The Southern Company

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The Southern Company

64 Perimeter Center East
Atlanta, Georgia 30346
U.S.A.
(404) 393–0650
Fax: (404) 668–2672

Public Company
Incorporated: 1945
Employees: 30,263
Sales: $7.98 billion
Stock Exchanges: New York Pacific Cincinnati Philadelphia Boston Midwest

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, and The Southern Investment Group, which seeks new business opportunities.

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 Cherokee Bluffs 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 were also 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 was also 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 U.K. 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 in debt 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 brother’s 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.

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 mid western utilities and one other southern one, the Tennessee Electric Power Company, whose service area was contiguous with 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.

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 the Birmingham Electric Company (BECO). Long 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-1950s The Southern Company became involved in a conflict-of-interest controversy. The Eisenhower administration had challenged 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 the 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 Wilson-ville, 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 70C 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% came from steam-electric plants and 19% from hydroelectric dams. Overall, 31% 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% of its electricity was generated by coal-fueled steam-electric plants and only 7.5% 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 were also continued. In 1984 The Southern Company announced 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 Plant Scherer to two Florida utilities for $810 million and formed the 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.

Principal Subsidiaries

Alabama Power Company; Georgia Power Company; Gulf Power Company; Mississippi Power Company; Savannah Electric and Power Company; Southern Company Services Inc.; Southern Electric International, Inc.; The Southern Investment Group; Southern Nuclear Operating Company.