A summary of the revenues and expenses of the Southeastern Power & Light Co. for the period October 1, 1924, to December 31, 1929, is included as Exhibit No. 31 within commission's Exhibit No. 4723.

An analysis of the expenses of Southeastern Power & Light Co. for the years 1925 to 1927 disclose the following:

[32] 1. During the year 1925 expenses of Southeastern Power & Light Co., aggregating $413,587, were charged to Mississippi Power Co. and Cherokee Land Co. During this year the Southeastern Power & Light Co. was receiving a management fee from its subsidiary companies. The expenses absorbed by Southeastern Power & Light Co. in that year were $827,723.85. This amount includes both the management expense of Southeastern Power & Light Co. applicable to the management fee and its administrative expense.

2. In 1926 the Southeastern Power & Light Co. received management fees from the operating utility companies to and including May, 1926, and from the nonutility companies to December, 1926. In March, 1926, expenses which had previously been allocated as management expenses were charged direct to subsidiary companies in lieu of the so-called management fee.

3. In 1927 the same practice was followed as in 1926 with the exception that no management fees were received from the utility companies.

4. While the statements prepared of expenses of Southeastern Power & Light Co. for 1926-27 show a great decrease in expenses over 1925, such was not the case. The expenses which were incurred in 1926-27 were larger due to the formation and merging of constituent companies into the Georgia Power Co. and South Carolina Power Co. The expenses applicable to mergers were in those two years charged to reserve for investigation and acquisition expense. The amount of expenses charged to this reserve could not be fully determined. [32a] Exhibit No. 31 and supporting schedules within commission's Exhibit No. 4723 bring out the above facts. A summary of the amounts follows:

1 Exclusive of management expense applicable to fee received from Dixie Construction Co.

[33] RATE OF RETURN TO SOUTHEASTERN POWER & LIGHT CO. ON ITS CAPITAL AND

SURPLUS

The average per cent earned on Southeastern Power & Light Co.'s invested capital, as represented by its capital stock and accumulations in surplus for the year 1929, was 6.18 per cent, and is based on the following:

Average value capital stock outstanding.

Value of funded debt_

Surplus at Jan. 1, 1929_

Total average book value..

Less appreciation of capital stock values (see Exhibit No. 26-A within commission's Exhibit No. 4723).

Adjusted book value..

Net income before fixed charges.
Per cent earned____

$170, 219, 574. 20 41, 491,000.00 6, 926, 516. 92

218, 637, 091. 12

43, 562, 500, 00

175, 074, 591. 12 10, 816. 739.33 6.18

In addition to the above deduction of $43,562,500, there should also be deducted a portion of the value which was allocated to common and preferred stocks which were issued in exchange for Georgia Railway & Power Co. securities and for purchase of Washington Land Co. properties. In the section of this report devoted to investment in Georgia Power Co. and Appalachian Development Co., there is brought out the fact that the common and preferred stocks of the Southeastern Power & Light Co. are of no par value, preferred stocks of the Southeastern Power & Light Co. are of no par value, and the value which was placed on properties or securities which it acquired. in exchange for its own securities, was reflected in its capitalization. There fore, if there was an appreciation in the values of the securities or properties of these two companies some recognition should be given to same when arriving at the rate of return to the Southeastern Power & Light Co. on its capital stock and surplus.

Exhibit No. 32 within commission's Exhibit No. 4723 is a summary of the average return on its total invested capital, segregated also as to its retura on the common stock outstanding.

The Southeastern Engineering Co., whose control was vested in the Southeastern Power & Light Co., performed in 1928-29 management and supervision service previously rendered by the Southeastern Power & Light Co. to its subsidiaries.

The Southeastern Engineering Co. made available to the Southeastern Power & Light Co. and its subsidiaries its various departments for their use, charging a stated amount which at the end of the year was adjusted, so that there would be neither profit or loss to the Engineering Co. In 1928 the expenses of the Southeastern Engineering Co. aggregated $587.946.44 and this was also the amount received by it as revenue.

Of the revenues received in 1928 there was paid by the Southeastern Power & Light Co. $5,543.76, which was their portion for that year. A statement of the revenues and expenses of Southeastern Engineering Co. for the year 1928 appears as Exhibit No. 20-A, within commission's Exhibit No. 4723.

SALE OF PREFERRED STOCK OF SUBSIDIARIES

The majority of sales of preferred stocks of subsidiary companies was handled by the Southeastern Securities Co. The Southeastern Power & Light Co., if it received any preferred stocks by mergers or otherwise, turned over to its subsidiary company, the Southeastern Securities Co., all first preferred stocks for disposition either through customer ownership campaigns or to brokers. During the period 1925 to 1927 the Southeastern Securities Co. conducted campaigns for the various subsidiaries of the Southeastern Power & Light Co. for the sale of their preferred stocks, for which it received a commission of $2 on each share sold, which was to reimburse it for expenses incurred in these campaigns. Commencing with the latter [35] part of 1927, the expenses of

e Southeastern Securities Co. having been reduced to a comparatively neggible amount, largely on account of the broadening of the preferred-stock arket, this payment of $2 per share on certain of the companies was disntinued. The commission receive from the subsidiary, Mississippi Power ., which conducted campaigns after 1927 was $1 per share. This was acmplished in the following manner: Southeastern Securities Co. would purase from the subsidiary company shares of its preferred stock at an agreed ice. It would then transfer in blank to the subsidiary company such stock, hich was to be sold by the subsidiary company to the public in the State in hich it operated, at not less than an agreed price per share. All of the roceeds of such sale in excess of the agreed price at which such stock was rchased by the Southeastern Securities Co. plus $1 per share was retained y the Mississippi Power Co. The Securities Co. received $1 per share to imburse them for expenses.

6 and 37]

CHAPTER III.-SECURITY APPRECIATIONS

SECURITY OR PROPERTY APPRECIATION

As of December 31, 1929, there are known appreciations of security values the Southeastern Power & Light Co. records aggregating $42,597,229.19, hich are as follows:

The above items are explained under the section of this report devoted to vestment in the various subsidiary companies' securities affected. The amount of $2,934,399.24 includes $500.000, which was the cost of 5,000 hares of common stock of McComb-Magnolia Light & Railway Co. These hares were reacquired from Mississippi Power Co.; the cost of same was harged to capital surplus. (See also Exhibit No. 26A, within Exhibit No. 4723). In addition to the above there are several apparent appreciations of proprty or securities by the placing of values on securities acquired, when no ar stocks of Southeastern Power & Light Co. were issued for same. The specific cases of apparent appreciations are in respect to the securities of Georgia Power Co. (see pp. 58 to 60 in this report) and on properties of Appalachian Development Co. (see pp. 124-125), both of which are important n amount.

38]

CHAPTER IV.-INVESTMENTS IN PUBLIC-UTILITY COMPANIES

SECTION 1.-General

GENERAL SURVEY

The Southeastern Power & Light Co. at December 31, 1929, controlled, by stock ownership, companies engaged in the manufacture and distribution of electric power and light, mining of coal, development of water-power sites; also land companies, construction companies, engineering and management company, and financing company.

The control of these companies had been acquired by cash and issuance of Southeastern Power & Light Co. securities.

The major utility companies controlled at December 31, 1929, are companies which have been formed or merged by the Southeastern Power & Light Co. during the period September 30, 1924, to December 31, 1929.

The Southeastern Power & Light Co. had from time to time purchased securities of various companies the major portion of which it sold on account to its subsidiary, Southeastern Securities Co.; the latter company then purchased additional securities and entered into agreements either with a new company which had been formed or one which was already controlled by Southeastern Power & Light Co., and transferred the securities to the newly organized or controlled company, for its securities. The Southeastern Securities Co. then delivered the voting stocks and certain second preferred stocks of the new company, at the value which it carried them on its books, to the Southeastern Power & Light Co., retaining for disposition to the public, bonds and such other preferred stocks that it had thus acquired.

Exhibit No. 3 within commission's Exhibit No. 4723 is a summary of the investment by Southeastern Power & Light Co. in the several companies for the years 1924 to 1929, inclusive.

[39] The following sections of this report classify these investments and the costs to the Southeastern Power & Light Co. and/or its subsidiary, Southeastern Securities Co.

Exhibit No. 25 within commission's Exhibit No. 4723 shows the extent of control by Southeastern Power & Light Co. at December 31, 1929, of the various companies in which it has investments.

[40]

CHAPTER IV.-INVESTMENT IN PUBLIC-UTILITY COMPANIES

SECTION 2.-Southern Power Securities Corporation

ORGANIZATION

The Southern Power Securities Corporation was organized under the laws of the State of Maine by the Southeastern Power & Light Co. for the purpose of acting as a vehicle whereby the Southeastern Power & Light Co. could appreciate the values of certain stocks and issue additional common shares.

COST OF SECURITIES CONVEYED TO SOUTHERN POWER SECURITIES CORPORATION Prior to the organization of the Southern Power Securities Corporation the Southeastern Power & Light Co. had acquired certain securities which were transferred at cost, $4,439,369.35, to its subsidiary, the Southeastern Securities Co. The latter company then purchased additional securities at a cost of $1,035,256.36. The aggregate cost of these securities, as set forth in Exhibit No. 14 within commission's Exhibit No. 4723 was $5,474,625.71 and they were sold on August 10, 1925, to Southern Power Securities Corporation for the issuance of 9,995 shares of the last-named company's nonpar common stock to the Southeastern Power & Light Co.

Simultaneously the board of directors of the Southeastern Power & Light Co. met on August 10, 1925, and agreed that it was desirable to increase the authorized capital stock of the company and to merge with the Southern Power Securities Corporation.

APPRECIATION OF SECURITIES SOLD TO SOUTHERN POWER SECURITIES CORPORATION WHEN REACQUIRED BY MERGER

As shown by Exhibit No. 14 within commission's Exhibit No. 4723, the Southeastern Power & Light Co. reacquired in the same month, August, 1925, the securities it had sold to the Southern Power Securities Corporation, through its subsidiary the Southeastern [41] Securities Co. When the Southern Power Securities Corporation acquired the securities shown on Exhibit No. 14 within commission's Exhibit No. 4723, they were placed on the books of that company at a valuation of $32,372,901.18, or an increase of $26,898,275.47 over the cost of the securities to the Southeastern Power & Light Co. and/or its subsidiary the Southeastern Securities Co.

When the Southeastern Power & Light Co. reacquired the securities, by consolidation with the Southern Power Securities Corporation, they were taken into its investment account at the appreciated figure and the increase of $26,898,275.47 was added to the value of common stock of the Southeastern Power & Light Co. and at the same time 1,360,000 additional no par common shares were issued in accordance with the consolidation agreement with Southern Power Securities Corporation. (See Appendix No. 1, within commission's Exhibit No. 4724.)

[42]

CHAPTER IV.-INVESTMENTS IN PUBLIC-UTILITY COMPANIES
SECTION 3.-Alabama Power Co.

INCORPORATION

The present Alabama Power Co. was incorporated November 10, 1927, under the laws of the State of Alabama, by the merging of predecessor companies of Alabama Power Co., Gulf Electric Co., and Houston Power Co., all of which companies were controlled by Southeastern Power & Light Co. through stock ownership.

GROWTH OF ALABAMA POWER CO.

At the time Southeastern Power & Light Co. acquired control of Alabama Power Co. from Alabama Traction Light & Power Co. (Ltd.), September 30, 1924, there were outstanding 187,510 common shares of Alabama Power Co. In 1925 the Alabama Power Co. merged with Birmingham, Montgomery & Gulf Power Co. and the Sheffield Co., at which time there was a 2-for-1 split up of the common stock, and additional shares were issued for the above two companies' properties.

In 1927 the Alabama Power Co. merged with Gulf Electric Co. and Houston Power Co., and the common stock of the new company was issued on a 5-for-1 basis for Alabama Power Co. and a 1-for-1 basis on the Gulf Electric Co. and Houston Power Co. stock.

The Southeastern Power & Light Co. had also acquired at September 30, 1924, debentures of Alabama Power Co. aggregating [43] $12,170,000. The principal amount of these were, in 1929, converted into 893,247 common shares, so that at December 31, 1929, there were outstanding 3,250,000 common shares, all of which were owned by Southeastern Power & Light Co.

The capitalization of the Alabama Power Co. at December 31, 1924, amounted to $31,080,640.15 and at December 31, 1929, was $67,842,676.08. An investigation has been made of the Alabama Power Co., the report on which explains in detail the growth of that company.

THE SHEFFIELD CO.-PROPERTIES OWNED

The Sheffield Co., an Alabama corporation, at time of acquisition by Alabama Power Co., owned the electric lighting, power, and street-railway system serving the cities of Sheffield, Tuscambia, and Florence and had outstanding 7,000 shares of common stock.

ACQUISITION AND COSTS OF THE SHEFFIELD CO. BY SOUTHEASTERN SECURITIES CO.

Under date of December 2, 1924, George Parsons & Sons entered into an agreement, copy of which is included as Appendix No. 4 within commission's Exhibit No. 4724, with Alabama Property Co., which was performed by Sheffield Securities Co. (organized for this purpose), whereby there would be delievered securities of the Sheffield Co., which company also owned securities of the Sheffield Development Co. and Union Land Co., for a net cost of $2,100,000. [44] The Southeastern Securities Co. advanced the cash to Sheffield Securities Co. and the accounting for same as shown by Exhibit No. 4-c within Commission's Exhibit No. 4723 was as follows:

Cash advanced to Sheffield Securities Co.:

Value placed on 20,000 shares Sheffield Development Co. common
stock...

Value placed on 10,000 shares common stock of Consumers' Water
Co-----

$750,000

370, 000

Value placed on stock and assets of the Sheffield Co--

980, 000

2, 100, 000

SALE OF THE SHEFFIELD CO. PROPERTIES TO ALABAMA POWER CO.

Under date of January 21, 1925, the Alabama Power Co. entered into an agreement (see Appendix No. 5, within Commission's Exhibit No. 4723) with Coosa Securities Co. (name later changed to Southeastern Securities Co.). The tenor of this agreement was that the stockholders (Coosa Securities Co.)