The Southern Company
Address:
270 Peachtree Street, N.W.
Atlanta, Georgia 30303
U.S.A.
Telephone: (404) 506-5000
Fax: (404) 506-0455
http://www.southernco.com
Statistics:
Public Company
Incorporated: 1947
Employees: 32,949
Sales: $11.59 billion (1999)
Stock Exchanges: New York Pacific Cincinnati Philadelphia Boston Midwest
Ticker Symbol: SO
NAIC: 221111 Hydroelectric Power Generation; 221112 Fossil Fuel Electric Power Generation; 221113 Nuclear Electric Power Generation; 221119 Other Electric Power Generation; 221121 Electric Bulk Power Transmission and Control; 221122 Electric Power Distribution
Company Perspectives:
OUR BUSINESS IS ENERGY. We supply it. To millions of people. To large energy users in regions with significant growth. In the Southeast. In California. In New England. And in other targeted areas throughout the United States. In China and the Philippines. In Germany and other European Union countries. And in South America and the Caribbean.
We're big. Nearly 50,000 megawatts big. That's among the biggest. We generate more electricity than anyone else in the United States.
We know what we're doing. That's clear in our growth. And in our success as one of the world's largest suppliers of energy. We are among the best in reliability, customer satisfaction and costs. And in making electricity cleaner.
We're successful. Our strategy is working. Our growth is exceeding our goals. We're doing what we said we would do.
Key Dates:
1912: Harry Atkinson forms Georgia Railway and Power Company.
1914: Construction of Lay Dam at Gadsden, Alabama, is completed.
1924: Thomas Martin and Eugene Yates create Southeastern Power and Light Company.
1926: Southeastern Power and Light acquires Georgia Railway and Power.
1929: New York holding company Commonwealth and Southern acquires all of Southeastern's utilities.
1947: Securities and Exchange Commission approves the formation of The Southern Company.
1982: Southern Energy is formed.
1998: Southern Energy joins Vastar to form Southern Company Energy Marketing (SCEM).
1999: Environmental Protection Agency files civil action suit against Alabama Power and Georgia Power.
2000: Southern Company participates in Alabama Direct FuelCell Demonstration Project.
Company History:
The Southern Company is a utility holding company whose principal subsidiaries provide power in Alabama, Georgia, Florida, and Mississippi. Nonutility assets include Southern Electric International, which markets technical services, Southern Company Energy Marketing, a joint venture with Vastar, and The Southern Investment Group, which seeks new business opportunities. With the gradual deregulation of the utilities industry in the 1990s, Southern Company expanded its holdings into New England, New York, the Midwest, and California, making it the largest power producer in the country. In addition, Southern now owns power generating operations in Europe, Hong Kong, the Philippines, and South America.
The Early 20th Century: Dams and Mergers
The Southern Company traces its roots to a group of entrepreneurs in Alabama and Georgia. Alabama's early power industry was led by James Mitchell and Thomas Martin. Mitchell worked for the Thomson-Houston Company, a predecessor of General Electric, and later built power plants and railroads in Brazil. After leaving Brazil he met with the United Kingdom's financial community and then came to the southern United States, where he scouted sights for hydroelectric installations. Eventually he decided to build a dam on the Cherokee Bluffs site along Alabama's Tallapoosa River.
Seeking to acquire the necessary land, in November 1911 Mitchell met Thomas Martin of Tyson, Wilson & Martin, a law firm handling the title work for hydroelectric developers along the Tallapoosa. Mitchell's technical expertise and access to U.K. capital meshed with Martin's legal training and local knowledge, and the two decided to join forces.
After the Cherokee Bluffs site became embroiled in a lawsuit brought by the owner of a waterwheel plant nearby, Mitchell and Martin turned to a site on the Coosa River at Gadsden, Alabama. The Gadsden site was owned by William P. Lay who in 1906 had organized the Alabama Power Company to dam the river. Lay had been unable to secure capital and readily agreed to join with Mitchell and Martin on the project.
Others also were planning hydroelectric projects along the Coosa and Tallapoosa Rivers. To prevent ruinous competition, Mitchell and 14 investor groups joined in the Alabama Traction, Light and Power Company, Ltd., a holding company organized in Canada to attract U.K. investment. Through Alabama Traction, Light and Power Mitchell raised British capital for Lay's dam. Built by engineer Eugene Adams Yates, Lay Dam was completed in 1914.
At this time Alabama Traction, Light and Power also was acquiring small hydroelectric power companies already in existence. During 1912 and 1913 it bought a 10,000-kilowatt steam electric plant in Gadsden, Alabama, and a 2,000-kilowatt hydroelectric plant at Jackson Shoals, Alabama. By 1913 the company was supplying electricity to Talladega and Gadsden.
Alabama Power Company, the operating subsidiary of Alabama Traction, Light and Power, expanded rapidly, but World War I depleted British capital and left Alabama Power overextended. Unable to meet his obligations Mitchell went to the United Kingdom and convinced bondholders to defer interest payments and authorize the sale of new bonds and preferred stock.
James Mitchell died in 1920 and was replaced as president by his lawyer partner Tom Martin. Martin helped Alabama Power grow by buying up small electric systems, sponsoring industrial development, and pushing rural electrification. He remained a force in the southern power industry through the 1950s.
Georgia's first hydroelectric project was built by S. Morgan Smith. In the 1870s Smith had invented a water turbine that won wide acceptance in Pennsylvania grist mills. Later he adapted his turbine to hydroelectric purposes and built a facility for clients at Appleton, Wisconsin. Around 1900 he began looking for a major city where he could build his own facility. Eventually he organized the Atlanta Water & Electric Power Company and dammed up the Chattahoochee River 17 miles north of Atlanta.
Smith died in 1903, so his sons Elmer and Fahs finished the dam, ran the S. Morgan Smith Company, and took over the Atlanta Water & Electric Power Company. They expanded the operation, built new plants, and sold turbines to other power projects, often taking an equity share in the new ventures as payment for their product.
Another person working on hydroelectric power in Georgia was A.J. Warner. Warner and investors formed the North Georgia Electric Company and built a dam, transmission lines, and an office building in the Atlanta area.
Soon after completing the dam the company fell on economic hard times. To strengthen cash flow, Warner worked out a deal with Elmer Smith in which Smith would buy Warner's electricity and sell it in Atlanta through the newly organized Atlanta Power Company. Despite the new business Warner's situation continued to worsen, and in 1910 Fahs Smith bought North Georgia Electric at a foreclosure sale.
Harry Atkinson, a young banker, also was active in the electric power industry in Georgia. In 1883 the Georgia Electric Light Company of Atlanta had received a franchise to supply the city. Georgia Electric Light of Atlanta got off to a poor start and became heavily indebted to the Thomson-Houston Company. In 1891 Atkinson and a group of Boston financiers gained control of the company and reorganized as the Georgia Electric Light Company.
Despite Atkinson's failures in sidelines such as shipping and railroads, Georgia Electric Light grew. With attorney Jack Spalding, Atkinson conducted a series of acquisitions, mergers, and consolidations. In 1912 he gathered a variety of Georgia utilities, including the Smith brothers' North Georgia Electric, into the Georgia Railway and Power Company. Most of the leading lights of the Georgia power industry sat on Georgia Railway and Power's board, and the company was the natural predecessor of Atkinson's Georgia Power Company, which in 1927 consolidated most of the state's remaining electric power companies.
Consolidation in the 1920s and 1930s
Steps toward the union of Alabama and Georgia Power began in 1924 when Tom Martin and Eugene Yates created Southeastern Power & Light Company, a holding company whose purpose was to amalgamate and integrate utilities throughout the state. Southeastern's first acquisition was Alabama Power, then owned by Alabama Traction, Light and Power of Canada. In 1925 Martin began negotiations with Georgia Railway and Power. A union seemed advantageous for both companies. The Georgia company needed new capital and supplementary power for dry seasons when rivers ran low. Southeastern was seeking new markets. In 1926 Southeastern acquired all the common stock of Georgia Railway and Power, which subsequently became Georgia Power Company.
Southeastern also acquired smaller utilities. In 1926 it bought properties in Augusta, Columbus, Macon, and Rome, Georgia, and amalgamated them into Georgia Power. The same year it acquired disparate electric properties in South Carolina, northwest Florida, and eastern Mississippi. The South Carolina properties became the South Carolina Power Company, the Florida operations became the Gulf Power Company, and the Mississippi properties became the Mississippi Power Company.
Martin's general manager, Yates, led the move toward technical interconnection. Southeastern also set up a wholesale power division to help convert factories from steam to electric power. Among early industrial converts were textile mills and coal mines.
The late 1920s saw electrical consolidation on a national scale. In 1929 a New York holding company called Commonwealth & Southern acquired all of Southeastern Power and Light's utilities. Commonwealth & Southern's chairman was a merger and acquisitions man named B.C. Cobb. In addition to the Southeastern properties, Commonwealth & Southern had a variety of Midwestern utilities and one other southern one, the Tennessee Electric Power Company, whose service area was contiguous to Southeastern's.
With the acquisition, Southeastern's president, Tom Martin, became president of Commonwealth & Southern. Cobb and Martin did not get along, nor at least initially did the northern and southern subsidiaries of Commonwealth & Southern. Within two years, Martin returned to the presidency of Alabama Power.
In 1932 Cobb retired and was replaced by Wendell Willkie. Willkie had been the company's general counsel and would later run for president of the United States. The Great Depression had caused a drop in industrial production and thus a drop in industrial consumption of electricity. Willkie needed to increase consumption and cut costs. To increase consumption, he pushed the sale of electric appliances. To reduce costs, he made draconian cuts in wages and personnel. Despite his efforts, the company lost money in the mid-1930s.
Willkie also had to face the Tennessee Valley Authority (TVA) and the Public Utility Holding Company Act of 1935, both of which threatened Commonwealth & Southern. In 1933 Congress created the TVA, chartered to develop surplus power from navigation and flood control dams. The TVA competed directly with the southern subsidiaries of Commonwealth & Southern. These subsidiaries and other utilities sued to question the TVA's constitutionality, but lost. Commonwealth & Southern sold Tennessee Electric Power to the TVA for $78 million in 1939, and in 1940 it sold sections of Alabama Power, Georgia Power, and Mississippi Power to the authority.
The Public Utility Holding Company Act of 1935 was written in response to the abuses of utility financiers such as Samuel Insull and Howard Hopson. The act permitted only contiguous and integrated systems and thus called for divestiture of some of Commonwealth & Southern's subsidiaries. Court challenges, negotiations, and World War II delayed dissolution until 1947 when the Securities and Exchange Commission (SEC) approved the creation of The Southern Company, comprising Alabama Power, Georgia Power, Mississippi Power, and Gulf Power. The company had to sell South Carolina Power to South Carolina Electric & Gas Company.
Postwar Expansion
The Southern Company's first president was Eugene A. Yates, former general manager of Southeastern Power & Light. Tom Martin, still a power in the organization, backed him.
The Southern Company lacked certain facilities. Among Yates's first acts was the creation of Southern Company Services, which ran power pooling operations, provided engineering for major projects, furnished pension and insurance services, and contributed staff services such as accounting and internal auditing. First owned jointly by the four operating subsidiaries, Southern Company Services became a directly owned subsidiary in 1963. Other housekeeping chores Yates was faced with included the sale of gas and transportation businesses, as required by the SEC.
The postwar years saw an increase in demand for power and a consequent increase in the need for capital. Southern made its first sale of common stock--1.5 million shares--in December 1949.
In 1950 The Southern Company acquired Birmingham Electric Company (BECO), which had long been pursued by Tom Martin. BECO's owner, the Electric Bond & Share Company of New York, put it up for sale in 1950 after the SEC ordered Electric Bond & Share to divest its holdings.
Also in 1950 Yates became chairman of The Southern Company, and Eugene McManus, president of Georgia Power, was promoted to president of the holding company. McManus gained nationwide attention for taking a new, friendlier approach in government-utility relations. He offered to supply municipalities and rural electric cooperatives at cost and he ended opposition to government hydroelectric projects.
In the mid-195Os The Southern Company became involved in a conflict-of-interest controversy. The Eisenhower administration had challenged the industry to provide 600,000 kilowatts for the Atomic Energy Commission's (AEC) southern installation. The Southern Company and Middle South Utilities proposed a plant that would sell electricity to the TVA, which in turn would sell it to the AEC. The Southern Company-Middle South venture won the contract but was dropped after it was discovered that a First Boston Corporation investment banker, working temporarily with the Bureau of the Budget, also had advised the utilities. In the end, the city of Memphis, Tennessee, built a municipal power plant to take up the load.
The late 1950s marked the beginning of a dramatic period of capital construction. In 1956 the company organized Southern Electric Generating Company (SEGCO), as a cooperative venture between Georgia Power and Alabama Power. With no coal deposits of its own, Georgia Power wanted a power plant in Alabama where it could be close to the source of energy and not pay rail costs; Alabama Power was attracted by economies of scale. Built on the Coosa River near Wilsonville, Alabama, and completed in 1962, the plant consisted of four 250,000-kilowatt units as well as two fully mechanized coal mines.
At the same time that SEGCO was gearing up, Tom Martin of Alabama Power was pushing for a series of dams on Alabama's Coosa and Warrior Rivers. The extensive project, which eventually provided 852,525 kilowatts of energy, took ten years and $245 million to build.
In January 1957 McManus left the presidency and was elected vice-chairman. Harllee Branch, president of Georgia Power, became president of The Southern Company. When Yates died in October 1957, McManus became chairman of the board. Branch's tenure was a long and satisfying one. As president and, later, chairman he served until June 1971. In Branch's first year, Georgia Power paid $11 million to acquire Georgia Power and Light, which served 38,000 customers in southern Georgia.
The 1960s were a time of construction, expansion, and profits. Sales, income, and dividends all increased yearly. Between 1960 and 1969 sales rose from $317 million to $666 million, net income went from $46 million to $94 million, and dividends rose from 70 cents to $1.15 per share.
By the late 1960s The Southern Company was showing the fruits of its huge building campaign. In 1969 it had 21 steam-electric plants and 30 hydroelectric power projects. Of the system's capacity, 81 percent came from steam-electric plants and 19 percent from hydroelectric dams. Overall, 31 percent of capacity had been constructed in the previous five years. The late 1960s also marked the beginning of a nuclear construction program.
In 1969 Harllee Branch, who had been president and chairman, retired as president in favor of Alvin W. Vogtle, Jr. The following year Vogtle became chief executive officer in anticipation of Branch's retirement as chairman.
The energy crisis of the early 1970s left The Southern Company virtually unscathed. At that point 84 percent of its electricity was generated by coal-fueled steam-electric plants and only 7.5 percent of the system's energy came from oil or natural gas.
Two concerns the company did have at this point were cleanliness of coal in an increasingly environmentally conscious nation and the availability of capital at a time when the company was spending more than $1 billion annually on construction. In the late 1970s a series of rate disputes between Southern's subsidiary Alabama Power and the Alabama Public Service Commission depressed earnings and caused the subsidiary to leave some jobs vacant and the parent to freeze its dividend payment.
The early 1980s saw a return to growth. In January 1982 The Southern Company formed Southern Electric International Inc. to market The Southern Company's technical expertise to utilities and industrial concerns. Large building programs also were continued. In 1984 The Southern Company announced that it would spend $7.1 billion over three years to complete seven generating plants including two nuclear units at the Vogtle site near Augusta, Georgia.
As the decade came to a close, Southern, like many utilities, found that its nuclear building program was over budget. In 1985 Southern had pledged not to pass through to ratepayers any more than $3.56 billion, which was then its share of the $8.35 billion estimated total cost of the Vogtle plant, which also had several smaller utilities as investors. Southern said any amount above that cap would be charged to its shareholders. When the estimated price of the project increased by $522 million in 1986, Southern posted a charge of $229 million against 1987 earnings. Problems with construction costs and regulators led to a series of disappointing earnings years and stagnant dividends.
In March 1988 The Southern Company acquired Savannah Electric & Power Company of Savannah, Georgia, for approximately 11 million common shares, exchanging 1.05 Southern shares for each Savannah Electric common share, a stock transaction valued at $239.3 million. Later that year the U.S. Attorney General's office in Atlanta began investigating Southern's tax accounting practices for spare parts. In 1989 it also began investigating whether executives at Gulf Power had made illegal political contributions. In 1989 Gulf Power pleaded guilty to conspiring to make political contributions in violation of the Public Utility Holding Company Act and impeding the Internal Revenue Service in its collection of income taxes. In accordance with the plea agreement, Gulf Power paid a fine of $500,000.
The year 1990 brought another disappointment as Georgia regulators refused to allow Southern to charge customers for a portion of its investment in the Vogtle nuclear plant. On a positive note, Southern agreed to sell a unit of Georgia Power's Scherer Plant to two Florida utilities for $810 million and formed Southern Nuclear Operating Company to provide services for nuclear power plants. Also in 1990, the Attorney General's office dropped its investigation of Southern's spare parts accounting practices.
The 1990s: The Global Age of Energy
The Energy Policy Act of 1992 inaugurated the era of deregulation
in the utilities industry. By encouraging competition in the nation's regional power markets, the new laws compelled major utilities to expand and diversify to survive. Southern Company responded aggressively to deregulation, both at home and abroad. In 1998 it merged with Houston-based Vastar to form Southern Company Energy Marketing, with the purpose of exploring possible acquisitions in Texas and the Southwest. That same year, Southern purchased generating facilities in New England, New York, and California. While Southern Company's regulated utilities in the Southeast continued to perform well throughout the 1990s, expansion into the unregulated market transformed the company into the nation's largest supplier of electricity by decade's end, when it could claim nearly 50,000 megawatts of power generation.
Southern Company also led the charge into the rapidly growing world energy market. It obtained its first overseas holding with the purchase of a 50 percent stake in Bahamian utility Freeport Power in 1992. This initial expansion was followed in 1994 with acquisitions in Trinidad and Tobago and in 1995 with the purchase of South Western Electricity in Great Britain. In 1996 Southern Company negotiated an agreement with Hong Kong billionaire Gordon Y.S. Wu to take over 80 percent of Consolidated Electric Power Asia (CEPA), gaining complete control of the company the following year. Under Southern's ownership, CEPA's earnings rose from $68 million in 1998 to $175 million in 1999. Sual, a 1,218 megawatt coal-burning generating facility in the Philippines, was up and running by the end of the decade. Southern Company was also the first American utility to break into the German market with its 1997 purchase of a 25 percent share of Bewag. In 1999 Southern established a marketing operation in Amsterdam, with the goal of exploring potential growth areas in central Europe. Southern Company's European earnings reached $170 million by 1999.
The 1990s also saw increased friction between the Environmental Protection Agency and the major utilities. The Clean Air Act Amendments of 1990 imposed stricter standards on the reduction of harmful emissions from generating plants, establishing annual emissions reduction goals and requiring utilities plants to cease making repairs on outdated coal-burning facilities that lacked adequate pollution control equipment. In 1999, the EPA filed a civil action suit against seven major utilities, including Southern Company, for alleged noncompliance with these regulations. The companies also were cited for emitting illegal levels of smog-causing nitrogen oxides and sulfur dioxide. If found guilty of these violations, Southern Company could be required to pay millions of dollars in penalties.
In spite of these allegations, Southern Company had taken measures in the 1990s to establish itself as an industry leader in the reduction of harmful emissions. Over the course of the decade, Southern reduced its nitrogen oxide emissions by more than 20 percent, and its sulfur dioxide emissions by 30 percent, all while increasing production of electricity by 20 percent. The company devoted more than $4 billion over the course of the decade to environmental protection measures, including the country's largest electric vehicle leasing program for its employees. Southern Company also volunteered for the Department of Energy's Climate Challenge Program to reduce Carbon Dioxide. While coal-burning power plants still accounted for 78 percent of Southern's energy production in the year 2000, the company had pledged to reduce that figure to 60 percent by the year 2010, and 45 percent by 2020. In 2000 Southern Company participated in the Alabama Direct Fuel Cell Demonstration Project, an effort to develop cleaner power generation through electrochemical technology.
Much of Southern Company's future success overseas would depend on the stability of the Asian economy. By the year 2000, however, it was clear that the company's assertive business strategies had given it an edge in the competition over international energy markets. While increased investor interest in technology stocks in the late 1990s decreased the market share of the major utilities, Southern Company's continued commitment to aggressive domestic growth throughout the decade helped make it the leading provider of electric power in the United States.
Principal Subsidiaries: Alabama Power Company; Consolidated Electric Power Asia (Hong Kong); Georgia Power Company; Gulf Power Company; Mississippi Power Company; Savannah Electric and Power Company; Southern Energy, Inc.; Southern Company Energy Marketing, L.P. (60%); Southern Company Services, Inc.; Southern Nuclear Operating Company, Inc.; Western Power Distribution (U.K.; 49%).
Principal Competitors: Enron Corp.; Entergy Corporation; Tennessee Valley Authority (TVA).
Further Reading:
Burnett, Richard, 'Power Player: An Atlanta-Based Utility Giant Prepares for Deregulation and a Move into Florida,' Orlando Sentinel (Fla.), March 2, 1997, p. H1.
Carter, Janelle, 'Clean Air Law Sparks Suits: DOJ Targets Utilities with Coal-Burning Plants,' Associated Press, November 3, 1999.
Crist, James F., They Electrified the South, Atlanta, Ga.: The Southern Company, 1981.
Quinn, Matthew C., 'Southern Wins Race to Asia: Acquisition Will Turn It into World's Largest Independent Power Company,' Atlanta Journal and the Atlanta Constitution (Ga.), October 10, 1996, p. F01.
Source: International Directory of Company Histories, Vol. 38. St. James Press, 2001.
