[Federal Register Volume 66, Number 74 (Tuesday, April 17, 2001)]
[Notices]
[Pages 19807-19809]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-9503]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-23777]


Filings Under the Public Utility Holding Company Act of 1935, as 
Amended (``Act'')

April 11, 2001.

    Notice is hereby given that the following filing(s) has/have been 
made with the Commission pursuant to provisions of the Act and rules 
promulgated under the Act. All interested persons are referred to the 
application(s) and/or declaration(s) for complete statements of the 
proposed transaction(s) summarized below. The application(s) and/or 
declaration(s) and any amendment(s) is/are available for public 
inspection through the Commission's Branch of Public Reference.
    Interested persons wishing to comment or request a hearing on the 
application(s) and/or declaration(s) should submit their views in 
writing by May 7, 2001, to the Secretary, Securities and Exchange 
Commission, Washington, D.C. 20549-0609, and serve a copy on the 
relevant applicant(s) and/or declarant(s) at the address(es) specified 
below. Proof of service (by affidavit or, in the case of an attorney at 
law, by certificate) should be filed with the request. Any request for 
hearing should identify specifically the issues of facts or law that 
are disputed. A person who so requests will be notified of any hearing, 
if ordered, and will receive a copy of any notice or order issued in 
the matter. After May 7, 2001, the application(s) and or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

The Southern Company, et al. (70-9771)

    The Southern Company (``Southern''), 270 Peachtree Street, N.W., 
Atlanta, Georgia 30303, a registered holding company, and its wholly 
owned subsidiaries, Mobile Energy Services Holdings, Inc. 
(``Holdings'') and Mobile Energy Services Company, L.L.C. (``Mobile 
Energy'') \1\ both located at 1155 Perimeter Center West, Atlanta, 
Georgia 30338 (collectively, ``Applicants''), have filed an amended 
application-declaration (``Application'') under sections 6(a), 7, 
11(f), 11(g), 12(a), 12(b), 12(d), 12(e), 12(f) and rules 44, 45, 54, 
62, 63 and 64 of the Act. The Commission issued an initial notice of 
the filing of the Application on October 16, 2000 (HCAR No. 27254) 
(``Initial Notice''). The Initial Notice described the First Amended 
Joint Plan of Reorganization dated September 15, 2000 (``First Plan''). 
This supplemental notice describes the Second Amended Joint Plan of 
Reorganization dated February 21, 2001 (``Second Plan''). The Second 
Plan supercedes the First Plan although it contains numerous 
similarities.
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    \1\ Mobile Energy is a wholly owned limited liability company 
subsidiary of Holdings to which Holdings transferred all of its 
assets other than its equity interest in Mobile Energy in July 1995. 
Mobile Energy is an electric utility company within the meaning of 
section 2(a)(3) of the Act.
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    Applicants propose that the Commission issue: (1) An order under 
section 11(f) of the Act approving the Second Plan and certain related 
transactions under the Second Plan;\2\ and (2) a report on the Second 
Plan under section 11(g) to accompany a solicitation of creditors and 
any other interest holders for approval of the Second Plan in the 
bankruptcy proceedings.\3\
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    \2\ Section 11(f) of the Act provides, in relevant part, that 
``a reorganization plan for a registered holding company or any 
subsidiary 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.''
    \3\ 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.''
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    The Application includes the Second Plan and the First Amended 
Disclosure Statement (``Amended Disclosure Statement'') for Mobile 
Energy and Holdings. On January 14, 1999, Mobile Energy and Holdings 
(collectively, ``Debtors'') filed voluntary petitions in the United 
States Bankruptcy Court for the Southern District of Alabama 
(``Bankruptcy Court'') for protection under Chapter 11 of the United 
States Bankruptcy Code (``Bankruptcy Code''). Both entities filed as 
debtors in possession continuing their operations; as a result, the 
Bankruptcy Court has appointed no trustee or receiver. The Debtors and 
the Bondholder Steering Committee (explained below) filed the First 
Plan and Disclosure Statement Accompanying the First Plan (``Disclosure 
Statement'') with the Bankruptcy Court on September 15, 2000. On 
October 12, 2000, S.D. Warren Alabama, LLC (``S.D. Warren'') filed an 
objection (``Objection'') to the Disclosure Statement.\4\
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    \4\ The facilities at issue are located inside a large pulp, 
paper and tissue manufacturing complex in Mobile, Alabama 
(``Industrial Complex''). S.D. Warren owns the paper mill located 
inside the Industrial Complex.
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    The Debtors, the Bondholder Steering Committee and S.D. Warren 
engaged in a series of discussions regarding the possible resolution of 
the Objection. The negotiations have not resulted in the resolution of 
the Objection. On February 21, 2001, the Second Plan and the Amended 
Disclosure Statement were filed with the Bankruptcy Court.
    Under section 1125 of the Bankruptcy Code, the Debtors may not 
solicit votes for acceptances of the Second Plan until the Bankruptcy 
Court approves a disclosure statement that contains information of a 
kind, and in sufficient detail, adequate to enable creditors to make an 
informed judgment whether to vote for acceptance or rejection of the 
plan. A hearing is scheduled before the Bankruptcy Court to determine 
whether the Amended Disclosure Statement filed on February 21, 2001, 
meets the requirements of section 1125 of the Bankruptcy Code.
    Applicants state the purposes of the transactions described in the 
Second 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 capital investment; (3) eliminate the 
direct and indirect equity ownership of Southern in Mobile Energy and 
Holdings; and (4) allow Mobile Energy to operate as a qualifying 
facility (``QF'') under the Public Utility Regulatory Policies Act of 
1978 (``PURPA'') after the effective date of the Second Plan, which 
will cause Mobile Energy and Holdings to no longer be subject to the 
Act. Certain transactions contemplated by the Second Plan require 
Commission authorization. The jurisdictional aspects

[[Page 19808]]

of the Second Plan are summarized below.

I. Background

    Some of the facilities now owned by Mobile Energy were originally 
constructed by the Scott Paper Company (``Scott'') in the early 1960s. 
Scott sold the energy facilities, black liquor recovery equipment, and 
related assets, permits and agreements (``Energy Complex'')\5\ to 
Holdings.\6\ Mobile Energy was formed as a limited liability company in 
July 1995 then acquired ownership from Holdings of the Energy Complex. 
In late 1995 Scott was merged into a subsidiary of Kimberly Clark 
Corporation (``KC'') and the resulting entity was renamed Kimberly 
Clark Tissue Company (``KCTC''). Mobile Energy owns and operates the 
Energy Complex which together with the tissue mill, the pulp mill (both 
owned by KC),\7\ and the paper mill (owned by S.D. Warren), comprise 
the Industrial Complex. In 1998, KCTC notified Mobile Energy that KCTC 
would close its pulp mill and terminate its contract to purchase energy 
services from Mobile Energy. The consequences from the anticipated loss 
of the KCTC pulp mill contract and operations triggered the filing by 
Mobile Energy and Holdings of cases under Chapter 11 of the Bankruptcy 
Code.
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    \5\ 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.
    \6\ On Dec. 13, 1994 the Commission authorized Southern to 
organize Holdings as a new subsidiary and acquire all of its common 
stock (HCAR No. 26815).
    \7\ KC is the successor to KCTC by assignment. All assets and 
liabilities of KCTC were assigned to KC on or about December 31, 
2000. KCTC was then dissolved.
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II. Overview of the Plan

    Applicants request authorization for the solicitation regarding the 
Second 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 Second 
Plan.
    Mobile Energy intends to continue to operate its existing assets to 
provide services to KC's tissue mill and S.D. Warren's paper mill as 
part of on-going operations. As was the case under the First Plan, the 
pre-petition shares of common stock issued by Holdings and held by 
Southern will not receive any distributions under the Second Plan, and 
the shares will be canceled and extinguished on the effective date of 
the Second Plan. As a result, Southern's pre-petition shares in 
Holdings would no longer have any claim to voting rights, dividends or 
in fact any rights with respect to Holdings. The existing bondholders 
will hold the entire equity interest in the recognized Holdings. 
Holdings will continue to own 100% of the equity ownership of Mobile 
Energy. The Second Plan contemplates that after Southern is divested of 
its ownership of Mobile Energy, Mobile Energy will qualify as a QF 
under PURPA, rendering it not a public utility under the Act, and 
Holdings and its owners will not be subject to regulation as a public 
utility holding company.\8\
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    \8\ Applicants state Mobile Energy's application with the 
Federal Energy Regulatory Commission seeking certification as a QF 
is still pending and will be modified.
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    Applicants state, upon implementation of the Second Plan, and 
termination of the ownership interests of Southern and its affiliates 
in the Debtors, Southern and its affiliates will have substantially 
reduced obligations going forward with respect to Mobile Energy and 
Holdings. For instance, Southern guaranteed certain of Mobile Energy's 
obligations to its existing customers in 1995, and these guarantees 
will remain in place but Mobile Energy will indemnify Southern against 
any liability under those guarantees.

III. Bondholder Steering Committee

    An ad hoc committee of holders of Debtors' tax-exempt bonds and 
first mortgage bonds established the Bondholder Steering Committee, 
which is comprised of certain holders of existing securities as 
constituted from time to time. The Bondholder Steering Committee 
includes First Union National Bank as indenture trustee for each of the 
two bond issuances as an ex officio member. The indenture trustee 
represents all of the bondholders.
    At certain times, the Bondholder Steering Committee has been 
comprised of Credit Suisse First Boston Corporation (``CSFB''), Miller 
Anderson & Sherrerd, LLP, and Pan American Life Insurance Company (each 
of which holds first mortgage bonds): Franklin Advisors, Inc. and Van 
Kampen Investment and Advisory Group. (each of which holds tax-exempt 
bonds); and First Union National Bank (ex officio), as trustee. 
Franklin Advisors, Inc. resigned from the Bondholder Steering Committee 
in February 2001. The Bondholder Steering Committee, which collectively 
represents more than 70% of the current outstanding bondholders of the 
Debtors, supports confirmation of the Second Plan.

IV. Key Elements of the Second Plan

    Mirant Services L.L.C. (``Mirant Services''), previously known as 
Southern Energy Resources, Inc., operated Mobile Energy's facilities 
through March 31, 2001. Mobile Energy solicited proposals from third 
parties to act as operator of the Energy Complex after March 31, 2001. 
Mobile Energy selected Operational Energy Corporation (``OEC''), an 
affiliate of Enron, as the interim operation and maintenance (``O&M'') 
operator after March 31, 2001, both in an effort to pursue reduced O&M 
costs and consistent with contractual obligations with Mirant. 
Applicants contemplate OEC, as the new operator, will implement further 
cost reductions.
    In addition, Mirant Corporation (``Mirant''), previously known as 
Southern Energy, Inc., will assign certain contract rights and 
obligations to Mobile Energy related to a combustion turbine (``CT'') 
being manufactured for it by General Electric Company (``GE'') and 
under a long term services agreement related to that turbine with 
General Electric International Inc. (``GEII''), provided that Mobile 
Energy makes certain payments to Mirant at scheduled project 
milestones. Mirant will remain liable if Mobile Energy does not meet 
those obligations.
    The Second Plan focuses upon maintaining and furthering operating 
cost reductions in the context of continuing to provide services to 
those mills presently operating in the Industrial Complex (KC's tissue 
mill and S.D. Warren's paper mill), under two Energy Services 
Agreements (``ESAs''). In order to assess the merits of the business 
strategy incorporated in the Second Plan, two sets of projections have 
been prepared (``Continued Operations Projections'' and ``Curtailed 
Operations Projections''). Both sets of projections take into account 
existing O&M realities and cost reductions Mobile Energy expects to 
achieve by OEC. The Continued Operations Projections presumes the 
continued operations of both the tissue mill and the paper mill at 
current levels. The Curtailed Operations projections presumes that (1) 
S.D. Warren terminates the paper mill ESA and closes the paper mill; 
and (2) KC curtails tissue mill operations as suggested to the Debtors 
by KC representatives. Applicants note that both sets of projections 
show positive cash flows and thus value to the bondholders, who will be 
the future owners of equity interests in Holdings under the Second 
Plan. Applicants

[[Page 19809]]

further note both sets of projections also show greater value to the 
bondholders under the Second Plan than they would receive in 
liquidation.

V. The Cogeneration Development Agreement

    The Second Plan contemplates the development of a 165-megawatt gas 
fired cogeneration facility within the Industrial Complex (``Cogen 
Project''). Power produced by the Cogen Project would primarily be sold 
through the regional power transmission system to wholesale customers, 
providing the Debtors with additional income for the benefit of 
creditors. The development of the Cogen Project will occur under the 
MESC Cogeneration Development Agreement dated February 9, 2000, between 
Mobile Energy, Holdings, Mirant, and Mirant Services, as amended by 
Amendment No. 1 dated August 11, 2000 (``Cogeneration Development 
Agreement''). The Cogeneration Development Agreement provides, among 
other things, that: (1) None of Mirant, Mirant Services, or any 
affiliate will make any additional equity investment in Mobile Energy 
or the Cogen Project; (2) Southern's ownership of Holdings will 
terminate and the bondholders will acquire 100% of the ownership of 
Holdings under the terms of the plan; (3) Mirant Services will waive 
the $10 million Equity Option Fee (as defined in the Cogeneration 
Development Agreement); (4) Mobile Energy will terminate the operating 
agreement no later than March 31, 2001, and Mobile Energy will pay one-
half the actual cost of a retention and severance program implemented 
by Mirant Services for its workers at Mobile Energy's facilities, up to 
a total of $2 million; (5) the Cogen Facility Mobile Energy Operating 
Agreement will terminate; (6) Mobile Energy will retain an option to 
purchase the GE combustion turbine provided by Mirant to the Debtors 
under the Cogeneration Development Agreement, including the rights in 
related agreements, upon Mobile Energy's satisfaction of the MESC 
Transfer Obligations (as defined in the Cogeneration Development 
Agreement) other than the payment of the $10 million Equity Option 
Fee,\9\ (7) Mobile Energy will pay Mirant $2.9 million upon the earlier 
of the exercise of such option, the effective date of a plan, or July 
31, 2001; (8) Mobile Energy will be allowed to use the $2.1 million 
held by Holdings in its tax sharing account; (9) Southern will pay to 
the collateral agent, and release any claims Southern may have to, the 
$2.7 million that is subject to dispute under the maintenance Plan 
Funding Subaccount Southern Guaranty Agreement; and (10) Mobile Energy 
will agree to indemnify Southern from Southern's obligations under the 
Mill Owner Maintenance Reserve Account Agreement, the Environmental 
Guaranty, and for certain income taxes on taxable income of Mobile 
Energy and Holdings in excess of Southern's excess loss account related 
to its investment in Holdings and payments under the Long Term Service 
Agreement for Combined Cycle Generating Plant at MESC Electric 
Generating Plant. Southern, Mirant Services and Mirant will continue to 
hold a first priority lien on the Debtors' assets and those of any 
affiliate set up to own the Cogen Project to secure performance of all 
obligations that may be owed to Southern, Mirant Services and Mirant 
under the Cogeneration Development Agreement.
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    \9\ On Dec. 29, 2000, Mobile Energy exercised the option and 
notified Mirant that it intended to purchase the CT.
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VI. Treatment of Claims Under the Second Plan

    Generally, the bondholders under the Second Plan will receive 
shares in reorganized Holdings (``New Common Stock'') in exchange for 
their claims, including their outstanding bonds. Otherwise, the 
treatment of claims under the Second Plan is comparable to the 
treatment of claims in the First Plan.

A. Unsecured Creditors; Others

    Under the Second Plan, the claims of the general unsecured 
creditors and the claims of all other creditors, except Southern and 
its affiliates will be paid in full. The claims of unsecured creditors 
are approximately $431,000 without consideration of proof of claims 
(some of which claims have not been quantified by the claimants) from 
the mill owners against the Debtors. Debtors are contesting the mill 
owners' proof of claims.

B. First Mortgage Bonds

    Mobile Energy issued the 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%. Each holder of a First Mortgage Bondholder 
Claim shall receive in complete settlement satisfaction and discharge 
of their First Mortgage Bondholder Claims, a pro rata share of 72.594% 
of the New Common Stock.

C. Tax Exempt Bonds

    In December 1983, the Industrial Development Board of Mobile, 
Alabama (``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 (``1984 Tax Exempt Bonds''), the 
IDB issued 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 
Second Plan, each holder of a Tax-Exempt Bondholder Claim shall receive 
in complete settlement, satisfaction and discharge of their Tax-Exempt 
Bondholder Claims, a pro rata share of 27.406% of the New Common Stock.

D. Southern's and Its Affiliates' Claims

    Under the Second Plan, Southern and its affiliates will receive the 
treatment provided in the Cogeneration Development Agreement, described 
above, in full satisfaction of their claims. Generally, Southern's 
claims receive one of two different types of treatment in the Second 
Plan. The estimated recovery for Southern's pre-petition claims is 
approximately 0.3%. 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. Applicants state no further 
material impact on the consolidated capitalization is expected as a 
result of the implementation of the Second Plan. Southern's post-
petition claims will receive 100% payment under the Second Plan.

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 01-9503 Filed 4-16-01; 8:45 am]
BILLING CODE 8010-01-M