Prepared Remarks by A.W. Dahlberg, Chairman The Southern Company

The Southern Company Annual Meeting of Stockholders

The Savannah Civic Center Savannah, Ga.

Wednesday, May 24, 1995 10:00 a.m.

We are happy to be here in Savannah, the headquarters of one of our five operating companies -- Savannah Electric and Power Company.

As many of you know, we like to move our annual meeting around throughout this great region of America that we are privileged to serve. And as some of you may remember, the last time we were here in Savannah was in 1989, at the close of a very successful decade for The Southern Company.

At that time, we discussed with you some moves we were making to prepare for the changes that we saw on the horizon for our industry.

As you know, a lot has changed in our industry since 1989, and we’ve managed to remain successful through this period. Last year was particularly noteworthy for us.

We were recognized as America’s most admired electric utility by Fortune magazine. We were also ranked among the Fortune 500 for the first time. We ranked 142nd in the survey, which included service companies for the first time.

Our financial performance was among the best in our industry.

If it had not been for a one-time charge of $61 million for a work force reduction program, our earnings would have continued their upward trend, surpassed the billion mark again, and broken 1993’s net income record.

And as you can see, our dividends per share also continued their upward climb in 1994. And we project they will continue that climb in 1995.

Our earnings for the first four months of 1995 were $247 million or 37 cents a share, compared with $180 million or 28 cents a share for the same period last year.

Net income for the 12 months ending April 30, was $1.06 billion or $1.61 a share, compared with $974 million or $1.52 a share for the year ending April 30, 1994. Again, earnings for periods ending in 1994 were affected by charges of $58 million for work-force reduction programs.

But as you well know, the value of your stock is determined by what we do from here on out. And as you are aware, our industry is embarking on a course that will be marked by ever-increasing change. The changes we have seen since we were last here in Savannah will likely amount to only a fraction of the changes we could see between now and the end of this decade.

I cannot stand here and tell you with complete certainty the changes that lie ahead or when they will occur. But I do know that we’ll continue to have pressure for more competition in our business. And we’ll see it more and more every day.

This pressure for change is being driven by three factors:

The first is our global economy. If our industrial customers sell products in global markets, then we must compete with the cost of a kilowatt-hour in Taiwan and the cost of a kilowatt-hour anywhere else in the world. So we have that pressure -- as a supplier to any company marketing products in a global economy.

The second driving force is technology. With today’s technology, we can do so many things that we couldn’t do a few years ago. There was a time when we couldn’t conceive of multiple electricity suppliers transmitting power into a grid going to multiple customers.

But, yes, that is possible now. A good computer and good engineers can keep up with that type of system.

The third driving force is the philosophical belief that competition is better than monopoly and that less regulation is better than more regulation. It’s a belief that has changed the airline industry, has revolutionized the natural gas and the telecommunications industries, and has now begun to change our industry.

If we look out at the landscape of our industry today, we see increasing competition to build new generation -- specifically from independent power producers.

We see a multitude of power marketers, pushing hard for more retail competition.

We see our retail customers demanding more choices and more control over their energy costs.

We see wholesale rates being driven down across the country -- thanks largely to the Energy Policy Act of 1992.

And we see federal regulators calling for further restructuring.

But, at the same time, we realize that we, ourselves, have more influence on the future success of our company than any other force. So we are embarking on a course to ensure our success today and into the 21st century.

As you might imagine, during the 18 months since I was named president, I’ve spent a great deal of time thinking about our business ... about the changes that are occurring in our industry ... and about what our company should look like in the year 2000 and beyond. We’ve called this strategic thinking process Southern Beyond 2000.

We unveiled our plans in March -- after I was elected chairman and CEO as well -- and now I’d like to share them with you.

Our goal is clear and straightforward. We intend to be America’s Best Diversified Utility.

Those four words each have a specific meaning for us.

When we say we want to be America’s Best Diversified Utility, that means we do not intend to limit ourselves to the southeastern United States, that we do not intend to limit ourselves to our traditional service territory.

Many of you, I’m sure, remember seeing the map behind you in our annual report. It’s a map of our offices and locations throughout the world. It represents quite a departure from the service-area map that would have appeared in our annual report a decade ago.

But we’re not going to stop being the Southeast’s major utility. We have been the Southeast’s major utility for years, and we will continue to serve the Southeast -- first and foremost.

But our vision is to be more than just a Southeastern utility. We intend to be an American utility. In the changing landscape of today’s electric utility industry, we see this entire country as a potential marketplace.

Now, several of our employees have asked me if being America’s Best is too restrictive. They ask me, “Shouldn’t we set a goal of being the world’s best?” And certainly our operations have begun to extend across the entire globe.

But when we thought about what could be our strongest selling point when we go market ourselves around the world, we decided that if we could hold ourselves up as “America’s best,” we’d do OK.

Now, just by looking at the map, you can see that we intend to be diversified geographically. But diversified means more than that. It means we are going to be in several utility-type businesses. And I want to stress that fourth word -- the word utility. We don’t intend to diversify into things we don’t know how to do. And there are many things we don’t know how to do.

But there are many things that we do have the expertise to do, and we must look at those things if we’re thinking about how we will grow beyond our current business.

We intend to be in four major businesses:

Our traditional core business, of course.

The international independent power production business -- which we would operate through our Southern Electric International subsidiary.

The domestic power generation and power marketing businesses, which would also be operated through SEI.

And major new business lines we choose to enter.

What will our strategies be?

Well, to start with, if we’re going to grow, we’re going to have to run our core business as well as anyone in the country. To do that, we will have to continue to drive our costs down. We will have to be a cost leader and a price leader.

As you can see, we have already made progress in driving down the average price of a kilowatt-hour -- from 6.14 cents in 1991 to 5.94 cents in 1994.

But we must continue to drive down prices, particularly for industrial customers. We know our core business is going to be threatened by additional competitors, but we will defend it through price leadership. We will drive down our costs and drive up customer satisfaction.

This diagram shows the four business areas I described and how we will remain a utility in all four. In international power development, we went from 76th globally to 16th in megawatts of capacity owned during 1994. SEI is now seen as a very desirable partner by other developers.

Domestically in 1994, SEI became owner of the energy island at the Scott Paper complex in Mobile, Alabama. This year, SEI has filed for a power marketing license, which would allow us to sell electricity that we do not generate to wholesale customers and possibly -- in the future -- to retail customers as well.

Now, as for our fourth business unit, I can’t tell you exactly what will fall in that block. We think there are some applications within telecommunications that would be appropriate for us.

We also think there may be some attractive opportunities in the water utility business, or the garbage utility business, or the natural gas utility business.

Right now, we can’t be in most of those businesses because of an antiquated piece of legislation known as the Public Utility Holding Company Act of 1935. But this fourth block is based on the assumption that we can get the holding company act repealed either this year or next year. And we are working in Washington right now to do that.

Now you might ask me, “If you are going to be America’s Best, how are you going to define best?”

Well, I would tell you that we have no aspiration for ourselves but to be in the best quartile in all meaningful measures -- with a view toward the top.

That means that once we get into the best quartile of the industry in a certain measure, then we have to move up within that quartile in order to satisfy our goal of being America’s best. That’s the challenge we’ve given ourselves -- to be in the best quartile in all meaningful measures with a view toward the top.

Last year, we achieved best-quartile performance in our three corporate goals of customer satisfaction, costs, and return on equity.

Those goals remain unchanged for 1995.

We plan to add goals in other areas that we feel are critical to our success.

What we try to accomplish is important, of course, but how we accomplish it is also important. So we have set forth a group of attitudes or behaviors that we expect our successful people to exhibit. You can see them on this slide.

We call these values “The Southern Style,” and they are extremely important to us. If our people exhibit these values, then our company will exhibit them too.

Now, that’s our gameplan. That’s what we intend to do and how we intend to do it.

As you can see, we are in this business for the long haul. We are committed to making The Southern Company a solid long-term investment for you.

We will help shape this transition period in our industry, and we will be successful during this period.

With the help of our employees, our board of directors, and our shareholders, we believe we can be America’s Best.


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