy Court for the Southern District of Alabama ("Bankruptcy Court") on January 14, 1999. Because both entities filed as debtors-in-possession continuing their operations, the Bankruptcy Court has appointed no trustee or receiver.

The Debtors plans for exiting from bankruptcy have changed a number of times. The Application includes the Third Plan and the Second Amended Disclosure Statement, as Modified ("Disclosure Statement") for Mobile Energy and Holdings.12 The Third Plan was precipitated by a number of circumstances, including increased natural gas prices relative to previous forecasts, which made it difficult to proceed with a planned 165-megawatt cogeneration project ("Cogen Project"), which was part of prior plans.13 In addition, Applicants previously contemplated an election for the bondholders to receive either shares of stock of Holdings, or member interests in Mobile Energy. The election depended on a variety of factors, including whether the Internal Revenue Service would issue a private letter ruling on certain income tax matters. When the Internal Revenue Service declined to issue the requested ruling, the Debtors and the bondholders decided not to pursue a plan that would have permitted the bondholders to elect to receive member interests in Mobile Energy. The Third Plan, as modified, therefore provides that the bondholders will receive shares of stock of Holdings.

II. Requested Authority

Applicants request that the Commission issue: (1) an order under section 11(f) of the Act approving the Third Plan and certain related transactions contemplated by the Third Plan;14 and (2) a report on the Third Plan under section 11(g) to accompany a solicitation of creditors and any interest holders for approval of the Third Plan in the bankruptcy proceedings.15

III. The Third Plan

A. Overview

Applicants state that the purposes of the transactions described in the Third Plan are to: (1) permit Mobile Energy and Holdings to reorganize and emerge from bankruptcy; (2) maximize the recovery of Mobile Energy's bondholders on their investment; (3) eliminate Southern's direct and indirect equity ownership of Mobile Energy and Holdings; and (4) allow Mobile Energy to operate as a QF under PURPA after the effective date of the Third Plan. As a result of operating as a QF Mobile Energy and Holdings would no longer be subject to the Act.

On the effective date of the Third Plan, Southern's equity interest in Holdings will be cancelled and extinguished. As a consequence, Southern's pre-petition shares in Holdings would no longer have any claim to voting rights, dividends or any other rights. Neither Southern nor any of its affiliates would hold any interest of any kind in either Holdings or Mobile Energy.

The two issues of existing bondholders would exchange their claims of approximately $315,000,000 for all of the "New Common Stock" of reorganized Holdings and retain about $1 million of notes. Holdings would continue to own 100% of the stock of Mobile Energy. Allowed claims of other non-insider unsecured creditors of about $511,000, would be paid in full or reinstated.

An ad hoc committee of holders of Debtors' tax-exempt bonds and first mortgage bonds established the Bondholder Steering Committee. The Bondholder Steering Committee strongly supports confirmation of the Third Plan. The current members of the Bondholder Steering Committee are Credit Suisse First Boston Corporation and Morgan Stanley, as well as Wachovia Bank, National Association, the indenture trustee for each of the two bond issuances, as an ex officio member.16 Members of the Bondholder Steering Committee collectively hold in excess of 70% of the taxable bonds and in excess of 64% of the tax-exempt bonds of Mobile Energy.17

From a business perspective, the Third Plan focuses upon maintaining and furthering operating cost reductions in the context of continuing to provide services to those mills currently operating in the Industrial Complex, Kimberly-Clark's tissue mill and the pulp mill.18 Mirant Services L.L.C. ("Mirant Services") was the operator of the Energy Complex through March 31, 2001. Following a solicitation process, Mobile Energy selected Operational Energy Corporation ("OEC"), an affiliate of Enron, as the operation and maintenance operator after March 31, 2001, pending confirmation of the Third Plan. OEC replaced Mirant Services and implemented cost reductions.19

Projections have been prepared in connection with the merits of the business strategy incorporated in the Third Plan, that reflect S.D. Warren's closure of the paper mill and assume that Kimberly-Clark continues to operate its remaining facilities at the Industrial Complex at a level consistent with the period from mid-2002 to the present. Applicants note that the projections show positive cash flows, and thus the bondholders, who will be the future owners of equity interests in Holdings under the Third Plan, will obtain some value through their ownership. Applicants further note that the projections also show that the bondholders and unsecured creditors under the Third Plan would obtain a higher value than they would receive in a liquidation.

Under the projections, Mobile Energy estimates that it will provide approximately 925,000 MMBtus of steam to the tissue mill each year through 2019. Applicants also anticipate that Mobile Energy will provide approximately 354,000 megawatt hours of electricity each year through 2019. The estimated usage for steam and power for 2003 and later years is approximately 55% and 110%, respectively, of the amount of steam and power provided to the tissue mill during 1998. Applicants state that Mobile Energy intends to continue to sell electricity in excess of the mill owners' demands during peak periods into the wholesale market, but that no additional revenues are included in the projections on account of such sales.

The Third Plan contemplates that, after Southern is divested of its ownership of Mobile Energy, Mobile Energy will qualify as a QF under PURPA, and thus will not be a public-utility company under the Act.20 Applicants state that Southern's disaffiliation with the Debtors is beneficial to Southern because it has written off its investment in the Debtors for financial accounting purposes and disaffiliation removes a drain on management's time and attention. Applicants further state that Southern will have substantially reduced obligations going forward with respect to Mobile Energy and Holdings.

B. The Cogeneration Development Agreement

In February 2000, the Debtors, Mirant Services and Mirant Corporation ("Mirant") entered into the "Cogeneration Development Agreement." The Debtors contemplated the development by Mobile Energy of the Cogen Project, a 165-megawatt

gas-fired cogeneration facility within the Industrial Complex. Mirant committed to provide to Mobile Energy a General Electric combustion turbine in exchange for certain payments and also committed to contribute equity to the Cogen Project. Mirant Services was to be the operator of the Cogen Project.

For several reasons, including a rise in long-term natural gas prices, the Cogen Project became uneconomical, and the Cogeneration Development Agreement was amended twice. On May 16, 2001, the Bankruptcy Court approved the second amendment, "CDAA No. 2," which relieved Mobile Energy of its obligation to develop the Cogen project. Because the Cogen Project will not go forward, the projections do not assume any revenues to be received from the Cogen Project. However, certain provisions of the Cogeneration Development Agreement remain in effect.

For example, Southern's existing obligations to the owners of the tissue mill, paper mill, and pulp mill under the Environmental Guaranty entered into in December 1994 and the Mill Owner Maintenance Reserve Account Agreement entered into in August 1995 will continue. Mobile Energy agreed in the Cogeneration Development Agreement to compensate and indemnify Southern for any costs it incurred under either agreement. That compensation obligation is secured by a priority lien on Mobile Energy's assets. Certain indemnities in favor of Southern, Mirant and Mirant Services continue in effect under CDAA No. 2. Applicants state that the amounts, if any, that may be owed to Southern, Mirant or Mirant Services under the surviving indemnities are not capable of being quantified at this time. Applicants state that they do not believe the Debtors' future obligations under the indemnities will have a materially adverse effect on the Debtors' future business operations.

In addition, Mobile Energy and Holdings agreed to indemnify Southern against any taxes imposed on Southern that are attributable to any net taxable income recognized by Mobile Energy or Holdings that exceeds Southern's excess loss account balance with respect to its stock investment in Holdings. Applicants estimate that the maximum Southern obligation concerning the excess loss account under this agreement could approximate $19.2 million.21

C. Treatment of Claims Under the Third Plan

The bondholders under the Third Plan will receive shares in reorganized Holdings ("New Common Stock"). Holdings will issue one million shares of New Common Stock to the bondholders.

1. Unsecured Creditors; Others

Under the Third Plan, the claims of the general unsecured creditors and the claims of all other creditors, except Southern, Mirant, Mirant Services and the bondholders, will be paid in full. The claims of unsecured creditors are approximately $511,000 without consideration of proof of claims (some of which have not been quantified by the claimants) by the mill owners against the Debtors. Debtors are contesting the mill owners' proof of claims.

2. First Mortgage Bonds

Mobile Energy issued first mortgage bonds on August 1, 1995, in the principal amount of $255,210,000 due January 1, 2017 and bearing annual interest at 8.665%. The Third Plan contemplates that each holder of a First Mortgage Bondholder Claim will receive in complete settlement, satisfaction and discharge thereof, a pro rata share of 72.967% of the New Common Stock of Holdings.

3. Tax Exempt Bonds

In December 1983, the IDB issued tax-exempt bonds ("1983 Tax-Exempt Bonds") to finance the construction of the No. 7 Power Boiler and certain auxiliary systems. In December 1984, the IDB issued tax-exempt bonds ("1984 Tax-Exempt Bonds"), to refund the 1983 Tax-Exempt Bonds.

Refunding of the 1984 Tax-Exempt Bonds occurred in 1995 by means of tax-exempt bonds in the original principal amount of $85,000,000 scheduled to mature January 1, 2020 ("Tax-Exempt Bonds"). Under the Third Plan, each holder of a Tax-Exempt Bondholder Claim shall receive in complete settlement, satisfaction and discharge thereof, (1) a pro rata share of 27.033% of the New Common Stock of Holdings, and (2) shall retain a pro rata share of $1 million of its outstanding Tax-Exempt Bonds.

4. Southern's, Mirant's and Mirant Services' Claims

Under the Third Plan, Southern, Mirant and Mirant Services will receive the treatment provided in the Cogeneration Development Agreement, as amended, in full satisfaction of their claims. Generally, Southern's claims receive one of two different types of treatment in the Third Plan. The estimated recovery for Southern's pre-petition claims is approximately 0.3%.22 Southern's post-petition claims will receive 100% payment under the Third Plan.

IV. Discussion

Applicants request authorization for the solicitation regarding the Third Plan under sections 11(f) and 11(g) of the Act, and authorization under section 12(e) to solicit consents and approvals from the holders of the securities of Mobile Energy and Holdings, along with other ancillary and related authorizations to implement the Third Plan.23

The Third Plan requires Commission approval under section 11(f) of the Act.24 The solicitation of acceptances or authorizations in respect of the Third Plan is subject to sections 11(g) and 12(e) of the Act and rules 62 and 65 under the Act.25 The issuance by Holdings of the New Common Stock is subject to sections 6(a) and 7 of the Act. The extinguishment of Southern's equity interest in Holdings is subject to section 12(d) of the Act.26 As part of the effort to develop the Cogen Project, Southern, Mobile Energy and Holdings exchanged indemnities which are subject to section 12 of the Act and rule 45 under the Act.

The Commission has reviewed the proposed transactions and finds that the applicable standards of the Act are satisfied. Our review has focused in particular on the proposed securities issuances by Mobile Energy, the extinguishment of Southern's equity interest in Holdings and the proposed indemnities.

Section 11(f) itself does not provide a specific standard to use in analyzing a plan of reorganization. Instead, in approving a plan of reorganization of a public-utility subsidiary of a registered holding company, the Commission must conclude that the plan meets any applicable requirements of the Act.27 As we find below, the proposed transactions do not raise any significant issues under sections 6(a), 7, 11(f), 11(g), 12(d) or 12(e) of the Act, which otherwise would apply to the transactions embodied in the plan.

The record in this matter demonstrates that the applicable statutory standards and rules are satisfied and that the approval of the Applicants' request would likely not be detrimental to the protected interests under the Act, i.e., the public interest and the interests of investors and consumers.

The Commission believes the plan of reorganization is fair to investors and consumers. As noted previously, the proponents of the plan of reorganization include a Bondholder Steering Committee, whose members collectively hold in excess of 70% of the taxable bonds and in excess of 64% of the tax-exempt bonds of Mobile Energy. The proponents believe that the proposed transactions will provide the best chance to maximize recoveries to creditors, in that creditors will receive as much or more under the Third Plan and related agreements, as they would have received in a Chapter 7 liquidation of the Debtors.

Applicants note that the plan provides the customers with a supplier of electric and steam processing services and an opportunity for continued operations, with a significantly reduced debt burden. Applicants state that, under the Third Plan, by virtue of reducing costs, reconfiguring operations and converting the existing bonds into equity, the Debtors have a better opportunity to generate cash available for distributions to equity owners. In addition, this capital structure enables the Debtors to continue operations without being in default after S.D. Warren closed its paper mill. In addition, Debtors' long-term debt obligations and the cost of servicing that debt will be greatly reduced; entities whose prior ownership of Mobile Energy consisted solely of fixed rate debt now will accept equity interests in Holdings, reducing inflexible financial payment obligations to them by Mobile Energy.

Applicants assert that the Third Plan will provide substantial benefits to Southern by resolving numerous disputes on terms that Applicants believe to be fair to both investors and customers. In addition, the Third Plan will permit Mobile Energy and Holdings to emerge from bankruptcy as promptly as possible, to pay their creditors, and to pursue ongoing business objectives free from the burdens and constraints of Chapter 11.

The proposed issuance of New Common Stock is subject to sections 6(a) and 7 of the Act. Of these provisions, the most important for purposes of the analysis is section 7(d) of the Act. Among other things, section 7(d) directs the Commission to authorize the issuance of a security unless it finds that: (1) "the security is not reasonably adapted to the security structure of the declarant and other companies in the same holding company system; or (2) the security is not reasonably adapted to the earning power of the declarant."

In interpreting these requirements, one of our key objectives is to safeguard the financial integrity of the registered holding company system. A factor the Commission considers relevant includes, among others, a minimum of 30% common equity as a percentage of total capitalization ("Common Equity Percentage"), for the parent and utility companies. Implementation of the plan of reorganization will have no effect on the consolidated Common Equity Percentage of Southern, as Southern previously wrote off the cost of its common equity in Holdings. No further write off by Southern in Holdings is necessary.28

As part of the development of the Cogen Project, Southern, Mobile Energy and Holdings exchanged certain indemnities described in Exhibit I to the Application.29 Applicants assert that the indemnities at issue are consistent with the standards of the Act.30 Applicants note that section 12(a) was imposed to prohibit "upstream loans" -- loans from an operating utility to its registered holding company. Section 12(a) was enacted to stop "the further milking of operating companies in the interest of controlling holding company groups." 74th Congressional Committee on Interstate Commerce, Hearings on S. 1725 at 59 (April 26-29, 1935).

Applicants assert this is not a case of the holding company obtaining financing from a public-utility operating company or sub-holding company. It simply involves the reimbursement of Southern by Mobile Energy of certain identified forms of liability caused by Mobile Energy, and reciprocal obligations by Southern in the event its actions trigger liability for Debtors. Applicants state that provisions such as those at issue are commonplace in arms' length commercial transactions. Applicants further note that some of the contractual obligations would not exist but for the underlying environmental indemnities discussed in the Commission's 1994 order.31

The proposed transactions are also subject to rule 54. Applicants state, for purposes of rule 54, that the conditions specified in rule 53(a) are satisfied and that none of the adverse conditions specified in rule 53(b) exist. As a result, the Commission will not consider the effect on the Southern system of the capitalization or earnings of any Southern subsidiary that is an exempt wholesale generator or foreign utility company, as each is defined in sections 32 and 33 of the Act, respectively, in determining whether to approve the proposed transactions.

V. Conclusion

The Commission has carefully examined the above transactions as proposed by the Applicants and has concluded, based on the complete record before it, that the applicable standards of the Act are satisfied and that no adverse findings are warranted. In particular, the Commission does not find that the security issuances are not reasonably adapted to Applicants' earning power, or that the indemnities contemplated by the Third Plan give rise to the extensions of credit that the Act was intended to prohibit.

Applicants state that fees, commissions and expenses in the estimated amount of $150,000 are expected to be incurred in connection with this Application.32 Applicants state that the FERC has jurisdiction over the change in the ownership of Mobile Energy under section 203 of the Federal Power Act. Applicants state that no state or federal commission, other than as discussed above, has jurisdiction over the proposed transactions.

Due notice of the filing of the Application has been given in the manner prescribed in rule 23 under the Act, and no hearing has been requested of or ordered by the Commission. Upon the basis of the facts in the record, it is hereby found that the applicable standards of the Act and rules under the Act are satisfied, and that no adverse findings are necessary.

IT IS ORDERED, under the applicable provisions of the Act and rules under the Act, that the Application, as amended, be granted and permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act. Further, because certain contemplated transactions may be accomplished over a period of time after this order is issued, authorization is granted to implement the proposed transactions as described in the Application.

By the Commission.

Margaret H. McFarland
Deputy Secretary


1 Holding Co. Act Release No. 27254.

2 Holding Co. Act Release No. 27377.

3 Holding Co. Act Release No. 27564.

4 These companies are Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, Savannah Electric and Power Company and Southern Power Company.

5 The mill facilities in the Industrial Complex are vast, covering more than 700 acres.

6 Scott Paper Co., 32 FERC (CCH) ¶ 62,175 (1985).

7 Holding Co. Act Release No. 26185 (Dec. 13, 1994).

8 The Energy Complex is currently comprised of four power boilers, one recovery boiler, four turbine generators, two black liquor evaporator sets, various related waste treatment facilities, fuel and "liquor" storage, station control facilities and associated feedwater systems, air emissions controls, and other auxiliary systems.

9 Holdings owns 100% of the equity interest in Mobile Energy.

10 Holding Co. Act Release No. 26330 (July 13, 1995).

11 Kimberly-Clark is the successor to KCTC by assignment. All assets and liabilities of KCTC were assigned to Kimberly-Clark on or about December 31, 2000. KCTC was then dissolved.

12 The Third Plan and the Disclosure Statement were filed with the Bankruptcy Court pursuant to provisions of Chapter 11 of the Bankruptcy Code.

13 The reactivation of pulp mill operations, part of the First Plan also, did not materialize. In addition, a conditional settlement agreement with Kimberly-Clark, another part of the First Plan, was rendered void ab initio by the failure of certain conditions precedent.

14 Section 11(f) of the Act provides, in relevant part, that "a reorganization plan for a registered holding company, or any subsidiary company thereof, shall not become effective unless such plan shall have been approved by the Commission after opportunity for hearing prior to its submission to the court."

15 Section 11(g)(2) of the Act provides, in relevant part, that any solicitation for consents to or authorization of any reorganization plan of a registered holding company or any subsidiary company thereof shall be "accompanied or preceded by a copy of a report on the plan which shall be made by the Commission after an opportunity for a hearing on the plan and other plans submitted to it, or by an abstract of such report made or approved by the Commission."

16 The indenture trustee represents all of the bondholders.

17 On February 4, 1999, an official committee of unsecured creditors was appointed in the Chapter 11 cases ("Committee"). The Committee has not sought Bankruptcy Court approval to retain counsel or any other professionals to represent its interests. The Committee has not been actively involved in the bankruptcy cases.

18 S.D. Warren closed the paper mill on December 14, 2001. Although Kimberly-Clark has demolished the pulp mill, it continues to operate components of the mill and these legacy assets continue to use the services provided by Mobile Energy.

19 OEC filed for bankruptcy in December 2001, as did Enron Corp. and other affiliates of OEC. OEC continues to operate the Energy Complex in accordance with an operating agreement between it and Mobile Energy. As a debtor under Chapter 11 of the Bankruptcy Code, OEC could elect to reject the operating agreement. Applicants state that the management of Mobile Energy understands that risk and believes that in such event it could replace OEC with a new operator that would perform the same functions, and that there would be no interruption in services.

20 Mobile Energy previously filed an application with FERC seeking certification as a QF as of the effective date of the First Plan; however, the configuration presumed in the original application has been superceded by the configuration that serves as the basis for the Third Plan. Mobile Energy states that it will file the "self certification" application with the FERC contemporaneously with its emerging from Chapter 11, which it anticipates to be in mid to late July 2003. The certification will be effective immediately upon its filing with FERC.

21 As of December 31, 2002, the excess loss account approximated $54.9 million. This estimate assumes a corporate income tax rate of 35%.

22 As a reflection of that level of recovery, Southern recorded an expense of approximately $69 million in the third quarter of 1999 to write down its equity investment in Holdings to zero. An additional expense of approximately $10 million was recorded in the third quarter of 2000 to reflect additional liabilities under the Cogeneration Development Agreement, as amended by Amendment No. 1. Applicants state no further material impact on Southern's consolidated capitalization is expected as a result of the implementation of the Third Plan.

23 The materials to be included in the solicitation include the Third Plan, the Disclosure Statement and exhibits, the ballots and notice of confirmation hearing.

24 As noted previously, section 11(f) of the Act requires that the Commission approve a reorganization plan of a registered holding company or its subsidiary.

25 As noted previously, section 11(g) of the Act requires that the solicitation of consents or authorization in respect of plans to be accompanied by such information as the Commission deems necessary and appropriate in the public interest or for the protection of investors or consumers, and that the solicitation be accompanied by a copy of a report on the plan.

Applicants request that the Commission waive the filing of a separate Form U-R-1, on the basis that all the requisite information is included in the disclosure statement filed as an exhibit to the Application.

26 Section 12(d) of the Act makes it unlawful for any registered holding company to sell any security which it owns in any public-utility company, in contravention of Commission rules, regulations or orders. Section 2(a)(23) of the Act defines "sell" to include "any sale, disposition by lease, exchange or pledge, or other disposition."

27 The Commission has noted that:

In imposing upon this Commission the duty under section 11(f) of passing upon reorganizations of registered holding companies and their subsidiaries, Congress recognized that the efforts of the Commission should be coordinated with the work of the courts in reorganization cases. The objective of the Act could not be achieved if, while the Commission was applying the standards of the Act in some cases, reorganizations could be effected through the courts without the application of such standards.

Utilities Power and Light Co., 5 SEC 483, 512 (1939), quoting Peoples Light and Power Co., 2 SEC 829, 844 (1937) (Comm. Healy concurring). See also Columbia Gas Transmission Corporation, Holding Co. Act Release No. 26361 (Aug. 25, 1995).

28 As of December 31, 2002, Southern's consolidated capitalization (including current portions), was $23 billion, comprised of 38.3% common stock equity, 12% preferred stock and preferred securities and 49.7% debt.

29 Section 12(a) of the Act makes it unlawful for a registered holding company to "borrow, or receive any extension of credit or indemnity" from one of its subsidiary companies or a public-utility company in the same holding company system. Section 12(b) of the Act makes it unlawful for any registered holding company or subsidiary company to, "lend or in any manner extend its credit to or indemnify" any company in the holding company system in contravention of the Commission rules, regulations and orders.

30 See Mississippi Valley Generating Co. v. United States, 175 F.Supp. 505, 520-21 (Ct. Claims, 1959), affirming Mississippi Valley Generating Company, Holding Co. Act Release No. 12794 (Feb. 9, 1955).

31 In that order, the Commission noted that, under the terms of the acquisition documents, Mobile Energy and Scott agreed to indemnify each other with respect to environmental claims relating to the Energy Complex and each of the three mills, to the extent such claims arose after closing. Southern guaranteed uninsured claims against Mobile Energy under the terms of the environmental indemnity agreements. See Holding Co. Act Release No. 26185 (Dec. 13, 1994).

32 Applicants state that fees and expenses in connection with the entire bankruptcy is approximately $12,209,000.



Modified: 08/05/2003