8-KOther Events

SOUTHERN CO 8-K Report (Apr 23, 2003)

Filed April 23, 2003For Securities:SOSOJESOJFSOJCSOJDSOMN

Summary

Southern Company (SO) has filed an 8-K report detailing a significant agreement with Dynegy, Inc. to resolve outstanding matters related to power purchase agreements (PPAs) and letters of credit involving its subsidiaries, Mississippi Power Company and Southern Power Company. This agreement is expected to result in a one-time after-tax gain of approximately $88 million for Southern Company. The resolution involves Dynegy making substantial cash payments and terminating certain PPAs, simplifying Southern Company's contractual obligations and financial arrangements. The agreement includes Dynegy making a total cash payment of $155 million ($75 million to Mississippi Power and $80 million to Southern Power). Key PPAs related to Plant Dahlberg and Plant Franklin will be terminated. The PPA for Plant Daniel will be amended to reduce capacity payments to zero from June to October 2003, with the PPA terminating on October 31, 2003. This resolution is seen as a move to de-risk certain contractual exposures and provides financial certainty regarding these specific agreements.

Key Highlights

  • 1Southern Company reached a resolution agreement with Dynegy, Inc. concerning existing power purchase agreements (PPAs) and letters of credit.
  • 2The agreement is expected to generate a one-time after-tax gain of approximately $88 million for Southern Company.
  • 3Dynegy will make a total cash payment of $155 million to Southern Company's subsidiaries, Mississippi Power ($75 million) and Southern Power ($80 million).
  • 4Certain PPAs between Southern Power and Dynegy related to Plant Dahlberg and Plant Franklin will be terminated.
  • 5The PPA for Plant Daniel with Mississippi Power will be amended to reduce capacity payments significantly and will terminate on October 31, 2003.
  • 6Letters of credit supporting Dynegy's obligations for Plant Dahlberg and Plant Franklin will be returned upon closing.
  • 7Southern Power may defer further development of Plant Franklin Unit 3 due to revised capacity needs following these PPA terminations.

Frequently Asked Questions

The agreement is expected to result in a one-time after-tax gain of approximately $88 million for Southern Company. Additionally, Mississippi Power will recognize capacity revenues totaling approximately $8.8 million for the period from June through October 2003 due to the amended terms for Plant Daniel.

The agreement resolves outstanding matters related to PPAs between Dynegy's subsidiaries and Southern Company's subsidiaries, Mississippi Power and Southern Power. Specifically, PPAs for Plant Dahlberg and Plant Franklin will be terminated. The PPA for Plant Daniel will be amended and subsequently terminated on October 31, 2003.

The agreement involves the extension and eventual return of certain letters of credit. Letters of credit in favor of Southern Power related to Plant Dahlberg and Plant Franklin will be returned upon closing. A letter of credit in support of Dynegy's continuing obligations under the PPA for Plant Daniel will be maintained.

Yes, Southern Power is evaluating its construction schedule for Plant Franklin Unit 3. Due to the revised capacity needs stemming from the proposed PPA terminations, they may decide to defer further development of this project.