Statement by Douglas G. Cogan

## Investor Responsibility Research Center

**U.S. Senate Committee on Environment and Public Works**

**Subcommittee on Clean Air, Climate Change and Nuclear Safety**

### June 5, 2003

My name is Douglas G. Cogan. I am the Deputy Director of Social Issues
for the Investor Responsibility Research Center. IRRC is an independent
research firm, based in Washington, D.C., that provides impartial
information on corporate governance, social and environmental issues
affecting investors and corporations worldwide. Founded in 1972, IRRC
serves more than 500 institutional investors, corporations, law firms,
universities, foundations, religious institutions and other
organizations.

IRRC does not take advocacy positions on public policy issues.
Accordingly, I will not be commenting on the merits of specific clean
air bills being considered by this committee. I will address three
broader issues as they relate to the merits of legislation that includes
CO~2~ emissions controls. These issues are:

1.  The inevitability of carbon dioxide controls.

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1.  The need for more corporate disclosure and investor certainty on the
    climate change issue.

2.  The connection between climate change and good corporate governance
    practices.

# 

# Inevitability of carbon dioxide controls

IRRC has long served as an early warning system for the business and
investment community. In the 1970s, IRRC published reports on the coming
deregulation of the electric utility industry and obstacles facing
nuclear power. In the 1980s, IRRC issued studies on the advent of
renewable energy and utility energy efficiency programs. In 1992, IRRC
published a book written by me on business and investment responses to
climate change.

**Climate change is playing an increasingly important role in capital
investment decisions, especially for the electric power industry**. Our
nation's electricity providers account for nearly 40 percent of
America's --- and 10 percent of the world's --- manmade CO~2~ emissions.
Addressing global warming necessarily involves this industry. Companies
and investors that ignore this fact do so at their own peril.

**The question is not whether there will be CO~2~ controls on power
plant emissions, but when.** Investors need more disclosure and guidance
on this issue. Congress can help by passing legislation that enables
utilities and investors to plan effectively for the future and reduce
prevailing uncertainties.

**[Need for more corporate disclosure and investor
certainty]{.underline}**

**Climate change is the greatest environmental challenge facing the
electric utility industry. Yet many companies still hardly acknowledge
the issue in their disclosure statements to investors.** At best,
companies say CO~2~ emissions controls *could* have a material impact on
their financial condition, but cannot gauge the magnitude of the effect.
At worst, they say virtually nothing at all.

Investors are left to wonder whether this paucity of disclosure reflects
a lack of guidance and foresight, or a reluctance to acknowledge the
strategic and material risks posed by climate change. Neither answer is
acceptable to investors.

**Electric utilities are committing tens of billions of dollars to
upgrade their coal-fired power plants and install modern pollution
control equipment.** **Yet these investments do nothing to address
carbon dioxide emissions.** The most expensive climate change response
strategy will be to institute CO~2~ emissions controls *after* investing
in equipment to control sulfur dioxide, nitrogen oxide and mercury
emissions. A more prudent and cost-effective approach would be to
consider these four emissions sources together as part of an integrated
strategy.

Consider what James Rogers, Chairman and CEO of Cinergy Corp., one of
the nation's largest coal-burning utilities, told this committee two
years ago. Chairman Rogers said: "Who will make a decision to invest a
billion dollars in a new coal plant if you can only guess about future
regulation?.... \[A\] new power plant bill that fails to address CO~2~
will be as dated in five years as current law is today."

**Investors have raised this very issue with electric utilities over the
last 10 years through the filing of shareholder resolutions.** With
mounting support from large pension systems and endowments, shareholder
support for these resolutions has increased dramatically. In the 2003
annual meeting season, the average support level for climate change
disclosure resolutions averaged almost 25 percent at three of the
nation's largest electric utilities --- AEP, Southern and TXU. No other
type of proposal in the 32-year history of shareholder activism on
social and environmental issues has garnered this level of investor
support. Such institutional backing is consistent with voting trends
that IRRC is seeing across most industries on the global warming issue.
**(See Figure 1.)**

# 

# Corporate governance -- climate change connection

**Utilities are under pressure from many quarters to address climate
change.** States are enacting legislation to fill the policy vacuum at
the federal level. Overseas, the Kyoto Protocol is poised to enter into
force, affecting U.S. utilities and other multinationals with operations
abroad. The Bush administration is pressing for more voluntary corporate
commitments to control greenhouse gas emissions.

What can utilities do to respond to these pressures? And can you do to
help them?

**In terms of what utilities and their investors can do for themselves,
IRRC---in a soon-to-be-released report commissioned by CERES---finds
that companies can integrate climate change into good governance
practices.** Our study lists 14 specific actions. I highlight three
vitally important ones here:

-   ***First, companies should provide regular assessments of the
    climate change issue to shareholders, based on systematic board
    reviews of company risks and opportunities.*** In place of blanket
    statements in securities filings that climate change poses
    undeterminable material risks, at a minimum companies should
    identify the risk factors and parameters involved in board
    assessments.

-   ***Second, companies need to set CO~2~ emissions baselines and
    provide annual emissions data by which investors can gauge
    prevailing emissions trends.*** Utilities have been reporting such
    data to the U.S. Environmental Protection Agency for 10 years. They
    should make this information directly available to shareholders as
    well. (Some are already doing so.)

-   ***Most important, utilities should be making forward-looking
    disclosures of their CO~2~ emissions.*** As an industry, electric
    utilities have pledged to reduce the carbon intensity of their
    emissions by 3 to 5 percent by 2012. But actual emissions
    projections and the effects of proposed CO~2~ controls vary
    substantially from company to company, and such information
    typically is not shared with investors. ([*See the attached* *IRRC
    Proxy Issues Reports on Southern Company and TXU Corp. as
    examples*.]{.underline}) Investors cannot begin to make meaningful
    evaluations of the potential impacts of CO~2~ legislation on their
    portfolio holdings until they have access to such forward-looking
    information.

**Congress can facilitate this disclosure process by requiring utilities
and other major carbon emitters to report not only past emissions data,
but also future projections in securities filings.** To be fully
transparent in this disclosure, aggregate emissions data as well as
emissions intensity ratios should be provided.

**The most helpful thing this Congress can do, however, is to establish
once and for all that carbon dioxide is an emissions source that will be
controlled.** Many investors see this coming. Regardless of the targets
and timetables, this act alone would provide essential guidance for
investors and company directors that have put climate change on their
corporate governance agenda.

**What has made this issue so difficult to address is a gap in
governance decisionmaking.** A CEO typically looks out only three to
five years when making a big capital investment, or about as long as he
or she normally serves in office. The investment planning horizon for a
long-lived asset like a power plant may extend up to 15 years. But the
power plant will operate for 30 years or more. Carbon dioxide emissions
from that power plant will stay in the atmosphere for ***[100 years or
more]{.underline}***---long after the CEO and even the plant itself is
retired. **(See Figure 2.)**

**Institutional investors suffer the consequences of this governance
gap.** The are the ones entrusted with pension, insurance and endowment
assets designed to span generations. These investors have a fiduciary
duty to advance governance reforms to ensure the long-term viability of
these assets---and the economy as a whole. As our nation's elected
representatives, you play a complementary role and are in a position to
bridge this governance gap.

A more detailed treatment of these issues appears in the forthcoming
IRRC report commissioned by CERES, *Climate Change and Corporate
Governance: Making the Connection*. Excerpts are attached to my written
testimony. They include profiles of the top five carbon emitting
investor-owned electric utilities. These profiles illustrate the wide
divergence in board oversight and current reporting mechanisms used by
these companies and demonstrate the need for a more concerted approach.
Thank you for this opportunity to testify. I am happy to answer your
questions and assist you in any way I can.

+-----------------------------------------------------------------------+
| # Figure                                                              |
| 1. Rising Investor Support for Corporate Disclosure on Climate Change |
+-----------------------------------------------------------------------+

![](media/image1.wmf)

+-----------------------------------------------------------------------+
| # Figure 2. Capital Life Cycles vs. Natural Life Cycles               |
+-----------------------------------------------------------------------+

![](media/image2.wmf)

Social Issues Service![](media/image3.png){width="1.0256944444444445in"
height="1.0256944444444445in"}

2003 Company Report -- J2

*[24.2% OF SHARES VOTED AT TXU's 2003 ANNUAL MEETING]{.underline}*

*[WERE CAST IN FAVOR OF THIS PROPOSAL]{.underline}*

TXU Corp.

Global Climate Change

by Doug Cogan

April 24, 2003

© 2003 Investor Responsibility Research Center

Stock symbol: TXU

CUSIP: 873168

Meeting date: 5/16/2003

Record date: 3/17/2003

Meeting location: Mesquite, Texas

IRRC SmartVoter Issue: 3425

  ----------- ------------------------------- ------------------------------
  Proxy                                       Related IRRC report
  Statement                                   
  Proposal                                    

  1\.         Elect directors                 CG Proxy Report

  2\.         Ratify selection of auditors    CG Proxy Report

  3\.         SP- Index stock options         CG Proxy Report

  **4.**      **SP- Report on greenhouse gas  **SI Background Rpt. J2**
              emissions**                     
  ----------- ------------------------------- ------------------------------

Summary

Resolution

RESOLVED: That the Board of Directors report by August 2003 to
shareholders on (a) the economic risks associated with the Company's
past, present and future emissions of carbon dioxide, sulfur dioxide,
nitrogen oxide and mercury emissions, and the public stance of the
company regarding efforts to reduce these emissions and (b) the economic
benefits of committing to a substantial reduction of those emissions
related to its current business activities (i.e., potential improvement
in competitiveness and profitability).

*Similar resolution last year?* No

Proponents

Benedictine Sisters Charitable Trust (200 shares), Congregation of the
Sisters of Charity of the Incarnate Word and Congregation of the Holy
Cross, Southern Province (70). The proponents are church groups
affiliated with the Interfaith Center on Corporate Responsibility.

At Issue / New Developments

TXU is the nation's seventh largest investor-owned electric utility,
with more than 19,000 megawatts of generating capacity in Texas. Largely
reliant on natural gas and coal, TXU is the #5 industry emitter of
carbon dioxide, accounting for 3.2 percent of U.S. utilities' CO~2~
emissions in 2000, according to an independent benchmarking study. TXU
also is a large industry emitter of sulfur dioxide and nitrogen
oxides---pollutants that contribute to acid rain, smog and human health
problems. Management opposes the requested report as being "unreasonably
speculative with respect to any future emissions reductions" of these
pollutants.

TXU is making substantial investments in pollution control technology to
comply with the Clean Air Act. Management does not say what portion of
its overall capital expenditures are being spent to meet these
requirements, however. TXU notes in its 2002 Form 10-K that a
"significant portion" of its generating fleet was constructed "many
years ago" and "may require significant capital expenditures" as well as
"periodic upgrading and improvement." Future government controls of
CO~2~ emissions could threaten the economic viability of some of TXU's
planned power plant retrofits.

**New developments at the company:** In October 2002, TXU announced
plans to terminate and write off its European operations. TXU's stock
plunged on the news. The company and its managers now are defendants in
several derivative shareholder lawsuits.

Economic Impact on the Company

While TXU is making large investments to meet Clean Air Act
requirements---likely totaling hundreds of millions of dollars a
year---such investments will not reduce TXU's CO~2~ emissions. New
government controls on such emissions could render some of its power
plant upgrades uneconomic. Management does not provide shareholders with
a clear sense of how much it is spending on pollution control, nor does
it indicate whether future CO~2~ emissions controls would have a
material impact on the company. The requested report seeks more
definitive answers to these questions.

I. TXU CORP. AND GLOBAL CLIMATE CHANGE

TXU Corp. is the nation's seventh largest investor-owned electric
utility, serving 5 million electricity and gas customers in the United
States and Australia. (TXU is working with creditors to sell its
operations in Europe.) TXU also provides wholesale energy sales,
merchant energy trading and risk management, energy-related services and
telecommunications.

TXU owns or leases 19,000 megawatts of generating capacity in Texas,
where 2.7 million of its electricity customers are located. (TXU's Texas
operations are subject to competition, beginning in 2002.) TXU also
sells about 200 billion cubic feet of natural gas annually to 1.4
million customers. TXU Australia serves about 1 million electricity and
gas customers, and owns and operates 1,280 MW of generating capacity. As
of Dec. 31, 2002, TXU employed 14,600 people.

  -------------------------------- ------------ ------------ ---------------
  Financial Performance                                      

                                   ***2002***   ***2001***   ***% change to
                                                             2002***

  Revenues (in billions \$)        10.034       10.049       (0.1)

  Net income (in millions \$)      (4,232)      655          NA
  -------------------------------- ------------ ------------ ---------------

**2002 financial results:** TXU lost \$4.2 billion in 2002, and the
company's book value was cut in half. On a per share basis, TXU's 2002
loss was \$15.23 per share, compared with earnings of \$2.52 per share
in 2001. This most difficult year in the company's 121-year history
included a decision last October to discontinue and write off its
European operations. On Oct. 12, management announced it was cutting the
company's common stock dividend by 80 percent, to 12.5 cents per share,
in response to capital market concerns regarding the liquidity of TXU
Corp. and its U.S. and Australian subsidiaries. TXU and its top
executives now are defendants in several derivative shareholder
lawsuits, alleging (among other things) false and misleading statements
in company securities filings, breach of fiduciary duty, abuse of
control, mismanagement, waste of corporate assets, and breach of the
duties of loyalty and good faith.

  ------------------------------ ------------- ------------- ------------
  Investment Performance                                     

                                 ***Total                    
                                 returns                     
                                 (%)***                      

  *Data as of 12-31-2002*        *1 yr*        *3 yr*        *5 yr*

                                                             

  TXU Corp.                      -58.6         -38.1         -40.8

  S&P 500 index                  -22.1         -37.6         -2.9

  Industry group                 No                          
                                 information                 

                                                             

  *Industry description:                                     
  Electric Utilities*                                        

  *No. of companies in group:                                
  200*                                                       
  ------------------------------ ------------- ------------- ------------

*Source: Compustat*

**Environmental expenditures and liability:** TXU does not provide a
breakdown of its expenditures for capital projects related to the
environment, nor does it provide a projection of future such
expenditures. In its 2002 Form 10-K, management notes that a
"significant portion of TXU Corp.'s facilities was constructed many
years ago. In particular, older generating equipment, even if maintained
in accordance with good engineering practices, may require significant
capital expenditures to keep it operating at peak efficiency. This
equipment is also likely to require periodic upgrading and improvement."

TXU reported a total of \$996 million in capital expenditures in 2002,
down from \$1.248 billion in 2001. Total capital expenditures are
expected to be \$1.1 billion in 2003, substantially all of which are for
maintenance and organic growth of existing operations.

Under the Clean Air Act and state electric utility restructuring
legislation, "grandfathered" power plants (built before 1978) must
achieve a 50 percent reduction in nitrogen oxides (NOx) emissions and a
25 percent reduction in sulfur dioxide emissions by May 1, 2003. This
requirement will be met through emission reductions at these facilities
or through the purchase of credits from other permitted facilities as an
alternative to achieve the same reductions. TXU reports in its 2002 Form
10-K that it has obtained all of the necessary permits to meet these
requirements, and says it can expect recovery of reasonable
environmental improvement costs as part of the state-approved electric
restructuring plan.

As part of the State Implementation Plan for the Clean Air Act, TXU also
must comply with a requirement calling for an 89 percent reduction in
NOx emissions in the Dallas-Fort Worth ozone non-attainment area and a
similar 51 percent reduction from power plants in East and Central
Texas. TXU says the cost of compliance will be reduced because of the
emission trading provisions in the rules.

TXU and Its Environmental Affairs

**Board oversight:** TXU's nine-member board of directors has seven
standing committees. No board committee is charged with explicit
oversight of the company's environmental affairs. The board of directors
has not conducted a formal review of the climate change issue. The
company has not set targets to reduce carbon dioxide or other greenhouse
gas emissions, but says it strives to develop and implement workable and
economically viable emissions reduction projects.

**Staff level:** TXU employs about 150 environmental, health and safety
professionals. The top EHS executive is Paul Plunket, Executive Vice
President, who reports to Tom Baker, TXU Corp. Executive Vice President
and President of TXU's Oncor energy distribution business. There is one
reporting level between Plunket and the CEO of the company. TXU has
conducted company-wide environmental audits since 1987; audits of major
facilities are conducted every year. Its business units are benchmarked
against the ISO 14001 environmental management system standard. The
audit committee of the board of directors reviews audit results; audit
summaries are not made pubic. TXU says environmental performance is a
factor in the compensation of top executives, plant managers and other
employees.

TXU is one of three U.S. utility companies listed on the Dow Jones
Sustainability Index. In June 2002, Innovest Strategic Value Advisors,
Inc. recognized TXU as the fourth highest-ranking company out of 28
utilities evaluated based on environmental risk factors, enviornmental
management capacity and environmental opportunity factors. Innovest also
found that TXU was below the industry average in terms of its exposure
to a possible carbon tax relative to its stock market capitalization (as
of Jan. 1, 2000).

**Environmental principles and reporting:** TXU has issued an
environmental report annually since 1991. (The report and its Statement
of Environmental Principles is available in printed form and on the
Internet at www.txucorp.com/globcit/envcom/globalreport/principles.) The
latest report includes a brief policy statement on climate change and
carbon savings/offsets achieved in the United States and Australia. The
report also includes statistics on TXU's sulfur dioxide, nitrogen oxide
and carbon dioxide emissions rates as compared to national electric
utility averages and the company's investments in wind energy.

Under the Clean Air Act Amendments of 1990, TXU is required to collect
hourly emissions data on carbon dioxide, nitrogen oxides and sulfur
dioxide. The power plant emissions data are recorded in a database
maintained by the U.S. Environmental Protection Agency. The company also
provides a summary of annual mercury emissions from its lignite/coal
generating facilities on its website and annually reports these
emissions to the EPA, which makes the information publicly available on
the Internet in the Community Right-to-Know database.

**TXU and Global Climate Change**

As part of its Statement of Environmental principles, TXU says it will
"continue to take prudent steps to voluntarily reduce our emissions of
greenhouse gases and to promote carbon sequestration programs." It says
it has set "challenging sustainability targets in the medium and long
term" that include increased use of renewable fuels, reducing greenhouse
gas emissions through more efficient electricity production and use,
assisting carbon sequestration through reforestation and other
technologies, and actively promoting conservation and load management
programs. Quantitative targets have not been set, however.

In its 2002 annual report, TXU says it "supports a balanced, flexible,
comprehensive and international approach to the global climate change
issue." It does not comment on the Kyoto Protocol, an international
agreement that seeks a 5 percent cut in industrialized nations' CO~2~
emissions below 1990 levels by 2012. In its 2002 Form 10-K, management
says, it is "unable to predict the impact of the \[Bush\] Administration
proposal or related legislation" on climate change.

**Carbon dioxide emissions:** As noted above, TXU reports information to
government agencies about its CO~2~ emissions, but it does not make this
information readily available to shareholders. Through use of Continuous
Emissions Monitors on its major power plants, TXU reported carbon
dioxide emissions equal to 66.8 million metric tons (MMT) in 2000.
Separately, TXU told IRRC that its operations in the United States and
Australia emitted 72.8 MMT of CO~2~ in 2001. TXU also collects data on
emissions of two other greenhouse gases, methane and sulfur
hexafluoride.

According to an independent benchmarking study conducted by the Natural
Resources Defense Council, TXU was the fifth largest utility emitter of
carbon dioxide in 2000, accounting for 3.2 percent of U.S. utilities'
CO~2~ emissions. That year, natural gas provided 61 percent of its
generation; coal/lignite, 28 percent; and nuclear, 11 percent. TXU's
high ranking in the benchmarking study was mainly a function of its
large generating base, totaling more than 19,000 megawatts of capacity.
Because its main source of fuel is natural gas (which has a lower carbon
content than coal or oil), it ranked 56^th^ out of 100 utilities studied
in terms of CO~2~ emissions per megawatt-hour (MWh) of generation, and
it ranked 71^st^ out of 100 in terms of CO~2~ emissions per MWh of
generation from fossil energy plants. Other utilities with lower
rankings (i.e., closer to #1) had higher CO~2~ emissions per unit of
power produced.

TXU reported in its 2001 environmental report that its CO~2~ emissions
rate in 2000 was 11 percent below the national average (based on tons of
CO~2~ emitted per million Btus of energy produced). Similarly, its
sulfur dioxide and nitrogen oxides emissions rates were 33 and 15
percent below the national average, respectively. The NRDC benchmarking
study reported that TXU ranked fifth in terms of total utility emissions
of nitrogen oxides in 2000, and 12^th^ in terms of sulfur dioxide
emissions.

**Emissions savings:** TXU has been a member of the U.S. Department of
Energy's Climate Challenge program since 1995, and it has reported
emissions savings under the Section 1605(b) reporting program
established by the 1992 Energy Policy Act. TXU reported savings/offsets
of 23 million metric tons of CO~2~ equivalent in 2001 and a total of 196
MMT of savings since 1991---more than any other U.S. investor-owned
electric utility. TXU says its CO~2~ emissions would have been 28
percent higher in 2001 were it not for savings and offsets achieved
since 1990.

Most of TXU's savings are from operation of its Comanche Peak nuclear
units, which came on line in the early 1990s. The Energy Policy Act
allows utilities to count as savings any new generation from nuclear
power plants that began operation or increased their output after 1990.
(Comanche Peak is the only U.S. investor-owned nuclear plant completed
after 1990.) Other sources of TXU's emissions savings include heat rate
improvements in its fossil energy plants, demand-side management
programs, methane recovery, sulfur hexafluoride reduction programs and
tree planting.

In 2001, TXU reported 527,400 tons of emissions savings through its
demand-side management programs. The company has planted more than 20
million trees since the early 1970s, including 1.3 million in 2002. TXU
Australia reported savings/offsets of 230,000 tons in 2001. TXU
Australia is expected to achieve a 16 percent reduction in its total
greenhouse gas emissions by 2004.

**Renewable energy:** TXU says it encourages "research and development
of more efficient, environmentally benign sources of energy and,
whenever warranted by market opportunity, to offer customers the
benefits of energy produced from renewable resources." TXU offers a
"green pricing" option in each jurisdiction it serves. TXU has contracts
for 382 megawatts of wind power in Texas, making it the fourth largest
purchaser of wind power in the United States. It also has contracts for
approximately 20 MW of wind power in Australia and 30 MW of hydro and
landfill gas generating capacity. TXU says it is also evaluating
photovoltaic, solar thermal, waste-to-energy and biomass technologies.

II\. PROPONENTS\' POSITION

This is the second time that shareholder proponents affiliated with the
Interfaith Center on Corporate Responsibility have submitted a global
warming resolution to TXU Corp. In 1997, a resolution filed with its
predecessor, Texas Utilities, was withdrawn. TXU was targeted again this
year because it has been identified as one of the top five
carbon-emitting investor-owned electric utilities. The proponents met
TXU's corporate secretary and members of the company's environmental
staff in March 2003. Though the discussions were amiable, the proponents
elected not to withdraw the resolution on the basis that TXU was not
willing to provide sufficient forward-looking information on the climate
change issue.

The resolved clause of the resolution has two elements. It asks the
company's board of directors to report on:

> \(a\) the economic risks associated with the Company's past, present
> and future emissions of carbon dioxide, sulfur dioxide, nitrogen oxide
> and mercury emissions, and the public stance of the company regarding
> efforts to reduce these emissions and (b) the economic benefits of
> committing to a substantial reduction of those emissions related to
> its current business activities (i.e., potential improvement in
> competitiveness and profitability).

In a presentation by Ceres, a coalition working closely with the
Interfaith Center on the 2003 shareholder campaign, arguments made in
favor of the global warming resolution filed with electric utilities are
as follows:

1.  **Health and environmental risks from pollutants:** Electric
    utilities account for two-thirds of the nation's sulfur dioxide
    emissions, one-third of its mercury emissions and nearly one-quarter
    of its nitrogen oxides emissions. These pollutants contribute to
    asthma, lung and heart disease and mercury bioaccumulation in
    humans, and cause extensive damage to the environment, including
    acid rain, smog and mercury bioaccumulation in fish and other
    species. At the same time, electric utilities account for 37 percent
    of the nation's carbon dioxide emissions, the main gas tied to
    global warming.

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1.  **Government regulation of these pollutants:** Emissions of sulfur
    dioxide and nitrogen oxides are regulated under the Clean Air Act.
    This federal law will require substantial additional reductions of
    these emissions as well as mercury in the years ahead. Utilities
    will have to make major new investments in pollution control
    technology, but this technology will not control carbon dioxide
    emissions.

2.  **Risks of not factoring in carbon dioxide controls:** The
    proponents believe domestic regulatory controls of CO~2~ are
    inevitable. Two states (New Hampshire and Massachusetts) have
    already passed laws restricting utility emissions of CO~2~, and
    federal legislation has been introduced as well. At the
    international level, the Kyoto Protocol is likely to go into effect
    this year (although the Bush administration has pulled the United
    States out of the agreement).

According to studies cited by the proponents, the most expensive choice
utilities could make is to retrofit existing fossil energy plants with
new pollution control equipment and *then* have to reduce CO~2~
emissions from these plants. The proponents argue that utilities should
factor future CO~2~ controls into their investment strategies *now*,
since it could alter decisions about which power plants to retrofit with
new pollution control equipment and which to replace with new, cleaner
energy sources.

3.  **Need for greater disclosure by utilities:** By some estimates
    cited by the proponents, many electric utilities face a "carbon
    exposure" of between 10 and 35 percent of their total market
    capitalization. (In other words, the cost of achieving carbon
    dioxide emission controls as specified by the Kyoto Protocol equals
    10 to 35 percent of the current value of their stock.) Many factors
    go into making this calculation, including a utility's generating
    assets, fuel mix, installed pollution control technologies and
    whether it is competing in a deregulated electricity market.
    "Investors cannot assess this risk without more disclosure" from
    utilities, according to Ceres.

That is why the proposal calls on management to conduct a thorough
economic assessment of the risks and benefits of achieving substantial
emissions reductions of the four pollutants listed in the proposal. "We
believe that taking early action on reducing emissions and preparing for
standards could better position companies over their peers, including
being first to market with new high-efficiency and low-emission
technologies," the proponents argue. "Changing consumer preferences,
particularly those relating to clean energy, should also be considered.
Inaction and opposition to emissions control efforts could expose
companies to reputation and brand damage, and regulatory and litigation
risk," it concludes.

III\. MANAGEMENT\'S POSITION

Management opposes the resolution seeking more disclosure on the
company's efforts to address climate change. It argues that the
resolution would duplicate company reporting activities, increase costs
and "require unreasonable speculation with respect to the economic risks
and benefits of emissions and future emission reductions."

Management says it complies with government requirements to monitor and
annually report to the Environmental Protection Agency emissions of
carbon dioxide, sulfur dioxide, nitrogen oxides and mercury. The public
can gain access to this information through government Internet sites.

TXU also publishes an annual environmental report that includes
information comparing its sulfur dioxide, nitrogen oxide and carbon
dioxide emissions rates to national electric utility averages. The
report also highlights its voluntary reductions in carbon dioxide
emissions and other greenhouse gases and its investments in wind energy.
Management says its "public stance regarding efforts to reduce these
emissions is embodied in its Statement of Environmental Principles...
and is summarized in the company's annual environmental report."

Management says additional information on the environmental risks
associated with emissions is available in public reports filed with the
Securities and Exchange Commission. "The reports address capital
construction costs for sulfur dioxide and nitrogen oxide emissions
control equipment necessary under current regulations, certain material
risks associated with environmental compliance, and certain legislative
and regulatory initiatives that may, in the Company's determination,
materially impact its operations," according to the proxy statement.

Finally, in response to the proponents' request for more information on
the economic risks and benefits of future emissions controls and efforts
to reduce these emissions, management says it "cannot accurately predict
the outcome of future federal or state legislative actions to regulate
emissions" and that the requested report would be "unduly speculative."

IV\. IRRC ANALYSIS

SmartVoter Guidelines

Voting guidelines for this resolution are presented under issue number
3425 in IRRC's SmartVoter product.

Questions Raised

-   Is TXU reporting adequately on the global warming issue?

-   Could TXU do more to respond to this issue?

**Adequacy of reporting:** The proponents believe that management should
provide shareholders with more information on the company's response to
global warming. In particular, the proponents want management to lay out
the costs and benefits of reducing greenhouse gas emissions as it
invests in other pollution controls at its fossil-fired generating
facilities. Management says it is already making information on its
emissions publicly available and that the additional information
requested by the proponents would be "unduly speculative."

Management can legitimately say that it is providing some information to
shareholders on this issue:

-   **Disclosure:** It makes reference to the global warming issue in
    its 2002 annual report and Form 10-K.

-   **Emissions:** Its 2001 environmental report provides comparative
    statistical information on its emissions of carbon dioxide, sulfur
    dioxide and nitrogen oxides, and its efforts to reduce these
    emissions.

-   **Databases:** Its proxy statement cites government databases where
    shareholders can find more detailed information on the company's
    emissions.

    Shareholders who wish to conduct more than a cursory analysis of the
    company's response to global warming and its exposure to risks from
    controlling emissions may find management's level of disclosure
    inadequate, however. Here are some examples:

-   **Disclosure:** Management says in its 2002 annual report that it
    "supports a balanced, flexible, comprehensive and international
    approach to the global climate change issue." But it does not make
    any mention of the Kyoto Protocol, the pending international
    agreement to address climate change, or indicate whether the company
    has any targets to reduce its greenhouse gas emissions. The Form
    10-K statement also sheds little light on these questions. It says
    only that management is "unable to predict the impact of the
    \[Bush\] Administration proposal or related legislation" on climate
    change.

-   **Emissions:** Management says in its environmental report that its
    emissions of CO~2~, SO~2~ and NO~x~ are below the national average
    per unit of electricity produced. But it does not provide *absolute*
    emissions figures, which reveal the company to be one of the
    nation's largest emitters of each of these substances. Among U.S.
    electric utilities in 2000, TXU ranked fifth in CO~2~ and NO~x~
    emissions, and 12^th^ in SO~2~ emissions.

-   **Databases:** Management makes reference to government databases
    where its aggregate emissions figures can be found. It says in its
    2003 proxy statement that such databases demonstrate the company's
    "support for, and progress toward, voluntary reductions of
    greenhouse gas emissions...." But management does not provide links
    or Internet addresses to these government sites, which would assist
    interested parties in tracking down this information. Moreover,
    management does not explain why it omits aggregate emissions figures
    in its own reports to shareholders and instead normalizes the data
    based on electricity production. Providing aggregate data would
    enable shareholders to better scrutinize management's claims of
    progress toward absolute emissions reductions.

-   **Financial implications of regulatory controls:** Finally,
    management provides very little information to shareholders about
    its capital expenditures related to environmental protection. It
    provides figures for recent and projected *total* capital
    expenditures for the company. It also notes that many of its power
    plants have had to obtain permits to come into compliance with new
    Clean Air Act standards. But it does not break out how much of its
    capital expenditures are being used for such environmental purposes.
    Separately in its Form 10-K, management warns that a "significant
    portion of TXU Corp.'s facilities was constructed many years ago"
    and that these facilities "may require significant capital
    expenditures" as well as "periodic upgrading and improvement." But
    it attaches no dollar figures to such warnings. Shareholders are
    left to ponder whether these expenditures may be material to the
    company's operations and future financial condition.

    **Could TXU be doing more to respond to this issue?** From the
    preceding discussion, it is clear that TXU could be doing more to
    enlighten shareholders about the risks and opportunities posed by
    efforts to reduce greenhouse gas emissions.

-   **Disclosure:** Management could state in its annual report whether
    or not it believes the Kyoto Protocol reflects a "balanced,
    flexible, comprehensive and international approach" to the global
    climate change issue. It could list in its Form 10-K examples of
    issues and uncertainties that render it "unable to predict the
    impact" of climate change proposals, and provide at least a broad
    outline of the possible magnitude of such impacts.

-   **Emissions and databases:** Management could provide links or
    website information to government databases to which it submits
    aggregate emissions data. Better still, it could provide this
    information in its *own* company reports. Best of all, it could
    provide historic and projected emissions data so that shareholders
    can judge for themselves how well the company is doing in "support
    for, and progress toward, voluntary reductions of greenhouse gas
    emissions."

-   **Financial implications of regulatory controls:** Management could
    provide a breakdown of its capital expenditures related to
    environmental protection---as most other companies do in their Form
    10-K reports. In particular, management could provide information on
    its past investments and future projections to keep its fossil
    energy plants in compliance with the Clean Air Act. In order to
    satisfy the proponents' request regarding the effects of cutting
    greenhouse gas emissions, management also could give some indication
    of how efforts to achieve the goals of the Kyoto Protocol or
    comparable U.S. legislation might affect its investments in
    retrofitting and upgrading its older plants.

In the final analysis, shareholders who believe the global warming issue
does not yet pose a major policy and financial concern for TXU---or who
agree with management that further statements on the issue would be
"unduly speculative"---will be inclined to vote against this proposal.
Shareholders who believe the issue *does* pose concerns---despite the
legislative uncertainties that remain---will be inclined to vote for the
proposal. This latter group of shareholders may conclude, in fact, that
the uncertain financial consequences of still-evolving response
strategies to climate change makes the issuance of a forward-looking
report all the more valuable.

\* \* \* \* \*

EXCERPT FROM TXU CORP.'S PROXY STATEMENT

**Shareholder Proposal Related To An Environmental Report:**

**"ELECTRIC UTILITY RESOLUTION**

**WHEREAS:**

In 2001 The Intergovernmental Panel on Climate Change concluded that
"there is new and stronger evidence that most of the warming observed
over the last 50 years is attributable to human activities."

In 2001 the National Academy of Sciences stated that the "degree of
confidence in the IPCC assessment is higher today than it was 10, or
even 5 years ago...there is general agreement that the observed warming
is real and particularly strong within the past 20 years."

The United States government's "Climate Action Report -- 2002,"
concluded that global climate change may harm the country. The report
highlights risks to coastal communities in the Southeast due to sea
level rise, water shortages throughout the West, and increases in the
heat index and frequency of heat waves.

In July 2002, eleven Attorneys General wrote President Bush, outlining
their concern over the U.S. Climate Action Report's failure to recommend
mandatory reductions of greenhouse gas emissions. They declared that
States are being forced to fill the federal regulatory void through
state-by-state regulation and litigation, increasing the ultimate costs
of addressing climate change. They urged a reconsideration of his
regulatory position, and adoption of a "comprehensive policy that will
protect both our citizens and our economy."

U.S. power plants are responsible for about two-thirds of the country's
sulfur dioxide emissions, one-quarter of its nitrogen oxides emissions,
one-third of its mercury emissions, approximately 40 percent of its
carbon dioxide emissions, and 10 percent of global carbon dioxide
emissions.

Scientific studies show that air pollution from U.S. power plants causes
tens of thousands of premature deaths and hospitalizations, hundreds of
thousands of asthma attacks, and several million lost workdays
nationwide every year from pollution-related ailments.

Standards for carbon dioxide emissions and other air pollutants are
emerging across multiple fronts. Ninety-six countries have ratified the
Kyoto Protocol, requiring carbon dioxide reductions. Massachusetts and
New Hampshire have enacted legislation capping power plants emissions of
carbon dioxide and other air pollutants. In June 2002 the Senate
Environment and Public Works Committee passed a bill seeking to cap
emissions from the generation of electric and thermal energy.

We believe that taking early action on reducing emissions and preparing
for standards could better position companies over their peers,
including being first to market with new high-efficiency and
low-emission technologies. Changing consumer preferences, particularly
those relating to clean energy, should also be considered.

Inaction and opposition to emissions control efforts could expose
companies to reputation and brand damage, and regulatory and litigation
risk.

**RESOLVED:** That the Board of Directors report (at reasonable cost and
omitting proprietary information) by August 2003 to shareholders on (a)
the economic risks associated with the Company's past, present and
future emissions of carbon dioxide, sulfur dioxide, nitrogen oxide and
mercury emissions, and the public stance of the company regarding
efforts to reduce these emissions and

\(b\) the economic benefits of committing to a substantial reduction of
those emissions related to its current business activities (i.e.
potential improvement in competitiveness and profitability)."

**The Board of Directors recommends a vote [AGAINST]{.underline} this
proposal for the following reasons:**

The Company believes that adoption of the shareholder proposal would
unnecessarily duplicate ongoing Company reporting activities, would
needlessly increase costs and require unreasonable speculation with
respect to the economic risks and benefits of emissions and future
emission reductions.

The Company routinely reports to regulatory agencies and the public
regarding significant environmental matters. Since 1991, the Company has
voluntarily published an annual environmental report, available in
printed form and on the Internet, which sets forth its Statement of
Environmental Principles and presents statistics on the Company's sulfur
dioxide and nitrogen oxide emissions rates as compared to national
electric utility averages, voluntary reductions in greenhouse gas
emissions (including carbon dioxide), and investments in zero-emission
wind energy.

The Company also annually reports emissions of sulfur dioxide, nitrogen
oxide and carbon dioxide, which are continuously monitored at the
generating facilities as required by law, to the state and federal
environmental agencies, including the U.S. Environmental Protection
Agency (EPA), which makes this information publicly available through
the Emissions Scorecard database on the Internet.

The Company also provides a summary of annual mercury emissions from its
lignite/coal generating facilities on its web page and annually reports
these emissions to the EPA, which makes the information publicly
available on the Internet in the Community Right-to-Know database.

The Company's public stance regarding efforts to reduce these emissions
is embodied in its Statement of Environmental Principles and is further
reflected in its record of compliance with state and federal sulfur
dioxide and nitrogen oxide emissions requirements and reductions, which
is summarized in the Company's annual environmental report. The
Company's public support for, and progress toward, voluntary reductions
of greenhouse gas emissions (including carbon dioxide) is reported
annually to the U.S. Department of Energy, which makes the information
available in the Public Use Database on the Internet.

The Company routinely discloses the economic risks associated with
emissions in its public reports filed with the Securities and Exchange
Commission. The reports address capital construction costs for sulfur
dioxide and nitrogen oxide emissions control equipment necessary under
current regulations, certain material risks associated with
environmental compliance, and certain legislative and regulatory
initiatives that may, in the Company's determination, materially impact
its operations.

In its normal course of business, the Company evaluates possible
additional emissions reductions beyond those required by state and
federal regulations. The Company believes that a more detailed report on
the economic risks and benefits of emissions and emissions reductions
would be unreasonably speculative with respect to any future emissions
reductions. For example, the Company cannot accurately predict the
outcome of future federal or state legislative actions to regulate
emissions.

In summary, adoption of the shareholder proposal would unnecessarily
increase costs and duplicate ongoing Company reporting activities.

**The Board of Directors Recommends a Vote [AGAINST]{.underline} This
Shareholder Proposal.**

Social Issues Service![](media/image3.png){width="1.0256944444444445in"
height="1.0256944444444445in"}

2003 Company Report -- J2

*[23% OF SHARES VOTED AT SOUTHERN'S 2003 ANNUAL MEETING]{.underline}*

*[WERE CAST IN FAVOR OF THIS PROPOSAL]{.underline}*

Southern Co.

Global Climate Change

by Doug Cogan

May 6, 2003

© 2003 Investor Responsibility Research Center

Stock symbol: SO

CUSIP: 842057

Meeting date: 5/28/2003

Record date: 3/31/2003

Meeting location: Pine Mountain, Ga.

IRRC SmartVoter Issue: 3425

  ----------- ------------------------------- ------------------------------
  Proxy                                       Related IRRC report
  Statement                                   
  Proposal                                    

  1\.         Elect directors                 CG Proxy Report

  2\.         Ratify amendment of by-laws     CG Proxy Report
              permitting book-entry of shares 

  **3.**      **SP- Report on greenhouse gas  **SI Background Rpt. J2**
              emissions**                     
  ----------- ------------------------------- ------------------------------

Summary

Resolution

RESOLVED: That the Board of Directors report by August 2003 to
shareholders on (a) the economic risks associated with the Company's
past, present and future emissions of carbon dioxide, sulfur dioxide,
nitrogen oxide and mercury emissions, and the public stance of the
company regarding efforts to reduce these emissions and (b) the economic
benefits of committing to a substantial reduction of those emissions
related to its current business activities (i.e., potential improvement
in competitiveness and profitability).

*Similar resolution last year?* No

Shareholder proposals asking Southern to report on the costs and
liabilities of climate change were filed and withdrawn in 1997, 1999 and
2002. A proposal on developing renewable energy was supported by 9.5
percent of shares voted in 2001 and 9.2 percent in 2002.

Proponents

Sisters of Charity of St. Elizabeth (100 shares); United Church
Foundation (23,400 shares); Sisters of St. Dominic, Caldwell, N. J. (100
shares); affiliated with the Interfaith Center on Corporate
Responsibility.

At Issue / New Developments

Southern Company is the nation's second largest electric utility, with
37,000 megawatts of generating capacity. Coal represents about
two-thirds of Southern's fuel mix, making it the #2 industry emitter of
carbon dioxide, accounting for 6.4 percent of U.S. utilities' CO~2~
emissions in 2000, according to an independent study. It is also the #2
industry emitter of sulfur dioxide, nitrogen oxides and mercury.
Southern plans to spend more than \$1 billion by 2004 for nitrogen
oxides emissions controls at its coal-fired plants. It expects to spend
an additional \$4 billion or more by 2015 to further reduce emissions of
sulfur dioxide, nitrogen oxides and mercury. Government efforts to
control CO~2~ emissions could call into question the economic
feasibility of some of these pollution control efforts. Southern has
provided projections of its power generation and emissions through 2020.
It estimates that its power generation will increase 45 percent between
2000 and 2020 and that its CO~2~ emissions will increase 16 percent.
Management says it is focused on "addressing emissions of greenhouse
gases such as CO~2~."

Economic Impact on the Company

Because electricity generation accounts for nearly two-fifths of the
nation's CO~2~ emissions, the principal greenhouse gas, imposition of
new government controls on CO~2~ could compromise the future value of
Southern's planned investments in pollution control equipment at many of
its coal-fired power plants. Southern says in its Form 10-K report that
the "cost impacts of such \[CO~2~\] legislation would depend upon the
specific requirements enacted." The requested report asks management to
provide a more detailed explanation of the costs and benefits of the
company's pollution control strategy, given that there may be material
risks to the company and its shareholders if that strategy fails to
properly anticipate possible future CO~2~ emissions controls.

I. SOUTHERN CO. AND ITS ENVIRONMENTAL AFFAIRS

Southern Company is the nation's second largest electric utility,
serving 4 million customers in Georgia, Alabama, Florida and
Mississippi, with 27,000 miles of transmission lines. Its regulated
utility companies---Alabama Power, Georgia Power, Gulf Power,
Mississippi Power and Savannah Electric---provide nearly 90 percent of
earnings. The remaining portion of Southern's business activities
includes wholesale power generation, a competitive retail natural gas
business, energy-related products and services, fiber optics and
wireless communications, and leveraged leasing activities. Southern
employed 26,178 people as of Dec. 31, 2002.

Southern had 34,739 megawatts of owned and leased generating capacity in
its retail system at the end of 2002. Southern Power, its electric
wholesale generation subsidiary, had 1,612 MW of natural gas-fired
generating capacity in commercial operation. Southern Power expects to
have a total of 6,600 MW on-line by the end of 2005. Southern's
generation sources in 2002 were coal, 69 percent; nuclear, 16 percent;
natural gas, 12 percent; and hydro, 3 percent. Average fuel costs in
2002 were 1.61 cents per kilowatt-hour. Southern's retail electric rates
are 15 percent below the national average.

  -------------------------------- ------------ ------------ ---------------
  Financial Performance                                      

                                   ***2002***   ***2001***   ***% change to
                                                             2002***

  Revenues (in billions \$)        10.549       10.155       3.9

  Net income (in millions \$)      1,318        1,262        4.4
  -------------------------------- ------------ ------------ ---------------

**2002 financial results:** Southern says its financial performance in
2002 was "very strong and one of the best in the electric utility
industry." Net income of \$1.318 billion from continuing operations
increased 17.6 percent over income from continuing operations reported
in 2001. Diluted earnings per share from continuing operations in 2002
were \$1.85 per share, up from \$1.61 in 2001. Dividends paid per share
on common stock in 2002 were \$1.355, up from \$1.34 in 2001. The
company had an average of 708 million shares of common stock outstanding
in 2002, an increase of 2.7 percent.

**Future construction and environmental expenditures:** Southern
provides projections for construction expenditures, including
environmental capital expenditures, over the next three years. Its
projected construction expenditures are as follows: \$2.075 billion in
2003, \$2.308 billion in 2004 and \$2.354 billion in 2005. Its projected
environmental capital expenditures are \$257 million in 2003, \$300
million in 2004 and \$346 million in 2005. Southern forecasts
electricity demand growth of 3.5 percent a year, and customer growth of
1.5 percent a year.

  ------------------------------ ------------- ------------- ------------
  Investment Performance                                     

                                 ***Total                    
                                 returns                     
                                 (%)***                      

  *Data as of 12-31-2002*        *1 yr*        *3 yr*        *5 yr*

                                                             

  Southern Co.                   17.6          123.8         124.9

  S&P 500 index                  -22.1         -37.6         -2.9

  Industry group                 No                          
                                 information                 

                                                             

  *Industry description:                                     
  Electric Utilities*                                        

  *No. of companies in group:                                
  200*                                                       
  ------------------------------ ------------- ------------- ------------

*Source: Compustat*

Southern and Its Environmental Affairs

**Board oversight:** Southern's 10-member board of directors has five
standing committees. No board committee is charged with explicit
oversight of the company's environmental affairs. The audit committee is
responsible for reviewing environmental compliance audits along with
other regulatory matters affecting the company. The entire board
receives updates on environmental management issues periodically. The
2003 proxy statement makes no reference to environmental issues
discussed by the board of directors.

The board of directors has not conducted a formal review of the climate
change issue. The company has not set targets to reduce carbon dioxide
or other greenhouse gas emissions, but says it is considering them. It
has provided projections of carbon dioxide emissions out to the year
2020.

**Staff level:** Southern employs about 250 environmental, health and
safety professionals at the corporate level. The top EHS executive is
Dr. Charles H. Goodman, Senior Vice President, Research and
Environmental Affairs. Goodman reports to Paul Bowers, President,
Southern Co. Generation and Energy Marketing; and Dwight Evans,
President of External Affairs. There is one reporting level between
Goodman and the CEO of the company. Southern says environmental
performance is a factor in the compensation of top executives, plant
managers and other EHS employees.

Southern has conducted company-wide environmental audits since 1992.
Audits of major facilities are conducted every one to two years, and are
conducted by corporate and facility staff. The audit committee of the
board of directors reviews audit results. Audit summaries are not made
public.

**Environmental principles and reporting:** Southern issued its first
environmental policy statement in 1992 and its first environmental
report in 1993; it has issued the environmental report periodically
since then. The report includes a climate change policy statement,
summary of greenhouse gas reduction efforts and a projection of future
emissions trends.

Southern's most recent statement on climate change was issued in August
2000. Among other things, the policy statement says:

-   Climate change is global and long-term in nature.

-   Policies should seek to resolve climate change scientific
    uncertainties.

-   Solutions must incorporate unrestricted use of market-based
    flexibility mechanism, and consider the broadest range of sources as
    well as sinks of greenhouse gases, both domestic and international.

-   Policies must protect a secure, economic and diverse energy supply,
    and promote long-term research, development and dissemination.

-   Public and private partnerships should support development and
    commercialization of higher efficiency, lower emitting power
    generation technologies.

-   Cost-effective means should be pursued to reduce, avoid and
    sequester greenhouse gas emissions.

Southern says in the statement that it is committed to "establishing and
maintaining dialog with public and private interest groups to expand the
understanding of the climate change issue and to enhance the development
and implementation of appropriate climate change policy." The full
policy statement is available at:
[http://www.southerncompany.com/planetpower.asp.](http://www.southerncompany.com/planetpower.asp)

**Global Climate Coalition:** Southern Company was a founding member of
the Global Climate Coalition (GCC), which formed in 1989. For more than
a decade, the GCC was the leading industry group opposed to mandatory
greenhouse gas controls and U.S. adoption of the Kyoto Protocol.
Southern was one of five companies that withdrew from the GCC in late
1999 and early 2000. A Southern spokesman told IRRC that the company was
concerned the GCC was "as strident as its most strident member" and that
Southern had decided not to align itself with other groups on the
climate change issue.

At the time it pulled out of the lobbying group, Southern was facing a
global warming shareholder resolution that highlighted its membership in
the GCC. That resolution subsequently was withdrawn. The GCC ended its
corporate membership program in March 2000, one month after Southern
left the group, and it disbanded altogether in January 2002.

Renewable Energy Development

Southern is not optimistic about the prospects for renewable energy
development, especially in its service area. It says on its website that
"renewable energy is more expensive---and sometimes dramatically
so---than power generated by fossil fuels than coal or natural gas. Even
if costs weren't a factor, some renewable energy sources aren't
available on a large scale in the Southeast." A shareholder proposal
filed with

Southern on developing renewable energy was supported by 9.5 percent of
shares voted in 2001 and 9.2 percent in 2002.

Southern does offer an "EarthCents green pricing" option that allows
customers in Alabama and Mississippi to purchase 100 watt blocks of
renewable energy for \$5-6 per month. Similar programs are awaiting
regulatory approval in Georgia and Florida. The energy will come from a
portfolio of sources, including landfill methane, wind and solar power.
In addition, Southern is conducting research on biomass, solar and
landfill methane technologies. For example, Southern is adding
switchgrass (a biomass fuel) at two of its power plants to reduce the
use of coal and related emissions. It has also installed a 250-kW fuel
cell demonstration plant. Fuel cells emit less greenhouse gases
inherently than boilers or engines that provide the same energy.

In its 2002 Form 10-K, Southern acknowledges that commercial success of
fuel cells and renewables would pose a competitive threat to the company
and its shareholders. Management states:

> A key element of Southern Company\'s business model is that generating
> power at central power plants achieves economies of scale and produces
> power at relatively low cost. There are other technologies that
> produce power, most notably fuel cells, microturbines, windmills and
> solar cells. It is possible that advances in technology will reduce
> the cost of alternative methods of producing power to a level that is
> competitive with that of most central power station electric
> production. If this were to happen and if these technologies achieved
> economies of scale, Southern Company\'s market share could be eroded,
> and the value of its electric generating facilities could be reduced.
> Changes in technology could also alter the channels through which
> retail electric customers buy power, which could reduce Southern
> Company\'s revenues or increase expenses.

II\. SOUTHERN CO. AND ITS POWER PLANT EMISSIONS

Southern Company is the nation's second largest electric utility and the
nation's second largest consumer of coal (behind American Electric
Power). According to an independent benchmarking study conducted by the
Natural Resources Defense Council, Southern was the second largest U.S.
utility emitter of carbon dioxide, sulfur dioxide, nitrogen oxides and
mercury in 2000. That year, Southern had 32,000 megawatts of capacity
and coal provided 76 percent of its power generation. With 128 million
metric tons of carbon dioxide emissions, Southern accounted for 6.4
percent of U.S. utilities' CO~2~ emissions in 2000, according to the
NRDC study. Southern has told IRRC that it is considering the adoption
of CO~2~ emissions control targets.

To date, Southern has spent considerable sums to comply with the federal
Clean Air Act, which addresses sources of air pollution. It estimates
that its construction expenditures have totaled \$400 million to achieve
significant reductions in sulfur dioxide and nitrogen oxide emissions
under the first two phases of the Clean Air Act Acid Rain provisions. In
the 1990s, Southern cut its sulfur dioxide emissions by 40 percent and
its nitrogen oxides emissions by 28 percent, even as its electricity
generation has increased by 20 percent.

In addition, Southern has spent \$980 million to reduce nitrogen oxide
emissions from power plants in nonattainment areas around Atlanta, Ga.,
and Birmingham, Ala., to meet a regulatory requirement that goes into
effect in May 2003. Additional construction expenditures for compliance
in the Georgia nonattainment area are estimated at \$305 million to
achieve standards that will go into effect in May 2005. Altogether,
Southern expects to spend an additional \$4 billion or more by 2015 to
further reduce its overall emissions---*not including carbon dioxide*.

**Outlook to 2020:** Unlike most utilities, Southern provides a
long-term outlook for its power supply and projected emissions, dating
to 2020. Its key projections are as follows:

-   ***Power generation***---Southern expects its annual power
    generation to increase from 172 million megawatt-hours in 2000 to
    approximately 250 MWh in 2020, an increase of 45 percent.

-   ***Fuel mix***---Southern expects its power supplied from coal to
    decrease from 76 percent in 2000 to 38 percent in 2020; its power
    from natural gas to increase from 4 percent to 53 percent; its power
    from nuclear energy to fall from 16 percent to 6 percent; and its
    power from hydro and oil to stay at about 3 percent.

-   ***Sulfur dioxide and nitrogen oxide emissions***---Southern expects
    its emissions of sulfur dioxide to fall from nearly 1.5 million tons
    in 1990 to about 300,000 tons in 2020, a decrease of about 80
    percent. It expects its emissions of nitrogen oxides to fall from
    400,000 tons to about 127,000 tons, a decrease of about 68 percent.

-   ***Carbon dioxide emissions***---As a result of generation growth,
    Southern expects its carbon dioxide emissions to increase from 128
    million metric tons in 2000 to approximately 148 MMT in 2020, an
    increase of about 16 percent. It says, "Although our current
    projections indicate a rise in the years ahead, much focus is being
    placed on how we can continue to meet the energy needs of our
    customers while addressing emissions of greenhouse gases such as
    CO~2~." From 1990 to 2020, Southern projects that its CO~2~
    emissions will increase by a total of 45 percent.

    **Carbon dioxide emissions reduction programs:** Since 1991,
    Southern has avoided or offset a total of 55 million metric tons of
    CO~2~ equivalent. It has registered these savings with the
    Department of Energy under Section 1605(b) of the 1992 Energy Policy
    Act. The savings have been achieved mainly through improved
    performance of three nuclear power plants, thereby offsetting
    generation and emissions from coal-fired units. Southern has
    received 20-year license extensions for two of its three nuclear
    power plants, which will extend their expected life of operation
    past 2030.

    Southern has also sequestered carbon through a reforestation program
    that has planted more than 35 million trees. Other carbon dioxide
    emissions savings include 3.6 MMT from demand-side management
    programs, 0.2 MMT from biomass co-firing in coal-fired power plants,
    0.6 MMT of CO~2~ equivalent from methane reductions and 0.8 MMT of
    CO~2~ equivalent from reductions in sulfur hexafluoride, a potent
    greenhouse gas.

Congressional Legislation

Several major bills have been proposed in Congress to impose more
stringent emissions limitations under the Clean Air Act. Three of these
bills---the Bush administration's Clear Skies Act, the Clean Power Act
of 2002 and the Clean Air Planning Act of 2002---propose to further
limit power plant emissions of sulfur dioxide, nitrogen oxides, and
mercury. The latter two bills also propose to limit emissions of carbon
dioxide. Though none of these bills was enacted into law in the last
Congress, similar bills have been introduced in 2003.

**Carbon dioxide legislation:** In addition to the Clean Power Act and
Clean Air Planning Act of 2002, other bills have been introduced in
Congress, including the Climate Stewardship Act of 2003, which proposes
capping greenhouse gas emissions by 2010 and returning them to 1990
levels by 2016. In its 2002 Form 10-K, Southern does not indicate
whether these bills would have material impacts on the company's
operations and financial condition. It says the cost impacts of such
legislation would depend upon the specific requirements enacted.

Management does say in the Form 10-K that domestic efforts to limit
greenhouse gas emissions have been spurred by international discussions
surrounding the Framework Convention on Climate Change and specifically
the Kyoto Protocol, which proposes international constraints on the
emissions of greenhouse gases. Southern is involved in a voluntary
electric utility industry initiative in partnership with the Bush
administration, which does not support ratification of the Kyoto
Protocol or other mandatory carbon dioxide reduction legislation. The
Bush administration's voluntary climate initiative seeks an 18 percent
reduction by 2012 in the rate of greenhouse gas emissions relative to
the dollar value of the U.S. economy. Electric utilities have pledged a
3 to 5 percent reduction in the carbon intensity of their emissions by
2012. Absolute emissions of carbon dioxide would continue to rise.
Because this initiative is still under development, Southern says it is
not possible to determine the effect on the company at this time.

New Source Review and Related Lawsuits

If Southern fails to comply with environmental laws and regulations,
even if caused by factors beyond its control, that failure may result in
the assessment of civil or criminal penalties and fines against the
company. The U.S. Environmental Protection Agency has filed civil
actions against Alabama Power, Georgia Power and Savannah Electric
alleging violations of the New Source Review provisions of the Clean Air
Act. The EPA has also issued notices of violation to Gulf Power and
Mississippi Power. Management says in its Form 10-K that an "adverse
outcome in any one of these cases could require substantial capital
expenditures that cannot be determined at this time and could require
payment of substantial penalties," ranging up to \$27,500 per day, per
violation at each generating unit.

The New Source Review provisions of the Clean Air Act address older
power plants that do not meet the more stringent emissions control
requirements imposed on newest plants. The provisions were meant to
require the installation of best available pollution control technology
on older power plants if they were overhauled and underwent major
modifications. Questions have arisen, however, over what constitutes
major modification and what is considered routine maintenance for these
plants.

In December 2002, the EPA issued final and proposed revisions to the New
Source Review program that are intended to clarify which maintenance
expenditures do not warrant obtaining new Clean Air Act permits. Several
Northeastern states petitioned the District of Columbia Circuit Court in
February 2003 for a stay of the final rules. The stay was not granted.
The proposed rules were open to public comment and may be revised before
being finalized by the EPA. Any final regulations must be adopted by the
states in the company's service area in order to apply to its
facilities. Management says it cannot determine the effect of these
proposed and final rules concerning the New Source Review at this time.

**Lawsuits:** In November 1999, the EPA began a civil action against
Alabama Power, Georgia Power and Savannah Electric alleging violations
of the New Source Review provisions of the Clean Air Act. The lawsuit
requests penalties and injunctive relief, including an order requiring
the installation of the best available control technology at six
affected units. The EPA has issued a notice of violation relating to
each of these facilities as well as two others owned by Alabama Power.

The cases against Southern's operating units have been stayed since the
spring of 2001. A ruling is pending by the U.S. Court of Appeals for the
Eleventh Circuit in the appeal of a very similar New Source Review
enforcement action against the Tennessee Valley Authority. Because the
outcome of the TVA appeal could affect the lawsuits pending against
Southern's operating units, Alabama Power and Georgia Power have become
parties to the TVA case as well. Southern believes its operating units
were engaged in "common and traditional maintenance activities" of its
power plants and "complied with applicable laws and the EPA's
regulations and interpretations in effect at the time the work in
question took place."

Other Clean Air Act Issues

Southern's 2002 Form 10-K addresses a number of other requirements
concerning the Clean Air Act and state clean air standards. These
requirements are likely to result in additional capital expenditures,
although in each instance management says it does not have enough
information to characterize the possible impact on the company's
operations or financial condition. These include:

**National ambient air quality standards for ozone and fine particulate
matter:** The U.S. Environmental Protection Agency will issue final
implementation rules in 2004 that are expected to designate several
areas within the company's service area with nonattainment under the new
ozone and fine particulate matter standards. State implementation plans
to bring those areas into compliance could be required as early as 2007.
Those state plans could require further reductions in nitrogen oxide and
sulfur dioxide emissions from power plants sometime after 2007.
Management says the impact of any new standards will depend on the
development and implementation of applicable regulations.

**Regional Transport Rule:** The EPA also is expected to issue final
rules for a Regional Transport Rule for the fine particulate matter
standard in 2005. This rule would likely require year-round sulfur
dioxide and nitrogen oxide emission reductions from power plants as
early as 2010. If issued, this rule would likely modify other state
implementation plan requirements for attainment of the fine particulate
matter standard and ozone standard referenced above. Management says it
is not possible at this time to determine the effect such a rule would
have on the company.

**Regional haze:** Further reductions in sulfur dioxide also could be
required under the EPA's Regional Haze rules. The Regional Haze rules
require states to establish Best Available Retrofit Technology (BART)
standards for certain sources that contribute to regional haze. Southern
says it has a number of plants that could be subject to these rules.
State Implementation Plans for these rules are due in 2007 and 2008.
Because new BART rules have not been developed and state visibility
assessments are only beginning, management says it is not possible to
determine the effect of these rules on the company at this time.

**Compliance assurance monitoring:** The EPA's Compliance Assurance
Monitoring (CAM) regulations require that monitoring be performed to
ensure compliance with emissions limitations on an ongoing basis. Four
of Southern's operating companies will be applying for renewal of
operating permits between 2003 and 2005 that will likely be subject to
CAM requirements for at least one pollutant (in most cases particulate
matter). The company is in the process of developing CAM plans, which
could indicate a need for improved particulate matter controls at
affected facilities. Because the plans are still in the early stages of
development, management says it cannot determine the extent to which
improved controls could be required or the costs associated with any
necessary improvements.

**Mercury:** The EPA plans to issue final rules regulating mercury
emissions from electric utility boilers by the end of 2004. The program
is being developed under the Maximum Achievable Control Technology
provisions of the Clean Air Act. Compliance could be required as early
as the end of 2007. Because the rules have not yet been proposed,
management says the costs associated with compliance cannot be
determined at this time.

Coal Research

Southern is committed to the continued use of coal as one of its main
sources of generation. It says on its company website that is pursuing
development of coal technologies that "could one day generate energy
from coal while producing dramatically fewer emissions or no emissions
at all." Southern has managed more than \$400 million in research and
development efforts over the last 10 years, much of it on clean-coal
technologies. "During the transition period to new clean coal
technologies and other cleaner generation, it is critical that existing
units be kept in efficient, operational order to maintain the
reliability of our electric power system," the company says. "Utilities
must be able to operate and maintain their plants to meet increases in
demand for electricity."

At a facility in Alabama, Southern has successfully tested a technology
that turns coal into gas, which could be used to produce electricity
more cleanly than traditional coal plants. Coal gasification would cut
carbon dioxide emissions by more than one third, relative to
conventional coal plants, and emissions of sulfur dioxide, nitrogen
oxides and particulate matter also would be "significantly reduced,"
according to the company. The research program is a partnership with the
U.S. Department of Energy in which \$271 million has been invested.

Southern is also one of eight large coal-burning utilities and coal
companies to form an alliance that seeks the creation of a "near
zero-emission" coal-fueled power plant. The alliance is in support of
President Bush's FutureGen Initiative, a 10-year public-private
partnership that seeks to advance the use of hydrogen through extraction
from coal. An April 22, 2003, press release announcing the alliance
states that "The U.S. has more than a 300-year supply of coal;
therefore, the effort to design near zero-emissions power plants
promises to create a new way in which coal can power our economy with
minimal environmental impacts."

Southern also became the first utility to join the Zero Emission Coal
Alliance. The aim of the alliance is to test technology that generates
electricity with coal in a process that stores carbon dioxide in a
solid, mineral carbonate form, thereby eliminating greenhouse gas
emissions. Hydrogen extracted from coal through an anaerobic process is
used in a fuel cell to generate electricity. Rights to the proprietary
technology are now held by ZECA Corporation, which aims to be "the
premier owner and supplier of Zero Emission Coal and Carbon solutions."

III\. PROPONENTS\' POSITION

This is the fourth time that shareholder proponents affiliated with the
Interfaith Center on Corporate Responsibility have submitted a global
warming resolution to Southern Company. Shareholder proponents withdrew
resolutions asking the company to report on the costs and liabilities of
climate change in 1997, 1999 and 2002. The withdrawals came because "the
company was willing to be forthcoming with data we were asking for,"
according to Sister Patricia Daly, executive director of the Tri-State
Coalition for Responsible Investment, who has been one of the lead
filers at Southern.

Earlier this year, the company once again sent representatives,
including Dr. Charles Goodman, Southern's senior vice president for
research and environmental affairs, to meet with Daly and other
shareholder proponents in New York. Daly told IRRC that this year's
meeting was not as productive as in years past, "because they clearly
had not done their homework on what our new resolution is about."
Company executives presented an update of Southern's environmental
progress and initiatives. "But we're in a whole new ballgame now," Daly
explained. "We want the company to evaluate its data in terms of climate
change risk, and we don't have any indication that anyone at the company
is doing this."

The resolved clause of the 2003 global warming resolution has two
elements. It asks the company's board of directors to report on:

> \(a\) the economic risks associated with the Company's past, present
> and future emissions of carbon dioxide, sulfur dioxide, nitrogen oxide
> and mercury emissions, and the public stance of the company regarding
> efforts to reduce these emissions and (b) the economic benefits of
> committing to a substantial reduction of those emissions related to
> its current business activities (i.e., potential improvement in
> competitiveness and profitability).

In a presentation by Ceres, a coalition working closely with the
Interfaith Center on the 2003 shareholder campaign, general arguments
made in favor of the global warming resolution filed with electric
utilities are as follows:

4.  **Health and environmental risks from pollutants:** Electric
    utilities account for two-thirds of the nation's sulfur dioxide
    emissions, one-third of its mercury emissions and nearly one-quarter
    of its nitrogen oxides emissions. These pollutants contribute to
    asthma, lung and heart disease and mercury bioaccumulation in
    humans, and cause extensive damage to the environment, including
    acid rain, smog and mercury bioaccumulation in fish and other
    species. At the same time, electric utilities account for 37 percent
    of the nation's carbon dioxide emissions, the main gas tied to
    global warming.

5.  **Government regulation of these pollutants:** Emissions of sulfur
    dioxide and nitrogen oxides are regulated under the Clean Air Act.
    This federal law will require substantial additional reductions of
    these emissions as well as mercury in the years ahead. Utilities
    will have to make major new investments in pollution control
    technology, but this technology will not control carbon dioxide
    emissions.

6.  **Risks of not factoring in carbon dioxide controls:** The
    proponents believe domestic regulatory controls of CO~2~ are
    inevitable. Two states (New Hampshire and Massachusetts) have
    already passed laws restricting utility emissions of CO~2~, and
    federal legislation has been introduced as well. At the
    international level, the Kyoto Protocol is likely to go into effect
    this year (although the Bush administration has said the United
    States will not be bound by the agreement).

According to studies cited by the proponents, the most expensive choice
utilities could make is to retrofit existing fossil energy plants with
new pollution control equipment and *then* have to reduce CO~2~
emissions from these plants. The proponents argue that utilities should
factor future CO~2~ controls into their investment strategies *now*,
since it could alter decisions about which power plants to retrofit with
new pollution control equipment and which to replace with new, cleaner
energy sources.

7.  **Need for greater disclosure by utilities:** By some estimates
    cited by the proponents, many electric utilities face a "carbon
    exposure" of between 10 and 35 percent of their total market
    capitalization. (In other words, the cost of achieving carbon
    dioxide emission controls as specified by the Kyoto Protocol equals
    10 to 35 percent of the current value of their stock.) Many factors
    go into making this calculation, including a utility's generating
    assets, fuel mix, installed pollution control technologies and
    whether it is competing in a deregulated electricity market.
    "Investors cannot assess this risk without more disclosure" from
    utilities, according to Ceres.

That is why the proposal calls on management to conduct a thorough
economic assessment of the risks and benefits of achieving substantial
emissions reductions of the four pollutants listed in the proposal. "We
believe that taking early action on reducing emissions and preparing for
standards could better position companies over their peers, including
being first to market with new high-efficiency and low-emission
technologies," the proponents argue. "Changing consumer preferences,
particularly those relating to clean energy, should also be considered.
Inaction and opposition to emissions control efforts could expose
companies to reputation and brand damage, and regulatory and litigation
risk," it concludes.

IV\. MANAGEMENT\'S POSITION

Management opposes the resolution seeking more disclosure on the
company's efforts to address climate change. It argues that the
resolution would duplicate company reporting activities and be unduly
speculative. It says in its proxy statement that "the detailed
information requested on future costs and risks would require knowledge
of future governmental or other legal action," beyond what is already
discussed in company reports.

Management says the proponents' request for information on the "economic
risks associated with the Company's past, present, and future emissions"
can be found in the Southern's Annual Report on Form 10-K, which is
available on the Company's website and the website of the Securities and
Exchange Commission. In addition, details on the company's risk factors,
including historic and anticipated environmental costs and known future
contingencies, are included in the company's Annual Report to
Stockholders in the Management's Discussion and Analysis section.

Finally, management says the company's environmental commitment and
achievements are described in its Environmental Progress Report, which
is available for viewing and downloading on the company's website and
will be sent to stockholders or others upon request.

Management does not offer any specific comments in its proxy statement
on the global warming issue or its expenditures to control emissions of
pollutants regulated by the Clean Air Act. It says only that Southern
"is committed to complying fully with all environmental laws and
regulations as well as maintaining our commitment to environmental
stewardship in such a way that appropriately considers our customers and
stockholders."

V. IRRC ANALYSIS

SmartVoter Guidelines

Voting guidelines for this resolution are presented under issue number
3425 in IRRC's SmartVoter product.

Questions Raised

-   Is Southern responding adequately to the risks of global warming?

-   Could Southern do more to report on these risks to shareholders?

**Risks of global warming:** As the nation's second largest electric
utility, and one of the most heavily reliant on coal, Southern has a
tremendous amount at stake in the global warming debate. Carbon dioxide
emissions from its power plants account for nearly 2.5 percent of the
nation's CO~2~ emissions. As it expands its power generation, Southern
expects these emissions to grow by another 16 percent by 2020---for a
total increase of 45 percent between 1990 and 2020.

Legislation proposed in Congress calls on companies to "cap and trade"
their emissions. Under the Climate Stewardship Act, for example,
companies would be required to return to 1990 emissions levels by 2016.
The Kyoto Protocol (which the United States has not endorsed) calls for
more stringent controls---a 7 percent cut in CO~2~ emissions below 1990
levels by 2012. Management says it is focused on "addressing emissions
of greenhouse gases such as CO~2~," but it has not indicated to
shareholders the extent of such controls and whether they would have a
material impact on the company's operations and financial condition. It
says the cost impacts of CO~2~ controls would depend upon specific
requirements of government legislation.

Meanwhile, Southern continues to make extensive investments in its aging
fleet of coal-fired power plants. As the utility industry's #2 emitter
of sulfur dioxide and nitrogen oxides, Southern has spent \$1.4 billion
to install pollution control equipment under the acid rain and ozone
nonattainment provisions of the Clean Air Act. It expects to spend an
additional \$4 billion or more by 2015 to further reduce these and
mercury emissions. However, its spending on pollution control could be
higher and come sooner if it loses a series of court cases now before
U.S. Court of Appeals. At issue is whether Southern's older coal plants
must install best available pollution control technology when they
receive modifications. Management says that an adverse outcome in any
one of these cases could require "substantial capital expenditures" and
could require payment of "substantial penalties"---ranging up to
\$27,500 per day, per violation at each generating unit.

The proponents are concerned that Southern may find itself making costly
investments to retrofit existing fossil energy plants with new pollution
control equipment and later have to reduce CO~2~ emissions from these
plants, compromising the future value of these investments. The
proponents argue that utilities should factor possible CO~2~ controls
into their investment strategies now, since that could alter their
decisions about which power plants to retrofit and which to replace with
new, cleaner energy sources. Accordingly, they are asking management to
issue a report on this issue.

**Adequacy of reporting by Southern:** Southern provides a much clearer
outlook for its power generation than most electric utilities. With
projections out to 2020, management has informed shareholders that it
expects its power generation to grow by 45 percent, even as it reduces
its emissions of sulfur dioxide and nitrogen oxides by 68 to 80 percent
of 1990 levels. These reductions will be made possible not only by
investments in pollution control equipment at its coal-fired plants, but
also by construction of new gas-fired plants to meet incremental power
demand. Natural gas is expected to account for about half of Southern
generating mix by 2020, while coal's contribution is expected to fall
from about two-thirds to just over one-third. Because natural gas has a
lower carbon content than coal and burns more efficiently, Southern also
expects to reduce the "carbon emissions intensity" of its power
production. For every 3 percent increase in power generation, it is
projecting only a 1 percent increase in its CO~2~ emissions.

As detailed as this reporting is, it still does not answer the
proponents' fundamental question, however: What will the company do if
it has to achieve *stabilization* or *reductions* in its CO~2~ emissions
over the next 10 to 20 years? By 2020, Southern's CO~2~ emissions are
projected to be 45 percent above 1990 levels. Accordingly, even
achieving stabilization at 1990 levels would entail a substantial
emissions reduction from the levels now being projected.

On this vital contingency, management offers very little guidance in its
Form 10-K or other securities filings. With respect to government
policy, management says the effects on the company would depend on the
terms of legislative controls. With respect to technology, management
does acknowledge that the commercial success of low-emitting
technologies, such as fuel cells and renewables, could erode its market
share and reduce the value of its electric generating facilities, if
they achieve economies of scale. But again management gives no
indication of whether these developments would be material to the
company and its shareholders. By inference, the suggestion is that they
could be.

By reviewing the company's environmental report, shareholders are able
to glean some other useful pieces of information. With respect to
renewables, Southern does not see them posing much of a threat---or
opportunity---in its service area because the available resources are
limited and the costs of generation are higher than power from coal or
natural gas. (This assumes no costs of carbon emissions will be added to
these fuels.) With respect to coal, Southern says it is pursuing
development of cleaner-burning technologies that "could one day generate
energy from coal while producing dramatically fewer emissions or no
emissions at all." It does not give a clear sense of the generating
costs or technological hurdles that remain with clean coal technologies,
however, so it is not possible for shareholders to compare their
prospects with those of renewables. Finally, with respect to the issue
of climate change, Southern continues to regard it as "global and
long-term in nature," and believes that policies "should seek to resolve
climate change scientific uncertainties." Management's key point is
this:

> During the transition period to new clean coal technologies and other
> cleaner generation, it is critical that existing units be kept in
> efficient, operational order to maintain the reliability of our
> electric power system. Utilities must be able to operate and maintain
> their plants to meet increases in demand for electricity.

Herein lies the dilemma for investors. The proponents say management
must provide better information on the costs and risks of this strategy,
given that the cost of achieving carbon dioxide emission controls ranges
from 10 to 35 percent of the current value of utility companies' stock,
according to some estimates. Management says, however, that the detailed
information requested by the proponents would require knowledge of
future governmental or other legal action beyond what is already
discussed in company reports.

In the final analysis, shareholders who are satisfied with Southern's
current level of reporting---which at least provides a clear outlook for
the company's generating mix and projected emissions through 2020---will
be inclined to side with management and vote against this proposal.
Those who feel that management could set some better financial
parameters around the uncertainties in its outlook---especially what
legal, regulatory and legislative developments could be material to the
company and its shareholders---will be inclined to support the
proponents' call for a more detailed report on the costs and benefits of
Southern's evolving response to climate change.

\* \* \* \* \*

EXCERPT FROM SOUTHERN CO.'S PROXY STATEMENT

**Shareholder Proposal Related To An Environmental Report:**

**"ELECTRIC UTILITY RESOLUTION**

**WHEREAS:**

In 2001 The Intergovernmental Panel on Climate Change concluded that
"there is new and stronger evidence that most of the warming observed
over the last 50 years is attributable to human activities."

In 2001 the National Academy of Sciences stated that the "degree of
confidence in the IPCC assessment is higher today than it was 10, or
even 5 years ago...there is general agreement that the observed warming
is real and particularly strong within the past 20 years."

The United States government's "Climate Action Report -- 2002,"
concluded that global climate change may harm the country. The report
highlights risks to coastal communities in the Southeast due to sea
level rise, water shortages throughout the West, and increases in the
heat index and frequency of heat waves.

In July 2002, eleven Attorneys General wrote President Bush, outlining
their concern over the U.S. Climate Action Report's failure to recommend
mandatory reductions of greenhouse gas emissions. They declared that
States are being forced to fill the federal regulatory void through
state-by-state regulation and litigation, increasing the ultimate costs
of addressing climate change. They urged a reconsideration of his
regulatory position, and adoption of a "comprehensive policy that will
protect both our citizens and our economy."

U.S. power plants are responsible for about two-thirds of the country's
sulfur dioxide emissions, one-quarter of its nitrogen oxides emissions,
one-third of its mercury emissions, approximately 40 percent of its
carbon dioxide emissions, and 10 percent of global carbon dioxide
emissions.

Scientific studies show that air pollution from U.S. power plants causes
tens of thousands of premature deaths and hospitalizations, hundreds of
thousands of asthma attacks, and several million lost workdays
nationwide every year from pollution-related ailments.

Standards for carbon dioxide emissions and other air pollutants are
emerging across multiple fronts. Ninety-six countries have ratified the
Kyoto Protocol, requiring carbon dioxide reductions. Massachusetts and
New Hampshire have enacted legislation capping power plants emissions of
carbon dioxide and other air pollutants. In June 2002 the Senate
Environment and Public Works Committee passed a bill seeking to cap
emissions from the generation of electric and thermal energy.

We believe that taking early action on reducing emissions and preparing
for standards could better position companies over their peers,
including being first to market with new high-efficiency and
low-emission technologies. Changing consumer preferences, particularly
those relating to clean energy, should also be considered.

Inaction and opposition to emissions control efforts could expose
companies to reputation and brand damage, and regulatory and litigation
risk.

**RESOLVED:** That the Board of Directors report (at reasonable cost and
omitting proprietary information) by August 2003 to shareholders on (a)
the economic risks associated with the Company's past, present and
future emissions of carbon dioxide, sulfur dioxide, nitrogen oxide and
mercury emissions, and the public stance of the company regarding
efforts to reduce these emissions and (b) the economic benefits of
committing to a substantial reduction of those emissions related to its
current business activities (i.e. potential improvement in
competitiveness and profitability)."

**THE BOARD OF DIRECTORS RECOMMENDS A VOTE \"AGAINST\" ITEM NO. 3 FOR
THE FOLLOWING REASONS:**

The Company is committed to complying fully with all environmental laws
and regulations as well as maintaining our commitment to environmental
stewardship in such a way that appropriately considers our customers and
stockholders.

The proposal requests a report to our shareholders on the \"economic
risks associated with the Company\'s past, present, and future
emissions.\" The Company currently provides details regarding its risk
factors including historic and anticipated environmental costs and known
future contingencies. This information is included in the Company\'s
Annual Report on Form 10- K for the year ended December 31, 2002 (\"Form
10-K\"). The Form 10-K is available on the Company\'s website and the
website of the Securities and Exchange Commission and may be obtained
from the Company. (See page 2 of this Proxy Statement for information on
requesting a copy of the Form 10-K from the Company.)

Details on the Company\'s risk factors, including historic and
anticipated environmental costs and known future contingencies, are also
included in the Annual Report to stockholders in the Management\'s
Discussion and Analysis of Results of Operations and Financial Condition
section and in the Notes to Financial Statements.

In addition, the Company\'s environmental commitment and achievements
are described in our Environmental Progress Report. This report is
available for viewing and downloading on the Company\'s website and will
be sent to stockholders or others upon request.

The Company opposes this proposal because the information the Company
would report is largely duplicative of information already provided. We
also believe the detailed information requested on future costs and
risks would require knowledge of future governmental or other legal
action and is too speculative to report and quantify as requested by the
proposal, beyond what is discussed in the reports noted above. We
believe that it is in the best interests of our stockholders that the
Company not be required to incur the additional expense of producing and
distributing such a report.

The vote needed to pass the proposed stockholders\' resolution is a
majority of the shares represented at the meeting and entitled to vote.

**THE BOARD OF DIRECTORS RECOMMENDS A VOTE \"AGAINST\" ITEM NO. 3.**