Document:

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                                                                    EXHIBIT 10.1

                                     FORM OF

                  MASTER SEPARATION AND DISTRIBUTION AGREEMENT

                                     BETWEEN

                              THE SOUTHERN COMPANY

                                       AND

                              SOUTHERN ENERGY, INC.

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                                TABLE OF CONTENTS

<TABLE>
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                                                                                                       Page
<S>                                                                                                    <C>
ARTICLE I  SEPARATION....................................................................................2
   Section 1.1. Separation Date..........................................................................2
   Section 1.2. Closing of Transactions..................................................................2
   Section 1.3. Exchange of Secretary's Certificates.....................................................2
ARTICLE II  DOCUMENTS TO BE DELIVERED ON THE SEPARATION DATE.............................................2
   Section 2.1. Documents to Be Delivered By Southern....................................................2
   Section 2.2 Documents to Be Delivered by Southern Energy..............................................3
ARTICLE III   THE IPO AND ACTIONS PENDING THE IPO........................................................3
   Section 3.1 Transactions Prior to the IPO.............................................................3
   Section 3.2. Use of Proceeds..........................................................................4
   Section 3.3 Cooperation...............................................................................4
   Section 3.4 Conditions Precedent to Consummation of the IPO...........................................4
ARTICLE IV  THE DISTRIBUTION.............................................................................6
   Section 4.1  The Distribution.........................................................................6
   Section 4.2  Actions Prior To The Distribution........................................................6
   Section 4.3 Sole Discretion of Southern...............................................................7
   Section 4.4 Conditions To Distribution................................................................8
   Section 4.5 Fractional Shares.........................................................................8
ARTICLE V  COVENANTS AND OTHER MATTERS...................................................................9
   Section 5.1 Other Agreements..........................................................................9
   Section 5.2 Further Instruments.......................................................................9
   Section 5.3 Agreement For Exchange of Information.....................................................9
   Section 5.4 Auditors and Audits; Annual and Quarterly Statements and Accounting......................11
   Section 5.5 Consistency with Past Practices..........................................................13
   Section 5.6 Payment of Expenses......................................................................13
   Section 5.7 Dispute Resolution.......................................................................13
   Section 5.8 Governmental Approvals...................................................................14
   Section 5.9 Regulatory Proceedings...................................................................15
   Section 5.10 Regulatory Effect of Distribution.......................................................15
   Section 5.11 HoldCo Transaction......................................................................15
   Section 5.12. Continuance of Southern Credit Support.................................................16
   Section 5.13. Mobile Facility........................................................................16
   Section 5.14 Assignment of Agreements................................................................17
   Section 5.15 Southern Energy Board Representation....................................................17
ARTICLE VI  MISCELLANEOUS...............................................................................18
   Section 6.1 LIMITATION OF LIABILITY..................................................................18
   Section 6.2 Entire Agreement.........................................................................18
   Section 6.3 Governing Law............................................................................18
   Section 6.4 Termination..............................................................................18
   Section 6.5 Notices..................................................................................18
   Section 6.6 Counterparts.............................................................................19
   Section 6.7 Binding Effect; Assignment...............................................................19
   Section 6.8 Severability.............................................................................19
</TABLE>

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<TABLE>
<S>                                                                                                    <C>
   Section 6.9 Failure or Indulgence Not Waiver; Remedies Cumulative....................................19
   Section 6.10 Amendment...............................................................................19
   Section 6.11 Authority...............................................................................19
   Section 6.12 Interpretation..........................................................................20
   Section 6.13 Conflicting Agreements..................................................................20
ARTICLE VII  DEFINITIONS................................................................................20
   Section 7.1 Affiliated Company.......................................................................20
   Section 7.2 Ancillary Agreements.....................................................................20
   Section 7.3 Business Day.............................................................................20
   Section 7.4 Change of Control Date...................................................................20
   Section 7.5 Code.....................................................................................20
   Section 7.6 Commission...............................................................................20
   Section 7.7 Disputes.................................................................................21
   Section 7.8 Distribution.............................................................................21
   Section 7.9 Distribution Agent.......................................................................21
   Section 7.10 Distribution Date.......................................................................21
   Section 7.11 Exchange Act............................................................................21
   Section 7.12 Governmental Approvals..................................................................21
   Section 7.13 Governmental Authority..................................................................21
   Section 7.14 HoldCo Transaction......................................................................21
   Section 7.15 Information.............................................................................21
   Section 7.16 IPO.....................................................................................21
   Section 7.17 IPO Closing Date........................................................................21
   Section 7.18 IPO Registration Statement..............................................................21
   Section 7.19 NYSE....................................................................................22
   Section 7.20 Person..................................................................................22
   Section 7.21 Record Date.............................................................................22
   Section 7.22 SE Finance..............................................................................22
   Section 7.23 SE Capital Funding......................................................................22
   Section 7.24 Separation..............................................................................22
   Section 7.25 Separation Date.........................................................................22
   Section 7.26 Southern Business.......................................................................22
   Section 7.27 Southern Energy Business................................................................22
   Section 7.28 Southern Energy Group...................................................................22
   Section 7.29 Southern Energy Auditors................................................................23
   Section 7.30 Southern Group..........................................................................23
   Section 7.31 Southern's Auditors.....................................................................23
   Section 7.32 Subsidiary..............................................................................23
   Section 7.33 Troutman Sanders........................................................................23
   Section 7.34 Underwriters............................................................................23
   Section 7.35 Underwriting Agreement..................................................................23
   Schedule 5.11  HoldCo Transaction
   Schedule 5.12  Plant Dahlberg Transaction
   Schedule 5.14  Transferred Agreements
   Schedule 7.1   Southern Energy Affiliated Companies
</TABLE>

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                  MASTER SEPARATION AND DISTRIBUTION AGREEMENT

    THIS MASTER SEPARATION AND DISTRIBUTION AGREEMENT (this "Agreement") is
entered into as of September 1, 2000, between The Southern Company ("Southern"),
a Delaware corporation, and Southern Energy, Inc. ("Southern Energy"), a
Delaware corporation. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to such terms in Article VII hereof.

                                    RECITALS

    WHEREAS, the Boards of Directors of Southern and Southern Energy have each
determined that it would be appropriate and desirable for Southern to separate
the Southern Energy Group from the Southern Group (the "Separation"), and, in
connection with the Separation, for Southern to acquire certain entities
currently associated with the Southern Energy Business from Southern Energy, and
for Southern Energy to acquire certain assets from Southern; and

    WHEREAS, Southern and Southern Energy currently contemplate that, in
connection with the Separation, Southern Energy will make an initial public
offering ("IPO") of an amount of its common stock pursuant to a registration
statement on Form S-1 pursuant to the Securities Act of 1933, as amended (the
"IPO Registration Statement"), that will reduce Southern's ownership of Southern
Energy by less than 20%; and

    WHEREAS, Southern and Southern Energy further currently contemplate that, in
connection with the Separation, Southern Energy will transfer two of its
wholly-owned Subsidiaries, SE Finance and SE Capital Funding, to Southern (the
"HoldCo Transaction"), and Southern will assume certain liabilities in
connection therewith; and

    WHEREAS, Southern currently contemplates that, within twelve months
following the IPO, Southern will distribute to the holders of its common stock,
by means of a pro rata distribution, all of the shares of Southern Energy common
stock then owned by Southern (the "Distribution"); and

    WHEREAS, Southern and Southern Energy intend that the Distribution will
qualify as a tax-free distribution under Section 355 of the Internal Revenue
Code of 1986, as amended (the "Code"), and that this Agreement is intended to
be, and is hereby adopted as, a plan of reorganization under Section 368 of the
Code; and

    WHEREAS, the parties intend in this Agreement, including the Exhibits and
Schedules hereto, to set forth the principal arrangements between them regarding
the Separation.

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    NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth below, the parties hereto agree as follows:

                                    ARTICLE I

                                   SEPARATION

    Section 1.1. Separation Date. Unless otherwise provided in this Agreement,
or in any agreement to be executed in connection with this Agreement, the
effective time and date of each undertaking or agreement in connection with the
Separation shall be as of 12:01 a.m., Eastern Time, September 1, 2000 or such
other date as may be fixed by Southern (the "Separation Date").

    Section 1.2. Closing of Transactions. Unless otherwise provided herein, the
closing of the transactions contemplated in Article II shall occur by the
lodging of each of the executed agreements, instruments or other documents to be
executed pursuant to this Agreement with Troutman Sanders LLP, 600 Peachtree
Street, Suite 5200, Atlanta, Georgia 30308, to be held in escrow for delivery as
provided in Section 1.3 of this Agreement.

    Section 1.3. Exchange of Secretary's Certificates. Upon receipt of a
certificate of the Secretary or an Assistant Secretary of Southern in the form
attached to this Agreement as Exhibit A, Troutman Sanders shall deliver to
Southern Energy on behalf of Southern all of the items required to be delivered
by Southern hereunder pursuant to Section 2.1 of this Agreement and each such
item shall be deemed to be delivered to Southern Energy as of the Separation
Date upon delivery of such certificate. Upon receipt of a certificate of the
Secretary or an Assistant Secretary of Southern Energy in the form attached to
this Agreement as Exhibit B, Troutman Sanders shall deliver to Southern on
behalf of Southern Energy all of the items required to be delivered by Southern
Energy hereunder and each such item shall be deemed to be delivered to Southern
as of the Separation Date upon receipt of such certificate.

                                   ARTICLE II

                DOCUMENTS TO BE DELIVERED ON THE SEPARATION DATE

    Section 2.1. Documents to Be Delivered By Southern. On the Separation Date,
Southern will deliver, or will cause its appropriate Subsidiaries to deliver, to
Southern Energy all of the following items and agreements (collectively,
together with all agreements and documents contemplated by this Agreement and
such other agreements, including any agreements, the "Ancillary Agreements"):

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        (a) A duly executed Technology and Intellectual Property Ownership and
            License Agreement substantially in the form attached hereto as
            Exhibit C;

        (b) A duly executed Employee Matters Agreement substantially in the form
            attached hereto as Exhibit D;

        (c) A duly executed Tax Indemnification Agreement substantially in the
            form attached hereto as Exhibit E;

        (d) A duly executed Transitional Services Agreement substantially in the
            form attached hereto as Exhibit F;

        (e) A duly executed Confidential Disclosure Agreement substantially in
            the form attached hereto as Exhibit G;

        (f) A duly executed Indemnification and Insurance Matters Agreement
            substantially in the form attached hereto as Exhibit H;

        (g) Such other agreements, documents or instruments as the parties may
            agree are necessary or desirable in order to achieve the purposes
            hereof.

    Section 2.2 Documents to Be Delivered by Southern Energy. As of the
Separation Date, in each case where Southern Energy or any of its Subsidiaries
is a party to any agreement or instrument referred to in Section 2.1, Southern
Energy will or will cause its appropriate Subsidiaries to deliver to Southern a
duly executed counterpart of such agreement or instrument.

                                   ARTICLE III

                       THE IPO AND ACTIONS PENDING THE IPO

    Section 3.1 Transactions Prior to the IPO. Subject to the conditions
specified in Section 3.4, Southern and Southern Energy shall use their
reasonable commercial efforts to consummate the IPO. Such efforts shall include,
but not necessarily be limited to, those specified in this Section 3.1:

        (a)       Registration Statement. Southern Energy shall file the IPO
Registration Statement, and such amendments or supplements thereto, as may be
necessary in order to cause the same to become and remain effective as required
by law or by the managing underwriters for the IPO (the "Underwriters"),
including, but not limited to, filing such amendments to the IPO Registration
Statement as may be required by the underwriting agreement to be entered into
among Southern Energy and the Underwriters (the "Underwriting Agreement"), the
Securities and Exchange Commission (the "Commission") or federal, state or
foreign securities laws. Southern and Southern Energy

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shall also cooperate in preparing, filing with the Commission and causing to
become effective a registration statement registering the common stock of
Southern Energy under the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), and any registration statements or amendments thereof which are
required to reflect the establishment of, or amendments to, any employee benefit
and other plans necessary or appropriate in connection with the IPO, the
Separation, the Distribution or the other transactions contemplated by this
Agreement.

    (b) Underwriting Agreement. Southern Energy shall enter into the
Underwriting Agreement, in form and substance reasonably satisfactory to
Southern Energy, and shall comply with its obligations thereunder.

    (c) Other Matters. Southern and Southern Energy shall consult with each
other and the Underwriters regarding the timing, pricing and other material
matters with respect to the IPO.

    (d) Blue Sky. Southern Energy shall use its reasonable commercial efforts to
take all such action as may be necessary or appropriate under state securities
and blue sky laws of the United States (and any comparable laws under any
foreign jurisdictions) in connection with the IPO.

    (e) NYSE Listing. Southern Energy shall prepare, file and use reasonable
commercial efforts to seek to make effective, an application for listing of the
common stock of Southern Energy issued in the IPO on the New York Stock Exchange
(the "NYSE"), subject to official notice of issuance.

    Section 3.2. Use of Proceeds. The proceeds of the IPO will be retained by
Southern Energy to be used for general corporate purposes.

    Section 3.3 Cooperation. Southern Energy shall consult with, and cooperate
in all respects with, Southern in connection with the pricing of the common
stock of Southern Energy to be offered in the IPO and shall, at Southern's
direction, promptly take any and all actions necessary or desirable to
consummate the IPO as contemplated by the IPO Registration Statement and the
Underwriting Agreement.

    Section 3.4 Conditions Precedent to Consummation of the IPO. As soon as
practicable after the Separation Date, the parties hereto shall use their
reasonable commercial efforts to satisfy the conditions listed below to the
consummation of the IPO. The obligations of the parties to use their reasonable
commercial efforts to consummate the IPO shall be conditioned on the
satisfaction, or waiver by Southern, of the following conditions:

    (a) Registration Statement. The IPO Registration Statement shall have been
filed and declared effective by the Commission, and there shall be no stop-order
in effect with respect thereto.

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    (b) Blue Sky. The actions and filings with regard to state securities and
blue sky laws of the United States (and any comparable laws under any foreign
jurisdictions) described in Section 3.1(d) shall have been taken and, where
applicable, have become effective or been accepted.

    (c) NYSE Listing. The common stock of Southern Energy to be issued in the
IPO shall have been accepted for listing on the NYSE, on official notice of
issuance.

    (d) Underwriting Agreement. Southern Energy shall have entered into the
Underwriting Agreement and all conditions to the obligations of Southern Energy
and the Underwriters shall have been satisfied or waived.

    (e) Common Stock Ownership. Southern shall be satisfied in its sole
discretion that it will own more than 80% of the outstanding common stock of
Southern Energy following the IPO. All other conditions to permit the
Distribution to qualify as a tax-free distribution to Southern, Southern Energy
and Southern's stockholders shall, to the extent applicable as of the time of
the IPO, be satisfied, and there shall be no event or condition that is likely
to cause any of such conditions not to be satisfied as of the time of the
Distribution or thereafter.

    (f) Governmental Approvals. Any material Governmental Approvals necessary to
consummate the IPO shall have been obtained and be in full force and effect.

    (g) No Legal Restraints. No order, injunction or decree issued by any court
or agency of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Separation or the IPO or any of the other
transactions contemplated by this Agreement shall be in effect.

    (h) Separation. The Separation shall have become effective.

    (i) Other Actions. Such other actions as the parties hereto may, based upon
the advice of counsel, reasonably request to be taken prior to the IPO in order
to assure the successful completion of the IPO shall have been taken.

    (j) No Termination. This Agreement shall not have been terminated.

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                                   ARTICLE IV

                                THE DISTRIBUTION

      Section 4.1 The Distribution.

    (a) Delivery of Shares for Distribution. Subject to Section 4.4 hereof, on
or prior to the date the Distribution is effective (the "Distribution Date"),
Southern will deliver to the distribution agent to be appointed by Southern, or
if no distribution agent is appointed, then Southern (the "Distribution Agent"),
to distribute to the stockholders of Southern the shares of common stock of
Southern Energy held by Southern pursuant to the Distribution for the benefit of
holders of record of common stock of Southern on the Record Date, a single stock
certificate, endorsed by Southern in blank, representing all of the outstanding
shares of common stock of Southern Energy then owned by Southern, and shall
cause the transfer agent for the shares of common stock of Southern to instruct
the Distribution Agent to distribute on the Distribution Date the appropriate
number of such shares of common stock of Southern Energy to each such holder or
designated transferee or transferees of such holder.

    (b) Shares Received. Subject to Sections 4.4 and 4.5, each holder of common
stock of Southern on the Record Date (or such holder's designated transferee or
transferees) will be entitled to receive in the Distribution a number of shares
of common stock of Southern Energy equal to the number of shares of common stock
of Southern held by such holder on the Record Date multiplied by a fraction the
numerator of which is the number of shares of common stock of Southern Energy
beneficially owned by Southern on the Record Date and the denominator of which
is the number of shares of common stock of Southern outstanding on the Record
Date.

    (c) Obligation to Provide Information. Southern Energy and Southern, as the
case may be, will provide to the Distribution Agent all share certificates and
any information required in order to complete the Distribution on the basis
specified above.

    Section 4.2 Actions Prior To The Distribution.

    (a) Information Statement. Southern and Southern Energy shall prepare and
mail, prior to the Distribution Date, to the holders of common stock of Southern
such information concerning Southern Energy and the Distribution and such other
matters as Southern shall reasonably determine are necessary and as may be
required by law. Southern and Southern Energy will prepare, and Southern Energy
will, to the extent required under applicable law, file with the Commission any
such documentation which Southern and Southern Energy determines is necessary or
desirable to effectuate the Distribution, and Southern and Southern Energy shall
each use its reasonable commercial efforts to obtain all necessary approvals
from the Commission with respect thereto as soon as practicable.

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    (b) Blue Sky. Southern and Southern Energy shall take all such actions as
may be necessary or appropriate under the securities or blue sky laws of the
United States (and any comparable laws under any foreign jurisdiction) in
connection with the Distribution.

    (c) NYSE Listing. Southern Energy shall prepare and file, and shall use its
reasonable commercial efforts to have approved, an application for the listing
of the common stock of Southern Energy to be distributed in the Distribution on
the NYSE, subject to official notice of distribution.

    (d) Resignation of Directors and Officers. Immediately prior to the
Distribution, (i) each person who is an officer, director or employee of any
member of the Southern Group and an officer, director or employee of any member
of the Southern Energy Group immediately prior to the Distribution (each a
"Joint Employee") and who is to continue as an officer, director or employee of
any member of the Southern Group after the Distribution shall resign from each
of such person's positions with each member of the Southern Energy Group, and
(ii) each such Joint Employee who is to continue as an officer, director or
employee of any member of the Southern Energy Group, after the Distribution,
shall resign from each of such person's positions with each member of the
Southern Group.

    (e) Conditions. Southern and Southern Energy shall take all reasonable steps
necessary and appropriate to cause the conditions set forth in Section 4.4 to be
satisfied and to effect the Distribution on the Distribution Date.

    Section 4.3 Sole Discretion of Southern. Southern currently intends,
following the consummation of the IPO, to complete the Distribution within
twelve (12) months of the IPO Closing Date. Southern shall, in its sole and
absolute discretion, determine the date of the consummation of the Distribution
and all terms of the Distribution, including, without limitation, the form,
structure and terms of any transaction(s) and/or offering(s) to effect the
Distribution and the timing of and conditions to the consummation of the
Distribution. In addition, Southern may at any time and from time to time until
the completion of the Distribution decide to abandon the Distribution or modify
or change the terms of the Distribution, including, without limitation, by
accelerating or delaying the timing of the consummation of all or part of the
Distribution. Southern Energy shall cooperate with Southern in all respects to
accomplish the Distribution and shall, at Southern's direction, promptly take
any and all actions necessary or desirable to effect the Distribution,
including, without limitation, the registration under the Securities Act of the
common stock of Southern Energy on an appropriate registration form or forms to
be designated by Southern. Southern shall select any investment banker(s) and
manager(s) in connection with the Distribution, as well as any financial
printer, solicitation and/or exchange agent and outside counsel for Southern;
provided, however, that nothing herein shall prohibit Southern Energy from
engaging (at its own expense) its own financial, legal, accounting and other
advisors in connection with the Distribution.

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    Section 4.4 Conditions To Distribution. The following are conditions to the
consummation of the Distribution. The conditions are for the sole benefit of
Southern and shall not give rise to or create any duty on the part of Southern
or the Southern Board of Directors to waive or not waive any such condition.

    (a) IRS Ruling. Southern shall have obtained a private letter ruling from
the Internal Revenue Service in form and substance satisfactory to Southern (in
its sole discretion), and such ruling shall remain in effect as of the
Distribution Date, to the effect that (i) the distribution by Southern of all of
its Southern Energy stock to the stockholders of Southern will qualify as a
reorganization under Section 355 of the Code; and (ii) no gain or loss will be
recognized by (and no amount will otherwise be included in the income of) the
stockholders of Southern upon their receipt of Southern Energy common stock
pursuant to the Distribution.

    (b) Governmental Approvals. Any material Governmental Approvals necessary to
consummate the Distribution and the HoldCo Transaction shall have been obtained
and be in full force and effect;

    (c) No Legal Restraints. No order, injunction or decree issued by any court
or agency of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Distribution shall be in effect and no other
event outside the control of Southern shall have occurred or failed to occur
that prevents the consummation of the Distribution; and

    (d) No Material Adverse Effect. No other events or developments shall have
occurred subsequent to the IPO Closing Date that, in the judgment of the Board
of Directors of Southern, would result in the Distribution having a material
adverse effect on Southern or on the stockholders of Southern.

    Section 4.5 Fractional Shares. As soon as practicable after the Distribution
Date, Southern shall direct the Distribution Agent to determine the number of
whole shares and fractional shares of common stock of Southern Energy allocable
to each holder of record or beneficial owner of common stock of Southern as of
the Record Date, to aggregate all such fractional shares and sell the whole
shares obtained thereby at the direction of Southern, in open market
transactions, at then prevailing trading prices, and to cause to be distributed
to each such holder or for the benefit of each such beneficial owner to which a
fractional share shall be allocable such holder's or owner's ratable share of
the proceeds of such sale, after making appropriate deductions of the amount
required to be withheld for federal income tax purposes and after deducting an
amount equal to all brokerage charges, commissions and transfer taxes attributed
to such sale. Southern and the Distribution Agent shall use their reasonable
commercial efforts to aggregate the shares of common stock of Southern that may
be held by any beneficial owner thereof through more than one account in
determining the fractional share allocable to such beneficial owner.

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                                    ARTICLE V

                           COVENANTS AND OTHER MATTERS

    Section 5.1 Other Agreements. In addition to the specific agreements,
documents and instruments annexed to this Agreement, Southern and Southern
Energy agree to execute or cause to be executed by the appropriate parties and
deliver, as appropriate, such other agreements, instruments and other documents
as may be necessary or desirable in order to effect the purposes of this
Agreement and the Ancillary Agreements.

    Section 5.2 Further Instruments. At the request of Southern Energy and
without further consideration, Southern will execute and deliver, and will cause
its applicable Subsidiaries to execute and deliver, to Southern Energy and its
Subsidiaries such other instruments of transfer, conveyance, assignment,
substitution and confirmation and take such action as Southern Energy may
reasonably deem necessary or desirable in order more effectively to transfer,
convey and assign to Southern Energy and its Subsidiaries and confirm Southern
Energy's and its Subsidiaries' title to all of the assets, rights and other
things of value contemplated to be transferred to Southern Energy and its
Subsidiaries pursuant to this Agreement, the Ancillary Agreements, and any
documents referred to therein, to put Southern Energy and its Subsidiaries in
actual possession and operating control thereof and to permit Southern Energy
and its Subsidiaries to exercise all rights with respect thereto (including,
without limitation, rights under contracts and other arrangements as to which
the consent of any third party to the transfer thereof shall not have previously
been obtained). At the request of Southern and without further consideration,
Southern Energy will execute and deliver, and will cause its applicable
Subsidiaries to execute and deliver, to Southern and its Subsidiaries all
instruments, assumptions, novations, undertakings, substitutions or other
documents and take such other action as Southern may reasonably deem necessary
or desirable in order to have Southern Energy fully and unconditionally assume
and discharge the liabilities contemplated to be assumed by Southern Energy
under this Agreement or any document in connection herewith and to relieve the
Southern Group of any liability or obligation with respect thereto and evidence
the same to third parties. Neither Southern nor Southern Energy shall be
obligated, in connection with the foregoing, to expend money other than
reasonable out-of-pocket expenses, attorneys' fees and recording or similar
fees. Furthermore, each party, at the request of another party hereto, shall
execute and deliver such other instruments and do and perform such other acts
and things as may be necessary or desirable for effecting completely the
consummation of the transactions contemplated hereby.

    Section 5.3 Agreement For Exchange of Information. Each of Southern and
Southern Energy agrees to provide, or cause to be provided, to each other, at
any time before or after the Change of Control Date, as soon as reasonably
practicable after written request therefor, any Information in the possession or
under the control of such party that the requesting party reasonably needs (i)
to comply with reporting, disclosure, filing or

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other requirements imposed on the requesting party (including under applicable
securities laws) by a Governmental Authority having jurisdiction over the
requesting party, (ii) for use in any other judicial, regulatory, administrative
or other proceeding or in order to satisfy audit, accounting, claims,
regulatory, litigation or other similar requirements, (iii) to comply with its
obligations under this Agreement or any Ancillary Agreement or (iv) in
connection with the ongoing businesses of Southern or Southern Energy as it
relates to the conduct of such businesses prior to the Change of Control Date,
as the case may be; provided, however, that in the event that any party
determines that any such provision of Information could be commercially
detrimental, violate any law or agreement, or waive any attorney-client
privilege, the parties shall take all reasonable measures to permit the
compliance with such obligations in a manner that avoids any such harm or
consequence.

    (a) Internal Accounting Controls; Financial Information. After the
Separation Date, (i) each party shall maintain in effect at its own cost and
expense adequate systems and controls for its business to the extent necessary
to enable the other party to satisfy its reporting, accounting, audit and other
obligations, and (ii) each party shall provide, or cause to be provided, to the
other party and its Subsidiaries in such form as such requesting party shall
request, at no charge to the requesting party, all financial and other data and
information as the requesting party determines necessary or advisable in order
to prepare its financial statements and reports or filings with any Governmental
Authority.

    (b) Ownership of Information. Any Information owned by a party that is
provided to a requesting party pursuant to this Section 5.3 shall be deemed to
remain the property of the providing party. Unless specifically set forth
herein, nothing contained in this Agreement shall be construed as granting or
conferring rights of license or otherwise in any such Information.

    (c) Record Retention. To facilitate the possible exchange of Information
pursuant to this Section 5.3 and other provisions of this Agreement after the
Change of Control Date, each party agrees to use its reasonable commercial
efforts to retain all Information in its respective possession or control on the
Change of Control Date substantially in accordance with its policies as in
effect on the Separation Date. Southern Energy shall not amend its or its
Subsidiaries' record retention policies prior to the Change of Control Date
without the consent of Southern. However, except as set forth in the Tax
Indemnification Agreement, at any time after the Change of Control Date, each
party may amend their respective record retention policies at such party's
discretion; provided, however, that if a party desires to effect the amendment
within three (3) years after the Change of Control Date, the amending party must
give thirty (30) days prior written notice of such change in the policy to the
other party to this Agreement. No party will destroy, or permit any of its
Subsidiaries to destroy, any Information that exists on the Separation Date
(other than Information that is permitted to be destroyed under the current
record retention policy of such party) without first using its reasonable
commercial efforts to notify the other party of the proposed destruction and
giving the other party the opportunity to take possession of such Information
prior to such destruction.

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    (d) Limitation of Liability. No party shall have any liability to any other
party in the event that any Information exchanged or provided pursuant to this
Section is found to be inaccurate, in the absence of willful misconduct by the
party providing such Information. No party shall have any liability to any other
party if any Information is destroyed or lost after reasonable commercial
efforts by such party to comply with the provisions of Section 5.4(c).

    (e) Other Agreements Providing For Exchange of Information. The rights and
obligations granted under this Section 5.3 are subject to any specific
limitations, qualifications or additional provisions on the sharing, exchange or
confidential treatment of Information set forth in this Agreement and any
Ancillary Agreement.

    (f) Production of Witnesses; Records; Cooperation. Each party hereto shall,
except in the case of a legal or other proceeding by one party against another
party (which shall be governed by such discovery rules as may be applicable
under Section 5.7 or otherwise), use its reasonable commercial efforts to make
available to each other party, upon written request, the former, current and
future directors, officers, employees, other personnel and agents of such party
as witnesses and any books, records or other documents within its control or
which it otherwise has the ability to make available, to the extent that any
such person (giving consideration to business demands of such directors,
officers, employees, other personnel and agents) or books, records or other
documents may reasonably be required in connection with any legal, regulatory,
administrative or other proceeding in which the requesting party may from time
to time be involved, regardless of whether such legal, regulatory,
administrative or other proceeding is a matter with respect to which
indemnification may be sought hereunder. The requesting party shall bear all
costs and expenses in connection therewith.

    Section 5.4 Auditors and Audits; Annual and Quarterly Statements and
Accounting. Each party agrees that, for so long as Southern Energy remains a
Subsidiary of Southern, and with respect to any financial reporting period
during which Southern Energy was a Subsidiary of Southern:

    (a) Selection of Auditors. Southern Energy shall not select a different
accounting firm than the firm selected by Southern to audit its financial
statements to serve as its independent certified public accountants (the
"Southern Energy Auditors") for purposes of providing an opinion on its
consolidated financial statements without Southern's prior written consent
(which shall not be unreasonably withheld).

    (b) Date of Auditors' Opinion and Quarterly Reviews. Southern Energy shall
use its reasonable commercial efforts to enable the Southern Energy Auditors to
complete their audit such that they will date their opinion on Southern Energy's
audited annual financial statements on the same date that Southern's independent
certified public accountants ("Southern's Auditors") date their opinion on
Southern's audited annual financial statements, and to enable Southern to meet
its timetable for the printing, filing

                                       11

<PAGE>   15

and public dissemination of Southern's annual financial statements. Southern
Energy shall use its reasonable commercial efforts to enable the Southern Energy
Auditors to complete their quarterly review procedures such that they will
provide clearance on Southern Energy's quarterly financial statements on the
same date that Southern's Auditors provide clearance on Southern's quarterly
financial statements.

    (c) Annual and Quarterly Financial Statements. Southern Energy shall provide
to Southern on a timely basis all Information that Southern reasonably requires
to meet its schedule for the preparation, printing, filing, and public
dissemination of Southern's annual and quarterly financial statements. Without
limiting the generality of the foregoing, Southern Energy will provide all
required financial Information with respect to Southern Energy and its
Subsidiaries to the Southern Energy Auditors in a sufficient and reasonable time
and in sufficient detail to permit the Southern Energy Auditors to take all
steps and perform all reviews necessary to provide sufficient assistance to
Southern's Auditors with respect to Information to be included or contained in
Southern's annual and quarterly financial statements. Similarly, Southern shall
provide to Southern Energy on a timely basis all Information that Southern
Energy reasonably requires to meet its schedule for the preparation, printing,
filing, and public dissemination of Southern Energy's annual and quarterly
financial statements. Without limiting the generality of the foregoing, Southern
will provide all required financial Information with respect to Southern and its
Subsidiaries to Southern's Auditors in a sufficient and reasonable time and in
sufficient detail to permit Southern's Auditors to take all steps and perform
all reviews necessary to provide sufficient assistance to the Southern Energy
Auditors with respect to Information to be included or contained in Southern
Energy's annual and quarterly financial statements.

    (d) Identity of Personnel Performing the Annual Audit and Quarterly Reviews.
Southern Energy shall authorize the Southern Energy Auditors to make available
to Southern's Auditors both the personnel who performed or are performing the
annual audits and quarterly reviews of Southern Energy and work papers related
to the annual audits and quarterly reviews of Southern Energy, in all cases
within a reasonable time prior to the Southern Energy Auditors' opinion date, so
that Southern's Auditors are able to perform the procedures they consider
necessary to take responsibility for the work of the Southern Energy Auditors as
it relates to Southern's Auditors' report on Southern's financial statements,
all within sufficient time to enable Southern to meet its timetable for the
printing, filing and public dissemination of Southern's annual and quarterly
statements. Similarly, Southern shall authorize Southern's Auditors to make
available to the Southern Energy Auditors both the personnel who performed or
are performing the annual audits and quarterly reviews of Southern and work
papers related to the annual audits and quarterly reviews of Southern, in all
cases within a reasonable time prior to Southern's Auditors' opinion date, so
that the Southern Energy Auditors are able to perform the procedures they
consider necessary to take responsibility for the work of Southern's Auditors as
it relates to the Southern Energy Auditors' report on Southern Energy's
statements, all within sufficient time to enable Southern Energy to meet its

                                       12

<PAGE>   16

timetable for the printing, filing and public dissemination of Southern Energy's
annual and quarterly financial statements.

    (e) Notice of Change in Accounting Principles. Southern Energy shall give
Southern as much prior notice as reasonably practical of any proposed
determination of, or any significant changes in, its accounting estimates or
accounting principles from those in effect on the Separation Date. Southern
Energy will consult with Southern and, if requested by Southern, Southern Energy
will consult with Southern's Auditors with respect thereto. Southern shall give
Southern Energy as much prior notice as reasonably practical of any proposed
determination of, or any significant changes in, its accounting estimates or
accounting principles from those in effect on the Separation Date.

    (f) Conflict with Third-Party Agreements. Nothing in Sections 5.3 and 5.4
shall require Southern Energy to violate any agreement with any third parties
regarding the confidentiality of confidential and proprietary information
relating to that third party or its business; provided, however, that in the
event that Southern Energy is required under Sections 5.3 and 5.4 to disclose
any such information, Southern Energy shall use all commercially reasonable
efforts to seek to obtain such third party's consent to the disclosure of such
information.

    Section 5.5 Consistency with Past Practices. At all times Southern will
cause Southern Energy before the Separation Date to continue to conduct business
in the ordinary course, including but not limited to acquisitions, divestitures
and project financings, consistent with past practices.

    Section 5.6 Payment of Expenses. Southern Energy shall pay all underwriting
fees (other than incentive fees), discounts and commissions incurred in
connection with the IPO. Except as otherwise provided in this Agreement, the
Ancillary Agreements or any other agreement between the parties relating to the
Separation, the IPO or the Distribution, all other out-of-pocket costs and
expenses of the parties hereto in connection with the preparation of this
Agreement and the Ancillary Agreements, the IPO (including underwriting
incentive fees) and the Distribution shall be paid by Southern. Notwithstanding
the foregoing, Southern Energy shall pay any internal fees, costs and expenses
incurred by Southern Energy in connection with the Separation, the IPO and the
Distribution.

    Section 5.7 Dispute Resolution. Except as otherwise set forth in any
Ancillary Agreement, resolution of any and all disputes arising from or in
connection with this Agreement, whether based on contract, tort, or otherwise
(collectively, "Disputes"), shall be exclusively governed by and settled in
accordance with the provisions of this Section 5.7.

    (a) Negotiation. The parties shall make a good faith attempt to resolve any
Dispute arising out of or relating to this Agreement through negotiation. Within
thirty (30) days after notice of a Dispute is given by either party to the other
party, each party

                                       13

<PAGE>   17

shall select one or more representatives who are vice presidents, senior vice
presidents or executive vice presidents of such party, which representatives
shall meet and make a good faith attempt to resolve such Dispute and shall
continue to negotiate in good faith in an effort to resolve the Dispute or
renegotiate the applicable section or provision without the necessity of any
formal proceedings. If such representatives fail to resolve a Dispute within
thirty (30) days after the first meeting of the representatives, such Dispute
shall be referred to the chief executive officers of each of the parties for
resolution. During the course of negotiations under this Section 5.7(a), all
reasonable requests made by one party to the other for information, including
requests for copies of relevant documents, will be honored. The specific format
for such negotiations will be left to the discretion of the designated
representatives but may include the preparation of agreed upon statements of
fact or written statements of position furnished to the other party.

    (b) Non-Binding Mediation. In the event that any Dispute arising out of or
related to this Agreement is not settled by the parties within thirty (30) days
after the referral of such Dispute to the chief executive officers of the
parties under Section 5.7(a), the parties will attempt in good faith to resolve
such Dispute by non-binding mediation in accordance with the American
Arbitration Association Commercial Mediation Rules. The mediation shall be held
within thirty (30) days of the end of such thirty (30) day negotiation period of
the chief executive officers. Except as provided below in Section 5.7(c), no
litigation for the resolution of such dispute may be commenced until the parties
try in good faith to settle the dispute by such mediation in accordance with
such rules and either party has concluded in good faith that amicable resolution
through continued mediation of the matter does not appear likely. The costs of
mediation shall be shared equally by the parties to the mediation. Any
settlement reached by mediation shall be recorded in writing, signed by the
parties, and shall be binding on them.

    (c) Proceedings. Nothing herein, however, shall prohibit either party from
initiating litigation or other judicial or administrative proceedings if such
party would be substantially harmed by a failure to act during the time that
such good faith efforts are being made to resolve the Dispute through
negotiation or mediation. In the event that litigation is commenced under this
Section 5.7(c), the parties agree to continue to attempt to resolve any Dispute
according to the terms of Sections 5.7(a) and 5.7(b) during the course of such
litigation proceedings under this Section 5.7(c).

    Section 5.8 Governmental Approvals. The parties acknowledge that certain of
the transactions contemplated by this Agreement and the Ancillary Agreements are
subject to certain conditions established by applicable government regulations,
orders, and approvals ("Existing Authority"). The parties intend to implement
this Agreement, the Ancillary Agreements and the transactions contemplated
thereby consistent with and to the extent permitted by Existing Authority and to
cooperate toward obtaining and maintaining in effect such Governmental Approvals
as may be required in order to implement this Agreement and each of the
Ancillary Agreements as fully as possible in accordance with their respective
terms. To the extent that any of the transactions contemplated by this Agreement
or any Ancillary Agreement require any Governmental

                                       14

<PAGE>   18

Approvals, the parties will use their reasonable commercial efforts to obtain
any such Governmental Approvals.

    Section 5.9 Regulatory Proceedings. For a period beginning on the Separation
Date and ending eighteen (18) months after the Change of Control Date, neither
Southern Energy nor any Subsidiary of Southern Energy will initiate, intervene
in, or participate in any proceedings or matter before the Federal Energy
Regulatory Commission or any agency or legislature of the States of Alabama,
Florida, Georgia or Mississippi which directly involves (1) corporate
transactions or (2) the generation, transmission, distribution, purchase or sale
of electric power by Southern or any of its Subsidiaries unless prior written
consent is given by Southern, except to the extent that any such proceedings or
matters involve obligations arising under this Agreement or any of the Ancillary
Agreements, or to the extent any such proceeding or matter directly involves a
contract or agreement for the purchase or sale of electricity or gas by Southern
Energy or any Subsidiary of Southern Energy, or to the extent any such
proceeding before the Federal Energy Regulatory Commission involves the
transmission of electricity, except for a proceeding to establish a regional
transmission organization in which Southern or any of its Subsidiaries is a
participant.

    Section 5.10 Regulatory Effect of Distribution. Southern and Southern Energy
intend that the Distribution will result in Southern Energy and its Subsidiaries
losing their status under the Public Utility Holding Company Act of 1935
("PUHCA") as "affiliates" or "subsidiaries" of Southern or its Subsidiaries. To
the extent a doubt arises as to that legal effect, at the request of either,
Southern and Southern Energy shall cooperate in resolving such doubt to achieve
that mutual goal through reasonable changes in business practices, cooperating
towards regulatory or judicial filings or proceedings or obtaining no-action
letter relief. Without limiting the foregoing, in the event Southern owns less
than 20% of the outstanding common stock of Southern Energy at any time while
PUHCA continues to be in effect, Southern shall, at Southern Energy's request,
enter into voting trust agreements or voting covenants designed to eliminate
attribution of voting securities control to Southern to the extent necessary to
cause Southern Energy and its Subsidiaries to lose their status under PUHCA as
"affiliates" or "subsidiaries" of Southern or its Subsidiaries.

    Section 5.11 HoldCo Transaction. As promptly as practicable following the
receipt of all required Governmental Approvals and any required consents or
approvals of any lender to Southern or Southern Energy or its Subsidiaries, (a)
Southern Energy and Southern shall cause SE Finance and SE Capital Funding to be
transferred to Southern, in substantially the manner set forth on Schedule
5.11(a) or in such other manner as Southern and Southern Energy may agree, and
each of Southern and Southern Energy shall execute and deliver any and all
instruments of transfer, stock transfer powers or other agreements or documents
and take such actions as may be necessary to effectively transfer SE Finance and
SE Capital Funding to Southern in such manner, and to permit Southern and its
Subsidiaries to exercise all rights with respect thereto, and (b) Southern and
Southern Energy shall execute and deliver any and all such instruments of

                                       15

<PAGE>   19

substitution and such other instruments or agreements as shall be necessary for
the obligations of Southern Energy under the each of the agreements set forth on
Schedule 5.11(b) (the "Keepwell Agreements") to be substituted by Southern and
for Southern Energy to be unconditionally released therefrom, provided that
Southern shall not be required to grant or provide any cash or other
consideration in connection with any such assumption or substitution or assume
or otherwise become liable for any liabilities or obligations which exceed the
liabilities or obligations of Southern Energy under the Keepwell Agreements
immediately prior to such assumption.

    Section 5.12. Continuance of Southern Credit Support. Notwithstanding any
other provision of this Agreement or the provisions of any Ancillary Agreement
to the contrary, the parties hereby agree that (i) Southern shall maintain in
full force and effect each guarantee, letter of credit, keepwell or support
agreement or other credit support document, instrument or other similar
arrangement issued for the benefit of any Person in the Southern Energy Group by
or on behalf of Southern (the "Credit Support Arrangements") which is
outstanding as of the Separation Date, until such time as such Credit Support
Arrangement terminates in accordance with its terms or is otherwise released at
the request of Southern Energy; provided, that Southern Energy shall use
commercially reasonable efforts, at the request of Southern, to attempt to
release or replace any Credit Support Arrangement for which such replacement or
release is reasonably available; and (ii) after the IPO Closing Date and until
the first date on which Southern Energy is no longer a Subsidiary of Southern
(the "Additional Credit Support Arrangement Commitment Termination Date"), upon
the request of Southern Energy, Southern shall issue additional Credit Support
Arrangements for the benefit of Southern Company Energy Marketing L.P. ("SCEM");
provided, that Southern shall not be obligated to issue any such additional
Credit Support Arrangements to the extent that the aggregate amount of all
outstanding Credit Support Arrangements for the benefit of SCEM would exceed
$425,000,000; provided further, that Southern shall not be required to provide
any such additional Credit Support Arrangements on terms that are materially
more burdensome to Southern than the terms of the Credit Support Arrangements
outstanding on the date of this Agreement; and provided, further, that Southern
may condition such additional Credit Support Arrangements such that they may
expire approximately six (6) months following the Additional Credit Support
Arrangement Commitment Termination Date. In consideration of Southern's
provision of the Credit Support Arrangements, Southern Energy shall pay to
Southern, beginning on the Additional Credit Support Arrangement Commitment
Termination Date, a monthly fee in an amount equal to 1% per annum, payable in
arrears on the first day of each month on the average aggregate maximum
principal amount of all Credit Support Arrangements outstanding during such
month.

    Section 5.13. Mobile Facility. Southern and Southern Energy shall continue
discussions following the Separation Date regarding the appropriate ownership
and operation of the Mobile, Alabama cogeneration facility, including the
possibility of an incentive-based operating agreement with a Southern Energy
Subsidiary.

                                       16

<PAGE>   20

    Section 5.14 Assignment of Agreements. Effective as of the Separation Date,
Southern shall assign, transfer, convey and deliver to Southern Energy, and
agrees to cause its applicable Subsidiaries to assign, transfer, convey and
deliver to Southern Energy's applicable Subsidiaries, and Southern Energy hereby
accepts from Southern, and agrees to cause its applicable Subsidiaries to accept
from Southern's applicable Subsidiaries, all of Southern's and its applicable
Subsidiaries' respective right, title and interest in and to the documents and
agreements listed on Schedule 5.14 attached hereto (each an "Assigned
Agreement"). To the extent that Southern's or its applicable Subsidiaries'
respective right, title and interest in and to any Assigned Agreement may not be
assigned without the consent of another Person which consent has not been
obtained, this provision shall not constitute an agreement to assign the same if
an attempted assignment would constitute a breach thereof or be unlawful, and
Southern shall use its commercially reasonable efforts to obtain any such
required consent(s) by the Distribution Date. The parties agree that if any
consent to an assignment of any Assigned Agreement shall not be obtained or if
any attempted assignment would be ineffective or would impair Southern Energy's
or its applicable Subsidiaries' rights and obligations under such Assigned
Agreement, such that Southern Energy would not in effect acquire the benefit of
all such rights and obligations, Southern, to the maximum extent permitted by
law and such Assigned Agreement, shall enter into such reasonable arrangements
with Southern Energy as are necessary to provide Southern Energy or its
applicable Subsidiary with the benefits and obligations of such Assigned
Agreement from the Separation Date. The parties shall cooperate and shall each
use their commercially reasonable efforts after the Separation Date to obtain an
assignment of such Assigned Agreement to Southern Energy.

    Section 5.15 Southern Energy Board Representation. At any time after the
Separation Date, if and for so long as Southern shall beneficially own (within
the meaning of Rule 13d-3 under the Exchange Act) shares of Southern Energy
common stock which at such time represent more than 25% of the outstanding
shares of Southern Energy common stock and less than 50% of such outstanding
shares, Southern shall be entitled to designate two of the nominees of the Board
of Directors of Southern Energy for election to such Board at each annual
meeting of Southern Energy's shareholders, provided that such number of
designees shall be reduced by the number of persons then serving on the Southern
Energy Board in any class of directors that is not up for election at such
annual meeting who are then also serving as officers or directors of Southern.

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<PAGE>   21

                                   ARTICLE VI

                                  MISCELLANEOUS

       Section 6.1 LIMITATION OF LIABILITY. IN NO EVENT SHALL ANY MEMBER OF THE
SOUTHERN GROUP OR SOUTHERN ENERGY GROUP OR THEIR RESPECTIVE DIRECTORS, OFFICERS
AND EMPLOYEES BE LIABLE TO ANY OTHER MEMBER OF THE SOUTHERN GROUP OR SOUTHERN
ENERGY GROUP FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE
DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY
(INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT, WHETHER OR NOT
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED,
HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT EACH PARTY'S
INDEMNIFICATION OBLIGATIONS FOR LIABILITIES TO THIRD PARTIES AS SET FORTH IN THE
INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT.

       Section 6.2 Entire Agreement. This Agreement, the other Ancillary
Agreements and the Exhibits and Schedules referenced or attached hereto and
thereto, constitutes the entire agreement between the parties with respect to
the subject matter hereof and shall supersede all prior written and oral and all
contemporaneous oral agreements and understandings with respect to the subject
matter hereof.

       Section 6.3 Governing Law. This Agreement shall be governed and construed
and enforced in accordance with the laws of the State of Georgia as to all
matters regardless of the laws that might otherwise govern under the principles
of conflicts of laws applicable thereto.

       Section 6.4 Termination. This Agreement and all Ancillary Agreements may
be terminated and the Distribution abandoned at any time prior to the IPO
Closing Date by and in the sole discretion of Southern without the approval of
Southern Energy. This Agreement may be terminated at any time after the IPO
Closing Date and before the Change of Control Date by mutual consent of Southern
and Southern Energy. In the event of termination pursuant to this Section, no
party shall have any liability of any kind to the other party.

       Section 6.5 Notices. Any notice, demand, offer, request or other
communication required or permitted to be given by either party pursuant to the
terms of this Agreement shall be in writing and shall be deemed effectively
given the earlier of (i) when received, (ii) when delivered personally, (iii)
one (1) business day after being delivered by facsimile (with receipt of
appropriate confirmation), (iv) one (1) business day after being deposited with
an overnight courier service or (v) four (4) days after being deposited in the
U.S. mail, First Class with postage prepaid, and addressed to the attention of
the

                                       18

<PAGE>   22

party's General Counsel at the address of its principal executive office or such
other address as a party may request by notifying the other in writing.

       Section 6.6 Counterparts. This Agreement, including the Schedules and
Exhibits hereto and the other documents referred to herein, may be executed in
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.

       Section 6.7 Binding Effect; Assignment. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective legal
representatives and successors, and nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement. This Agreement may
not be assigned by any party hereto.

       Section 6.8 Severability. If any term or other provision of this
Agreement or the Schedules or Exhibits attached hereto is determined by a
nonappealable decision by a court, administrative agency or arbitrator to be
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to either party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the fullest
extent possible.

       Section 6.9 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of either party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement or the Schedules or Exhibits attached hereto are cumulative
to, and not exclusive of, any rights or remedies otherwise available.

       Section 6.10 Amendment. No change or amendment will be made to this
Agreement except by an instrument in writing signed on behalf of each of the
parties to such agreement.

       Section 6.11 Authority. Each of the parties hereto represents to the
other that (a) it has the corporate or other requisite power and authority to
execute, deliver and perform this Agreement, (b) the execution, delivery and
performance of this Agreement by it have been duly authorized by all necessary
corporate or other actions, (c) it has duly and validly executed and delivered
this Agreement, and (d) this Agreement is a legal, valid and binding obligation,
enforceable against it in accordance with its terms subject to

                                       19

<PAGE>   23

applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and general equity principles.

       Section 6.12 Interpretation. The headings contained in this Agreement, in
any Exhibit or Schedule hereto and in the table of contents to this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any capitalized term used in any Schedule or
Exhibit but not otherwise defined therein, shall have the meaning assigned to
such term in this Agreement. When a reference is made in this Agreement to an
Article or a Section, Exhibit or Schedule, such reference shall be to an Article
or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated.

       Section 6.13 Conflicting Agreements. In the event of conflict between
this Agreement and any Ancillary Agreement or other agreement executed in
connection herewith, the provisions of such other agreement shall prevail.

                                   ARTICLE VII

                                   DEFINITIONS

       Section 7.1 Affiliated Company. "Affiliated Company" means, with respect
to Southern, any entity in which Southern holds a 50% or less ownership interest
and, with respect to Southern Energy, any entity in which Southern Energy holds
a 50% or less ownership interest and that is listed on Schedule 7.1 hereto.
Schedule 7.1 may be amended from time to time after the date hereof upon mutual
written consent of the parties.

       Section 7.2 Ancillary Agreements. "Ancillary Agreements" has the meaning
set forth in Section 2.1 hereof.

       Section 7.3 Business Day. "Business Day" means a day other than a
Saturday, a Sunday or a day on which banking institutions located in the State
of Georgia are authorized or obligated by law or executive order to close.

       Section 7.4 Change of Control Date. "Change of Control Date" means the
earlier of: (a) the Distribution Date (defined in the Master Separation
Agreement as the date the Distribution is effective), or (b) the first date on
which Southern ceases to control at least 33 1/3% of the common stock of
Southern Energy then outstanding.

       Section 7.5 Code. "Code" means the Internal Revenue Code of 1986, as
amended from time to time.

       Section 7.6 Commission. "Commission" means the Securities and Exchange
Commission.

                                       20

<PAGE>   24

       Section 7.7 Disputes. "Disputes" has the meaning set forth in Section 5.7
hereof.

       Section 7.8 Distribution. "Distribution" has the meaning set forth in the
Recitals hereof.

       Section 7.9 Distribution Agent. "Distribution Agent" has the meaning set
forth in Section 4.1 hereof.

       Section 7.10 Distribution Date. "Distribution Date" has the meaning set
forth in Section 4.1 hereof.

       Section 7.11 Exchange Act. "Exchange Act" means the Securities and
Exchange Act of 1934, as amended.

       Section 7.12 Governmental Approvals. "Governmental Approvals" means any
notices, reports or other filings to be made, or any consents, registrations,
approvals, permits or authorizations to be obtained from, any Governmental
Authority.

       Section 7.13 Governmental Authority. "Governmental Authority" shall mean
any federal, state, local, foreign or international court, government,
department, commission, board, bureau, agency, official or other regulatory,
administrative or governmental authority.

       Section 7.14 HoldCo Transaction. "HoldCo Transaction" has the meaning set
forth in the Recitals hereof.

       Section 7.15 Information. "Information" means information, whether or not
patentable or copyrightable, in written, oral, electronic or other tangible or
intangible forms, stored in any medium, including studies, reports, records,
books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how,
techniques, designs, specifications, drawings, blueprints, diagrams, models,
prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes,
computer programs or other software, marketing plans, customer names,
communications by or to attorneys (including attorney-client privileged
communications), memos and other materials prepared by attorneys or under their
direction (including attorney work product), and other technical, financial,
employee or business information or data.

       Section 7.16 IPO. "IPO" has the meaning set forth in the Recitals hereof.

       Section 7.17 IPO Closing Date. "IPO Closing Date" means the date of the
closing of the IPO upon satisfaction of the conditions of Article II hereof.

       Section 7.18 IPO Registration Statement. "IPO Registration Statement"
means the registration statement on Form S-1 pursuant to the Securities Act of
1933, as amended, to

                                       21

<PAGE>   25

be filed with the Commission registering the shares of common stock of Southern
Energy to be issued in the IPO, together with all amendments thereto.

       Section 7.19  NYSE. "NYSE" means the New York Stock Exchange.

       Section 7.20 Person. "Person" means an individual, a partnership, a
corporation, a limited liability company, an association, a joint stock company,
a trust, a joint venture, an unincorporated organization and a governmental
entity or any department, agency or political subdivision thereof.

       Section 7.21 Record Date. "Record Date" means the close of business on
the date to be determined by the Board of Directors of Southern as the record
date for determining the stockholders of Southern entitled to receive shares of
common stock of Southern Energy in the Distribution.

       Section 7.22 SE Finance. "SE Finance" means SE Finance Capital
Corporation and its Subsidiaries and Affiliated Companies.

       Section 7.23 SE Capital Funding. "SE Capital Funding" means Southern
Energy Capital Funding, Inc. and its Subsidiaries and Affiliated Companies.

       Section 7.24 Separation. "Separation" has the meaning set forth in the
Recitals hereof.

       Section 7.25 Separation Date. "Separation Date" has the meaning set forth
in Section 1.1 hereof.

       Section 7.26 Southern Business. "Southern Business" means any business of
Southern and its Subsidiaries and Affiliated Companies other than the Southern
Energy Business.

       Section 7.27 Southern Energy Business. "Southern Energy Business" means
(a) the business and operations of Southern Energy and its Subsidiaries and
Affiliated Companies, and (b) except as otherwise expressly provided herein, any
terminated, divested or discontinued businesses or operations that at the time
of termination, divestiture or discontinuation primarily related to the Southern
Energy Business as then conducted; provided, that the Southern Energy Business
shall not include the business or operations of HoldCo, SE Finance, SE Capital
Funding or Southern Company Energy Solutions, Inc.

       Section 7.28 Southern Energy Group. "Southern Energy Group" means
Southern Energy, each Subsidiary and Affiliated Company of Southern Energy
immediately after the Separation Date and each Person that becomes a Subsidiary
or Affiliate Company of Southern Energy after the Separation Date; provided that
the Southern Energy Group

                                       22

<PAGE>   26

shall not include HoldCo, SE Finance, SE Capital Funding or Southern Company
Energy Solutions, Inc.

       Section 7.29 Southern Energy Auditors. "Southern Energy Auditors" means
Southern Energy's independent certified public accountants.

       Section 7.30 Southern Group. "Southern Group" means Southern, each
Subsidiary and Affiliated Company of Southern (other than any member of the
Southern Energy Group) immediately after the Separation Date and each Person
that becomes a Subsidiary or an Affiliated Company of Southern after the
Separation Date.

       Section 7.31 Southern's Auditors. "Southern's Auditors" means Southern's
independent certified public accountants.

       Section 7.32 Subsidiary. "Subsidiary" means with respect to any specified
Person, any corporation, any limited liability company, any partnership or other
legal entity of which such Person or its Subsidiaries owns, directly or
indirectly, more than 50% of the stock or other equity interest entitled to vote
on the election of the members of the board of directors or similar governing
body. Unless context otherwise requires, reference to Southern Energy and its
Subsidiaries at any time following the HoldCo Transaction shall not include the
subsidiaries of Southern Energy that will be transferred to Southern in
connection with the HoldCo Transaction.

       Section 7.33 Troutman Sanders. "Troutman Sanders" means Troutman Sanders
LLP.

       Section 7.34 Underwriters. "Underwriters" means the underwriters of the
IPO.

       Section 7.35 Underwriting Agreement. "Underwriting Agreement" has the
meaning set forth in Section 3.1(a) hereof.

                                       23
<PAGE>   27

       WHEREFORE, the parties have signed this Master Separation and
Distribution Agreement effective as of the date first set forth above.

THE SOUTHERN COMPANY                       SOUTHERN ENERGY, INC.

By:                                        By:
   ----------------------------------         ----------------------------------
Name:   H. Allen Franklin                  Name:   S. Marce Fuller
Title:  President and Chief Operating      Title:  President and Chief Executive
        Officer                                    Officer

                                       24

<PAGE>   28

                                  Schedule 5.11
                               HoldCo Transaction

       (a) Description of HoldCo Transaction. SE Finance and SE Capital Funding
shall be transferred from Southern Energy to Southern in a manner and in an
order substantially similar to the following:

1.     Southern Energy issues 1 share of redeemable preferred stock to Southern.

2.     Southern Energy and Southern Company Energy Solutions ("Energy
       Solutions"), a wholly-owned subsidiary of Southern, shall then create
       Southern Energy Holdco, Inc. ("HoldCo").

3.     Southern Energy then makes contribution to capital of HoldCo in exchange
       for 80% or more of the shares of Holdco; such contribution consists of
       100% of the common stock of SE Finance and SE Capital Funding. At the
       same time, Energy Solutions shall contribute certain assets to a
       wholly-owned limited liability company of Holdco in exchange for 20% or
       less of the shares of Holdco.

4.     Southern Energy redeems its 1 share of redeemable preferred stock held by
       Southern in exchange for the shares of Holdco Southern Energy owns.

       (b) Credit Support to be Substituted for and Released. In connection with
the HoldCo Transaction, the following instruments will be substituted for by
Southern, and Southern Energy will be released from any liability thereunder:

1.     Keep Well Agreement dated December 17, 1998, from Southern Energy to
       Southern Energy Finance Company, Inc. and Credit Suisse First Boston, as
       agent for the lenders under the Term Loan Agreement and various Note
       Purchase Agreements dated of even date therewith.

2.     Keep Well Agreement dated November 17, 1999, as amended and restated as
       of December 16, 1999, from Southern Energy to SE Finance Capital
       Corporation and ING (U.S.) Capital L.L.C., as agent for the lenders under
       the Amended and Restated Term Loan Agreement.

                                       25
<PAGE>   29

Schedule 5.14

                             Transferred Agreements

Cooperation Agreement between The State Power Corporation of China and Southern
Company dated February, 1999.

                                       26
<PAGE>   30

Schedule 7.1

                      Southern Energy Affiliated Companies

    Each Affiliated Company listed on Exhibit 21.1 to the in the final
prospectus filed by Southern Energy with the SEC pursuant to Rule 424(b) under
the Securities Act of 1933, as amended, in connection with the IPO; other than
SE Finance and SE Capital Funding and their respective Subsidiaries and
Affiliated Companies.

                                       27
<PAGE>   31

                                    EXHIBIT A

           CERTIFICATE OF SECRETARY OR ASSISTANT SECRETARY OF SOUTHERN

I, ____________________, [Assistant] Secretary of The Southern Company, a
corporation organized and existing under the laws of the State of Delaware (the
"Company"), DO HEREBY CERTIFY that attached hereto are true and correct copies
of certain resolutions adopted by the Board of Directors of the Company, which
resolutions have not been amended, modified or rescinded and remain in full
force and effect on the date hereof.

IN WITNESS WHEREOF, I have hereunder set my hand and affixed the seal of The
Southern Company this __________________ day of ___________, 2000.

                                             -----------------------------------
                                             [Assistant] Secretary

                                       28
<PAGE>   32

                                    EXHIBIT B

                 CERTIFICATE OF SECRETARY OR ASSISTANT SECRETARY
                               OF SOUTHERN ENERGY

I, ____________________, [Assistant] Secretary of Southern Energy, Inc., a
corporation organized and existing under the laws of the State of Delaware (the
"Company"), DO HEREBY CERTIFY that attached hereto are true and correct copies
of certain resolutions adopted by the Board of Directors of the Company, which
resolutions have not been amended, modified or rescinded and remain in full
force and effect on the date hereof.

IN WITNESS WHEREOF, I have hereunder set my hand and affixed the seal of
Southern Energy, Inc. this __________________ day of ___________, 2000.

                                             -----------------------------------
                                             [Assistant] Secretary

                                       29

<PAGE>   33

                                    EXHIBIT C

      TECHNOLOGY AND INTELLECTUAL PROPERTY OWNERSHIP AND LICENSE AGREEMENT

See Exhibit 10.4 of the IPO Registration Statement.

                                       30
<PAGE>   34

                                    EXHIBIT D

                           EMPLOYEE MATTERS AGREEMENT

See Exhibit 10.6 of the IPO Registration Statement.

                                       31
<PAGE>   35

                                    EXHIBIT E

                          TAX INDEMNIFICATION AGREEMENT

See Exhibit 10.7 of the IPO Registration Statement.

                                       32
<PAGE>   36

                                    EXHIBIT F

                         TRANSITIONAL SERVICES AGREEMENT

See Exhibit 10.2 of the IPO Registration Statement.

                                       33
<PAGE>   37

                                    EXHIBIT G

                        CONFIDENTIAL DISCLOSURE AGREEMENT

See Exhibit 10.5 of the IPO Registration Statement.

                                       34
<PAGE>   38

                                    EXHIBIT H

                 INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT

See Exhibit 10.3 of the IPO Registration Statement.

                                       35<PAGE>   1
                                                                   EXHIBIT 10.2

                                    FORM OF

                        TRANSITIONAL SERVICES AGREEMENT

                                    BETWEEN

                              THE SOUTHERN COMPANY

                                      AND

                             SOUTHERN ENERGY, INC.

<PAGE>   2

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                         Page

<S>                                                                                                      <C>
ARTICLE 1  DEFINITIONS..................................................................................    1
   1.1 Additional Services..............................................................................    1
   1.2 Ancillary Agreements.............................................................................    1
   1.3 [intentionally omitted]..........................................................................    1
   1.4 Confidential Disclosure Agreement................................................................    1
   1.5 Distribution Date................................................................................    1
   1.6 Engineering and Technical Services...............................................................    1
   1.7 Impracticable....................................................................................    1
   1.8 Master Separation And Distribution Agreement.....................................................    1
   1.9 Separation Date..................................................................................    2
   1.10 Service(s)......................................................................................    2
   1.11 Subsidiary......................................................................................    2
   1.12 Warranty........................................................................................    2
ARTICLE 2 TRANSITION SERVICE SCHEDULES..................................................................    2
ARTICLE 3  SERVICES.....................................................................................    3
   3.1 Services Generally...............................................................................    3
   3.2 Service Parameters...............................................................................    3
   3.3 Impracticability.................................................................................    3
   3.4 Additional Resources.............................................................................    3
   3.5 Additional Services..............................................................................    3
   3.6 Further Obligations As To Services...............................................................    3
   3.7 Service Representatives..........................................................................    4
ARTICLE 4  TERM.........................................................................................    4
ARTICLE 5  COMPENSATION.................................................................................    5
   5.1 Charges For Services.............................................................................    5
   5.2 Payment Terms....................................................................................    5
   5.3 Performance Under Ancillary Agreements...........................................................    5
   5.4 Error Correction; True-Ups; Accounting...........................................................    5
   5.5 Pricing Adjustments..............................................................................    6
ARTICLE 6  GENERAL OBLIGATIONS; STANDARD OF CARE........................................................    6
   6.1 Performance Metrics: Southern....................................................................    6
   6.2 DISCLAIMER OF WARRANTIES.........................................................................    6
   6.3 Performance Metrics: Southern Energy.............................................................    6
   6.4 Transitional Nature Of Services; Changes.........................................................    7
   6.5 Responsibility For Errors; Delays................................................................    7
   6.6 Good Faith Cooperation; Consents.................................................................    7
ARTICLE 7  EARLY TERMINATION............................................................................    7
   7.1 Early Termination................................................................................    7
   7.2 Survival.........................................................................................    8
ARTICLE 8  RELATIONSHIP BETWEEN THE PARTIES.............................................................    8
ARTICLE 9  SUBCONTRACTORS...............................................................................    8
ARTICLE 10 INTELLECTUAL PROPERTY........................................................................    9
</TABLE>

<PAGE>   3

<TABLE>
<S>                                                                                                        <C>
ARTICLE 11  ENGINEERING AND TECHNICAL SERVICES..........................................................   10
   11.1 Engineering and Technical Services..............................................................   10
   11.2 Professional Responsibility Regarding Engineering and Technical Services........................   10
   11.3 Applicable Laws and Regulations.................................................................   10
   11.4 Insurance.......................................................................................   11
   11.5 Reuse of Documents..............................................................................   11
   11.6 Non-Restrictive Relationship....................................................................   11
ARTICLE 12  CONFIDENTIALITY.............................................................................   11
ARTICLE 13  LIMITATION OF LIABILITY.....................................................................   12
ARTICLE 14  FORCE MAJEURE...............................................................................   12
ARTICLE 15  DISPUTE RESOLUTION..........................................................................   12
   15.1 Mediation.......................................................................................   12
   15.2 Arbitration.....................................................................................   13
   15.3 Court Action....................................................................................   13
   15.4 Continuity Of Service And Performance...........................................................   13
ARTICLE 16  MISCELLANEOUS...............................................................................   14
   16.1 Entire Agreement................................................................................   14
   16.2 Existing Services Agreement.....................................................................   14
   16.3 Governing Law...................................................................................   14
   16.4 Descriptive Headings............................................................................   14
   16.5 Notices.........................................................................................   14
   16.6 Nonassignability; Third-Party Beneficiaries.....................................................   15
   16.7 Severability....................................................................................   15
   16.8 Failure Or Indulgence Not Waiver; Remedies Cumulative...........................................   16
   16.9 Amendment.......................................................................................   16
</TABLE>

<PAGE>   4

                        TRANSITIONAL SERVICES AGREEMENT

         THIS TRANSITIONAL SERVICES AGREEMENT (the "Agreement") dated as of
September 1, 2000, between The Southern Company, a Delaware corporation
("Southern"), having an office at 270 Peachtree Street, Atlanta, Georgia 30303
and Southern Energy, Inc., a Delaware corporation ("Southern Energy"; Southern
Energy and Southern each being referenced herein individually as a "Party," and
collectively as the "Parties"), having an office at 900 Ashwood Parkway, Suite
500, Atlanta, Georgia 30338.

                                   ARTICLE 1
                                  DEFINITIONS

         For the purpose of this Agreement, the following capitalized terms
shall have the following meanings:

         1.1      Additional Services. "Additional Services" shall have the
meaning set forth in Section 3.5.

         1.2      Ancillary Agreements. "Ancillary Agreements" shall have the
meaning set forth in the Master Separation and Distribution Agreement.

         1.3      [Intentionally omitted].

         1.4      Confidential Disclosure Agreement. "Confidential Disclosure
Agreement" shall mean that certain Confidential Disclosure Agreement between
Southern and Southern Energy.

         1.5      Distribution Date. "Distribution Date" shall have the meaning
set forth in the Master Separation and Distribution Agreement.

         1.6      Engineering and Technical Services. "Engineering and Technical
Services" shall have the meaning set forth in Section 11.1.

         1.7      Impracticable. "Impracticable" shall have the meaning set
forth in Section 3.3.

         1.8      Master Separation And Distribution Agreement. "Master
Separation and Distribution Agreement" shall mean that certain Master
Separation and Distribution Agreement between Southern and Southern Energy.

         1.9      Separation Date. Unless otherwise provided in this Agreement,
or in any agreement to be executed in connection with this Agreement, the
effective time and date of each action or agreement in connection with the
Separation shall be as of 12:01 a.m., Eastern Time, September 1, 2000 or such
other date as may be fixed by the Board of Directors of Southern (the
"Separation Date").

<PAGE>   5

         1.10     Service(s). "Service(s)" shall have the meaning set forth in
Section 3.1 and includes the Engineering and Technical Services.

         1.11     Subsidiary. "Subsidiary" of any Party means a corporation or
other organization whether incorporated or unincorporated of which at least a
majority of the securities or interests having by the terms thereof ordinary
voting power to elect at least a majority of the board of directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such Party or by
any one or more of its Subsidiaries, or by such Party and one or more of its
Subsidiaries; provided, however, that no Party that is not directly or
indirectly wholly-owned by any other Party shall be a Subsidiary of such other
Party unless such other Party controls, or has the right, power or ability to
control, that Party. For purposes of this Agreement, Southern Energy shall be
deemed not to be a subsidiary of Southern.

         1.12     Warranty. "Warranty" shall have the meaning set forth in
Section 11.2.1.

                                   ARTICLE 2
                          TRANSITION SERVICE SCHEDULES

         This Agreement will govern individual transitional services as
requested by Southern Energy and its Subsidiaries and provided by Southern and
its Subsidiaries, the details of which shall be set forth in the Transition
Service Schedules attached to this Agreement. Each Service shall be covered by
this Agreement upon execution of a transition service schedule in the form
attached hereto (each transition service schedule, a "Transition Service
Schedule").

         The Parties shall set forth the terms for each Service on the
applicable Transitional Service Schedule, which may include, but are not
limited to, the time period during which the Service will be provided if
different from the term of this Agreement determined pursuant to Article 4
hereof, a summary of the Service to be provided; a description of the Service;
and the estimated charge(s), if applicable, for the Service and any other terms
applicable thereto on the Transition Service Schedule. Obligations under each
Transition Service Schedule shall be effective upon the later of the execution
of this Agreement or the execution of the respective Transition Services
Schedule. This Agreement shall be deemed to include all the Transition Service
Schedules wherever reference to it is made.

                                   ARTICLE 3
                                    SERVICES

         3.1        Services Generally. Except as otherwise provided herein, for
the term determined pursuant to Article 4 hereof, Southern shall provide or
cause to be provided to Southern Energy the service(s) described in the
Transition Service Schedule(s) attached hereto, beginning on the Separation
Date (the "Effective Date"). The service(s) described

                                       2
<PAGE>   6

on a single Transition Service Schedule shall be referred to herein as a
"Service." Collectively, the services described on all the Transition Service
Schedules (including Additional Services and Engineering and Technical
Services) shall be referred to herein as "Services."

         3.2        Service Parameters. (i) Southern shall provide the Services
only to the extent and under the personnel availability conditions such
Services are being provided by Southern for Southern Energy immediately prior
to the Effective Date; and (ii) the Services will be available only for
purposes of conducting the business of Southern Energy substantially in the
manner it was conducted prior to the Effective Date.

         3.3        Impracticability. Southern shall not be required to provide
any Service to the extent the performance of such Service becomes
"Impracticable" as a result of a cause or causes outside the reasonable control
of Southern, or to the extent the performance of such Services would require
Southern to violate any applicable laws, rules or regulations or would result
in the breach of any agreement or other applicable contract.

         3.4        Additional Resources. In providing the Services, Southern
shall not be obligated to: (i) hire any additional employees; (ii) maintain the
employment of any specific employee; (iii) purchase, lease or license any
additional equipment or materials; or (iv) pay any costs related to the
transfer or conversion of Southern Energy's data to Southern Energy or any
alternate supplier of Services.

         3.5        Additional Services. From time to time after the Effective
Date, the Parties may agree to identify additional Services that Southern will
provide to Southern Energy in accordance with the terms of this Agreement (the
"Additional Services"). In such event, the Parties shall execute additional
Transition Service Schedules for such Additional Services pursuant to Article
2. Except as set forth in Section 3.6, the Parties may agree in writing on
Additional Services during the term of this Agreement.

         3.6        Further Obligations As To Services. Subject to the
provisions of Sections 3.2, 3.3 and 3.4 and otherwise except as set forth in
the next sentence, Southern shall perform, at a charge determined using the
principles for determining fees under Section 5.1, any Service that: (a) was
provided by Southern immediately prior to the Separation Date and which was
inadvertently or unintentionally omitted from the list of Services included in
Transition Service Schedules executed at the time of execution of this
Agreement, or (b) is essential to effectuate an orderly transition under the
Master Separation and Distribution Agreement unless such performance would
significantly disrupt Southern's operations or materially increase the scope of
its responsibility under this Agreement. If Southern reasonably believes the
performance of Services requested under subparagraphs (a) or (b) would
significantly disrupt its operations or materially increase the scope of its
responsibility under this Agreement, Southern and Southern Energy shall
negotiate in good faith to establish terms under which Southern can provide
such Services, but Southern shall not be obligated to provide such Services if,
following good faith negotiation, it is unable to reach agreement on such
terms.

                                       3
<PAGE>   7

         3.7      Service Representatives. The Parties shall each appoint a
representative with respect to each Service (each a "Service Representative"),
which Service Representative shall coordinate the requesting, coordination,
scheduling and delivery of such Service. Unless otherwise indicated on the
Transition Service Schedule for a Service, the Party's respective Service
Representatives for such Service shall be the persons set forth on Schedule 3.7
as being responsible for such Service and certain other related Services (each
such person being a "Senior Representative"). Each Senior Representative shall
additionally be responsible for the replacement or substitution, as necessary,
of any Service Representatives for such Senior Representative's assigned
Services, and shall coordinate any requests for changes in the scope of such
Services, or for the provision of any additional related Services, with such
Senior Representative's counterpart with the other Party. Either Party may
nominate a substitute Service Representative for itself with respect to a
Service at any time upon reasonable notice to the other Party. Any request for
a Service made by Southern Energy through any person other than Southern
Energy's Senior Representative or Service Representative with respect to such
Service shall not be binding upon Southern.

                                   ARTICLE 4
                                      TERM

         The term of this Agreement shall commence on the Effective Date and
shall remain in effect until two (2) years after the Effective Date (the
"Expiration Date"), unless earlier terminated under Article 7. This Agreement
may be extended by the Parties in writing, either in whole or with respect to
one or more of the Services; provided, however, that such extension shall only
apply to the Services for which the Agreement was extended. At least six (6)
months prior to the Expiration Date, Southern Energy shall give Southern
written notice, in accordance with the provisions of Section 16.4, of Southern
Energy's request to extend the term of the Agreement in respect of any
Services. In addition, the Parties shall be deemed to have extended this
Agreement with respect to a specific Service if the Transition Service Schedule
for such Service specifies a completion or termination date beyond the
aforementioned Expiration Date. The Parties may agree on an earlier expiration
date respecting a specific Service by specifying such date on the Transition
Service Schedule for that Service. Services shall be provided up to and
including the date set forth in the applicable Transition Service Schedule,
subject to earlier termination as provided herein.

                                   ARTICLE 5
                                  COMPENSATION

         5.1      Charges For Services. Charges for Services shall be based upon
the greater of (a) the full cost of providing the Services, including direct
costs and indirect costs, or (b) the market value of such Services. Southern
Energy shall pay Southern the charges, if any, set forth on the Transition
Service Schedules for each of the Services listed therein as adjusted, from
time to time, in accordance with the processes and procedures

                                       4
<PAGE>   8

established under Section 5.4 and Section 5.5 hereof. The Parties shall use
good faith efforts to discuss any situation in which the actual charge for a
Service is reasonably expected to exceed the estimated charge, if any, set
forth on a Transition Service Schedule for a particular Service; provided,
however, that the incurrence of charges in excess of any such estimate on such
Transition Service Schedule shall not justify stopping the provision of, or
payment for, Services under this Agreement.

         5.2      Payment Terms. Southern shall bill Southern Energy monthly for
all charges pursuant to this Agreement. Such bills shall be accompanied by
reasonable documentation or other reasonable explanation supporting such
charges. Southern Energy shall pay Southern for all Services provided hereunder
within thirty (30) days after receipt of an invoice therefor. Late payments
shall bear interest at the lesser of 18% per annum or the maximum rate allowed
by law.

         5.3      Performance Under Ancillary Agreements. Notwithstanding
anything to the contrary contained herein, Southern Energy shall not be charged
under this Agreement for any obligations that are specifically required to be
performed under the Master Separation and Distribution Agreement or any other
Ancillary Agreement and any such other obligations shall be performed and
charged for (if applicable) in accordance with the terms of the Master
Separation and Distribution Agreement or such other Ancillary Agreement.

         5.4      Error Correction; True-Ups; Accounting. The Parties shall
reasonably agree on a process and procedure for conducting internal audits and
making adjustments to charges as a result of the movement of employees and
functions between Parties, the discovery of errors or omissions in charges, as
well as a true-up of amounts owed. In no event shall such processes and
procedures extend beyond two (2) years after completion of a Service.

         5.5      Pricing Adjustments. In the event of a tax or regulatory audit
adjustment relating to the pricing of any or all Services provided pursuant to
this Agreement in which it is determined by a taxing or regulatory authority
that any of the charges, individually or in combination, did not result in an
arm's-length payment, as determined under internationally accepted arm's-length
standards, then the Parties, including any Southern subcontractor providing
Services hereunder, may agree to make corresponding adjustments to the charges
in question for such period to the extent necessary to achieve arm's-length
pricing. Any adjustment made pursuant to this Section 5.5 at any time during
the term of this Agreement or after termination of this Agreement shall be
reflected in the Parties' legal books and records, and the resulting
underpayment or overpayment shall create, respectively, an obligation to be
paid in the manner specified in Section 5.2, or shall create a credit against
amounts owed under this Agreement.

                                       5
<PAGE>   9

                                   ARTICLE 6
                     GENERAL OBLIGATIONS; STANDARD OF CARE

         6.1      Performance Metrics: Southern. Subject to Sections 3.2, 3.3,
3.4 and any other terms and conditions of this Agreement, Southern shall
perform its obligations hereunder in a commercially reasonable manner. Specific
performance metrics for Southern for a specific Service may be set forth in the
corresponding Transition Service Schedule. Where none is set forth, Southern
shall use reasonable efforts to provide Services in accordance with its
policies, procedures and practices in effect before the Effective Date and
shall exercise the same care and skill as it exercises in performing similar
services for itself.

         6.2      DISCLAIMER OF WARRANTIES. EXCEPT AS OTHERWISE SET FORTH HEREIN
SOUTHERN MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT
LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, WITH RESPECT TO THE SERVICES OR OTHER DELIVERABLES PROVIDED
BY IT HEREUNDER.

         6.3      Performance Metrics: Southern Energy. Specific performance
metrics for Southern Energy for a specific Service may be set forth in the
corresponding Transition Service Schedule. Where none is set forth, Southern
Energy shall use reasonable efforts, in connection with receiving Services, to
follow the policies, procedures and practices in effect before the Effective
Date including providing information and documentation sufficient for Southern
to perform the Services as they were performed before the Effective Date and
making available, as reasonably requested by Southern, sufficient resources and
timely decisions, approvals and acceptances in order that Southern may
accomplish its obligations hereunder in a timely manner.

         6.4      Transitional Nature Of Services; Changes. The Parties
acknowledge the transitional nature of the Services and agree that Southern may
make changes from time to time in the manner of performing the Services if
Southern is making similar changes in performing similar services for itself
and its subsidiaries and if Southern furnishes to Southern Energy thirty (30)
days written notice regarding such changes.

         6.5      Responsibility For Errors; Delays. Southern's sole
responsibility to Southern Energy:

         (a)      for errors or omissions in Services (except for Engineering
and Technical Services provided for in Article 11), shall be to furnish correct
information, payment and/or adjustment in the Services, at no additional cost
or expense to Southern Energy; provided, Southern Energy must promptly advise
Southern of any such error or omission of which it becomes aware after having
used reasonable efforts to detect any such errors or omissions in accordance
with the standard of care set forth in Section 6.3; and

                                       6
<PAGE>   10

         (b)      for failure to deliver any Service because of
Impracticability, shall be to use reasonable efforts, subject to Sections 3.2,
3.3 and 3.4, to make the Services available and/or to resume performing the
Services as promptly as reasonably practicable.

         6.6      Good Faith Cooperation; Consents. The Parties will use good
faith efforts to cooperate with each other in all matters relating to the
provision and receipt of Services. Such cooperation shall include exchanging
information, performing true-ups and adjustments, and obtaining all third party
consents, licenses, sublicenses or approvals necessary to permit each Party to
perform its obligations hereunder (including by way of example, not by way of
limitation, rights to use third party software needed for the performance of
Services). The costs of obtaining such third party consents, licenses,
sublicenses or approvals shall be borne by Southern Energy. Each Party will
maintain, in accordance with its standard document retention procedures,
documentation supporting the information relevant to cost calculations and
cooperate with each other in making such information available as needed in the
event of a tax audit, whether in the United States or any other country.

                                   ARTICLE 7
                               EARLY TERMINATION

         7.1      Early Termination. Southern Energy may terminate this
Agreement, either with respect to all or with respect to any one or more of the
Services provided to Southern Energy hereunder, for any reason or for no
reason, at any time upon one hundred eighty (180) days prior written notice to
Southern. Southern may terminate this Agreement if Southern Energy fails to pay
any amount which is due and payable in respect of any Service in accordance
with the provisions of Section 5.2 hereof, and Southern Energy does not cure
such breach within ten (10) days after being given notice of such breach. In
addition, subject to the provisions of Article 15 below, either Party may
terminate this Agreement with respect to a specific Service if the other Party
materially breaches a material provision with regard to that particular Service
(other than for nonpayment) and does not cure such breach (or does not take
reasonable steps required under the circumstances to cure such breach going
forward) within sixty (60) days after being given notice of the breach;
provided, however, that the non-terminating Party may request that the Parties
engage in a dispute resolution negotiation as specified in Article 15 below
prior to termination for breach.

         7.2      Survival. Those Sections of this Agreement that, by their
nature, are intended to survive termination will survive in accordance with
their terms. Notwithstanding the foregoing, in the event of any termination
with respect to one or more, but less than all Services, this Agreement shall
continue in full force and effect with respect to any Services not terminated
hereby.

                                       7
<PAGE>   11

                                   ARTICLE 8
                        RELATIONSHIP BETWEEN THE PARTIES

         The relationship between the Parties established under this Agreement
is that of independent contractors and neither Party is an employee, agent,
partner, or joint venturer of or with the other. Southern will be solely
responsible for the payment of any employment-related taxes, insurance premiums
or other employment benefits in respect of the performance of Services by
Southern personnel under this Agreement. Southern Energy agrees to grant
Southern personnel access to sites, systems and information (subject to the
provisions of confidentiality in Article 12 below) as necessary for Southern to
perform its obligations hereunder. Southern Energy shall inform Southern
personnel of, and Southern personnel agree to obey, any and all security
regulations and other published policies of Southern Energy.

                                   ARTICLE 9
                                 SUBCONTRACTORS

         Southern may engage a "Subcontractor" to perform all or any portion of
Southern's duties under this Agreement, provided that any such Subcontractor
agrees in writing to be bound by confidentiality obligations at least as
protective as the terms of Article 13 regarding confidentiality below, and
provided further that Southern remains responsible for the performance of such
Subcontractor. As used in this Agreement, "Subcontractor" will mean any
individual, partnership, corporation, firm, association, unincorporated
organization, joint venture, trust or other entity engaged to perform
hereunder, other than Southern and its Subsidiaries.

                                   ARTICLE 10
                             INTELLECTUAL PROPERTY

         Except as otherwise set forth herein, the terms of the Technology and
Intellectual Property Ownership and License Agreement between the Parties, a
copy of which is attached as an exhibit to the Master Separation and
Distribution Agreement, shall govern the use and ownership of any Technology
(as defined therein) and any patents, trademarks, or other intellectual
property transferred, licensed used or created in connection with the Services
or otherwise under this Agreement.

                                       8
<PAGE>   12

                                   ARTICLE 11
                       ENGINEERING AND TECHNICAL SERVICES

         11.1     Engineering and Technical Services. Pursuant to the terms of
this Agreement, Southern shall provide certain engineering, technical and
consulting Services to Southern Energy from time to time in connection with the
development, construction, ownership, maintenance and operation of electric
generating, transmission and distribution facilities, including, but not
limited to, technical and field services, engineering and generation technical
services, fuel procurement and related services and environmental services (the
"Engineering and Technical Services"); provided, however, that Southern shall
not be required to provide any Engineering and Technical Service if the
provision of such Engineering and Technical Service, in Southern's reasonable
discretion, would be in violation of Southern's fiduciary duties to its
shareholders or customers.

         11.2     Professional Responsibility Regarding Engineering and
Technical Services.

         11.2.1   Standard of Care/Warranty. In the performance of Engineering
         and Technical Services under this Agreement, Southern shall exercise
         due care to assure that the Services are provided in a workmanlike
         manner, and that such Services meet the standards and specifications
         set forth in the applicable Transitional Service Schedule. Southern
         hereby warrants that all Engineering and Technical Services provided
         hereunder will comply with the foregoing standard of care (the
         "Warranty").

         11.2.2   Warranty Cure. If Southern Energy discovers that any part of
         the Engineering and Technical Services fail to meet the Warranty,
         Southern Energy will notify Southern of such failure. Southern's sole
         obligation for failing to meet the Warranty shall be to reperform the
         Engineering and Technical Services thereunder at cost (direct cost
         plus indirect costs) such that it fully complies with the Transitional
         Service Schedule and applicable laws and regulations. Southern Energy
         will bear all costs and expenses incurred by Southern in association
         with curing any Warranted Engineering and Technical Services, except
         where the failure to meet the Warranty with respect to any Engineering
         and Technical Services is due to any willful misconduct on the part of
         Southern or its employees, agents, contractors or subcontractors, in
         which case such costs and expenses shall be borne by Southern.
         Southern makes no other warranties with respect to its performance of
         the Services, and Southern Energy agrees to accept such services
         without further warranties of any nature.

         11.3     Applicable Laws and Regulations. Southern shall comply with
all national, federal, provincial, state and local laws, decrees, regulations
and ordinances (including without limitation those of any local jurisdiction in
which Engineering and Technical Services are performed) including, without
limitation, those pertaining to the environment, health, safety, sanitary
facilities, waste disposal and other matters applicable to or affecting the
performance of Engineering and Technical Services that are published and in
effect at the time particular Engineering and Technical Services are

                                       9
<PAGE>   13

rendered. Southern Energy shall inform Southern of, and Southern shall ensure
that its employees, agents and subcontractors comply with, site rules and
regulations while on the premises of any Southern Energy property or project.

         11.4     Insurance. During the course of performance of any Engineering
and Technical Services following the Separation Date, Southern will obtain and
maintain in full force and effect insurance substantially in accordance with,
and meeting the requirements set forth in, Schedule 11.4 attached hereto.
Promptly after the execution hereof Southern shall furnish Southern Energy with
a written certificate from its insurers, addressed to Southern Energy,
indicating the existence of Southern's insurance coverage, the amount and
nature of such coverage, and the expiration date(s) of each policy. The
certificate also shall include a provision requiring Southern's insurers to
give Southern Energy at least thirty (30) days' written notice prior to the
cancellation, nonrenewal or material alteration of any policy.

         11.5     Reuse of Documents. All documents, including drawings and
specifications, prepared and furnished by Southern to Southern Energy pursuant
to this Agreement shall be the property of Southern Energy; provided, however,
that such documents are not intended or represented to be suitable for reuse by
Southern Energy or others on any other project. Southern Energy may not reuse
or adapt such documents on or for other projects without the written consent of
Southern; provided, further, that any such reuse or adaption by Southern
Energy, with the consent of Southern, will be at Southern Energy's sole risk
and without liability or legal exposure to Southern.

         11.6     Non-Restrictive Relationship. Nothing in this Agreement will
be construed to preclude Southern Energy from independently developing,
acquiring or obtaining Engineering and Technical Services or related documents
which may perform the same or similar functions as the Engineering and
Technical Services or related documents provided by Southern.

                                   ARTICLE 12
                                CONFIDENTIALITY

         The terms of the Confidential Disclosure Agreement between the Parties
shall apply to any Confidential Information (as defined therein) which is the
subject matter of this Agreement.

                                   ARTICLE 13
                            LIMITATION OF LIABILITY

         IN NO EVENT SHALL EITHER PARTY OR ITS SUBSIDIARIES, AFFILIATED
COMPANIES, DIRECTORS, OFFICERS OR EMPLOYEES BE LIABLE TO THE OTHER PARTY OR ITS
SUBSIDIARIES OR AFFILIATED COMPANIES FOR ANY LOST PROFITS, LOSS OF DATA, LOSS
OF USE, COST OF COVER, BUSINESS

                                      10
<PAGE>   14

INTERRUPTION OR OTHER SPECIAL, INCIDENTAL, INDIRECT, PUNITIVE OR CONSEQUENTIAL
DAMAGES, HOWEVER CAUSED, UNDER ANY THEORY OF LIABILITY, ARISING FROM THE
PERFORMANCE OF, OR RELATING TO, THIS AGREEMENT.

                                   ARTICLE 14
                                 FORCE MAJEURE

         Each Party will be excused for any failure or delay in performing any
of its obligations under this Agreement, other than the obligations of Southern
Energy to make payments to Southern pursuant to Article 5 hereof for services
rendered, if such failure or delay is caused solely by Force Majeure. "Force
Majeure" includes, without limitation, any act of God or the public enemy; any
accident, explosion, fire, ice, earthquake, lightning, tornado, hurricane, or
other severe weather condition or calamity; any civil disturbance, labor
dispute, or labor or material shortage; any sabotage or acts of terrorism; any
acts of a public enemy, uprising, insurrection, civil unrest, war or rebellion;
any action or restraint by court order or public or governmental authority or
lawfully established civilian authorities, or any other circumstance or event
beyond the reasonable control of the Party relying upon such circumstance or
event.

                                   ARTICLE 15
                               DISPUTE RESOLUTION

         15.1     Mediation. If a dispute, controversy or claim ("Dispute")
arises between the Parties relating to the interpretation or performance of
this Agreement or the Ancillary Agreements, or the grounds for the termination
hereof, appropriate senior executives (e.g. director or vice president level)
of each Party who shall have the authority to resolve the matter shall meet or
confer (in person or by telephone) to attempt in good faith to negotiate a
resolution of the Dispute prior to pursuing other available remedies. The
initial meeting or conference between the appropriate senior executives shall
be referred to herein as the "Dispute Resolution Commencement Date."
Discussions and correspondence relating to trying to resolve such Dispute shall
be treated as confidential information developed for the purpose of settlement
and shall be exempt from discovery or production and shall not be admissible in
any proceeding relating to the subject matter of the Dispute. If the senior
executives are unable to resolve the Dispute within thirty (30) days from the
Dispute Resolution Commencement Date, and either Party wishes to pursue its
rights relating to such Dispute, then the Dispute will be mediated by a
mutually acceptable mediator appointed pursuant to the mediation rules of
JAMS/Endispute within thirty (30) days after written notice by one Party to the
other demanding non-binding mediation. Neither Party may unreasonably withhold
consent to the selection of a mediator or the location of the mediation. Both
Parties will share the costs of the mediation equally, except that each Party
shall bear its own costs and expenses, including attorney's fees, witness fees,
travel expenses, and preparation costs. The Parties may also

                                      11
<PAGE>   15

agree to replace mediation with some other form of non-binding or binding
alternative dispute resolution ("ADR").

         15.2     Arbitration. Any Dispute which the Parties cannot resolve
through mediation within ninety (90) days of the Dispute Resolution
Commencement Date, unless otherwise mutually agreed, shall be submitted to
final and binding arbitration under the then current Commercial Arbitration
Rules of the American Arbitration Association ("AAA"), by three (3) arbitrators
in Dekalb County, Georgia. Such arbitrators shall be selected by the mutual
agreement of the Parties or, failing such agreement, shall be selected
according to the aforesaid AAA rules. The arbitrators will be instructed to
prepare and deliver a written, reasoned opinion stating their decision within
thirty (30) days of the completion of the arbitration. The prevailing Party in
such arbitration shall be entitled to expenses, including costs and reasonable
attorneys' and other professional fees, incurred in connection with the
arbitration (but excluding any costs and fees associated with prior negotiation
or mediation). The decision of the arbitrator shall be final and non-appealable
and may be enforced in any court of competent jurisdiction. The use of any ADR
procedures will not be construed under the doctrine of laches, waiver or
estoppel to adversely affect the rights of either Party.

         15.3     Court Action. Any Dispute regarding the following is not
required to be negotiated, mediated or arbitrated prior to seeking material
relief from a court of competent jurisdiction: breach of any obligation of
confidentiality; infringement, misappropriation, or misuse of any intellectual
property right; any other claim where interim relief from the court is sought
to prevent serious and irreparable injury to one of the Parties or to others.
However, the Parties to the Dispute shall make a good faith effort to negotiate
and mediate such Dispute, according to the above procedures, while such court
action is pending.

         15.4     Continuity Of Service And Performance. Unless otherwise agreed
in writing, the Parties will continue to provide service and honor all other
commitments under this Agreement and each Ancillary Agreement during the course
of dispute resolution pursuant to the provisions of this Article 15 with
respect to all matters not subject to such dispute, controversy or claim.

                                   ARTICLE 16
                                 MISCELLANEOUS

         16.1     Entire Agreement. This Agreement, the Master Separation and
Distribution Agreement and the other Ancillary Agreements and the Exhibits and
Schedules referenced or attached hereto and thereto constitute the entire
agreement between the Parties with respect to the subject matter hereof and
thereof and shall supersede all prior written and oral and all contemporaneous
oral agreements and understandings with respect to the subject matter hereof
and thereof.

                                      12
<PAGE>   16

         16.2     Existing Services Agreement. The Parties acknowledge that
Subsidiaries of Southern are currently authorized to provide the services
contracted for herein to Southern Energy and its subsidiaries and, more
specifically, that Southern Company Services, Inc., a Subsidiary of Southern,
is authorized to provide the services identified herein directly, and,
indirectly, to Southern Energy and its Subsidiaries to Southern Energy
Resources, Inc. (formerly known as Southern Electric International, Inc.)
pursuant to an Agreement dated July 17, 1981 (the "Existing Service
Agreement"), all subject to certain conditions established by applicable
government regulations, orders, and approvals ("Existing Authority"). The
Parties intend to implement this Agreement consistent with and to the extent
permitted by Existing Authority and to cooperate toward obtaining and
maintaining in effect such governmental agency consents, orders or approvals as
may be required in order to implement this Agreement as fully as possible in
accordance with its terms for the stated term. After the Effective Date and
upon receipt of and applicable regulatory approvals and consents, the Existing
Services Agreement shall be terminated and superseded by this Agreement to the
extent permitted under the Existing Authority.

         16.3     Governing Law. This Agreement shall be construed in accordance
with and all Disputes hereunder shall be governed by the laws of the State of
Georgia. Any state court sitting in Dekalb County, Georgia and/or the United
States District Court for the Northern District of Georgia shall have
jurisdiction and venue over all Disputes between the Parties that are permitted
to be brought in a court of law pursuant to Article 15 above.

         16.4     Descriptive Headings. The headings contained in this
Agreement, in any Exhibit or Schedule hereto and in the table of contents to
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Any capitalized term used in
any Exhibit or Schedule but not otherwise defined therein, shall have the
meaning assigned to such term in this Agreement. When a reference is made in
this Agreement to an Article or a Section, Exhibit or Schedule, such reference
shall be to an Article or Section of, or an Exhibit or Schedule to, this
Agreement unless otherwise indicated.

         16.5     Notices. Notices, offers, requests, or other communications
required or permitted to be given by either Party pursuant to the terms of this
Agreement shall be given in writing to the respective Parties to the following
addresses:

                  if to Southern:
                                            The Southern Company
                                            270 Peachtree Street
                                            Atlanta, Georgia 30303
                                            Attention: General Counsel
                                            Fax: (404) 506-0544

                                      13
<PAGE>   17

                  if to Southern Energy:
                                            Southern Energy, Inc.
                                            900 Ashwood Parkway
                                            Suite 500
                                            Atlanta, Georgia 30338
                                            Attention: General Counsel
                                            Fax: (770) 821-7001

or to such other address as the Party to whom notice is given may have
previously furnished to the other in writing as provided herein. Any notice
involving non-performance, termination, or renewal shall be sent by hand
delivery, recognized overnight courier or, within the United States, may also
be sent via certified mail, return receipt requested. All other notices may
also be sent by fax, confirmed by first class mail. All notices shall be deemed
to have been given and received on the earlier of actual delivery or three (3)
days from the date of postmark.

         16.6     Nonassignability; Third-Party Beneficiaries. Except as
specifically permitted under Article 9 above, neither Party may, directly or
indirectly, in whole or in part, whether by operation of law or otherwise,
assign or transfer this Agreement, without the other Party's prior written
consent, and any attempted assignment, transfer or delegation without such
prior written consent shall be voidable at the sole option of such other Party.
Without limiting the foregoing, this Agreement will be binding upon and inure
to the benefit of the Parties and their permitted successors and assigns. This
Agreement, including the Transition Services Schedules and the other documents
referred to herein, shall be binding upon and inure solely to the benefit of
each party hereto and their legal representatives and successors, and nothing
in this Agreement, express or implied, is intended to confer upon any other
Person any rights or remedies of any nature whatsoever under or by reason of
this Agreement.

         16.7     Severability. If any term or other provision of this Agreement
is determined by a court, administrative agency or arbitrator to be invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement will nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated is not affected in any manner materially adverse to
any Party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the Parties shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
Parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the fullest extent possible.

         16.8     Failure Or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of either Party hereto in the exercise of any
right hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement
herein, nor shall any single or partial exercise of any such right preclude
other or further exercise thereof or of any other right. All rights

                                      14
<PAGE>   18

and remedies existing under this Agreement are cumulative to, and not exclusive
of, any rights or remedies otherwise available.

         16.9     Amendment. No change or amendment will be made to this
Agreement except by an instrument in writing signed on behalf of each of the
Parties hereto.

                                      15
<PAGE>   19

         IN WITNESS WHEREOF, each of the Parties has caused this Agreement to
be executed in duplicate originals by its duly authorized representatives.

   THE SOUTHERN COMPANY                     SOUTHERN ENERGY, INC.

   By:                                      By:
      ---------------------------------        ---------------------------------
   Name:  H. Allen Franklin                 Name:  S. Marce Fuller
   Title: President and Chief Operating     Title: President and Chief Executive
            Officer                                  Officer

                                      16
<PAGE>   20

                     FORM OF TRANSITION SERVICE SCHEDULE TO
                        TRANSITIONAL SERVICES AGREEMENT

         1.       Transition Service Schedule #:____________ (To be inserted by
representative)

         2.       Functional Area:
                                  ---------------

         3.       Start/End Date: The Services start on the Effective Date of
the Transitional Services Agreement between The Southern Company ("Southern")
and Southern Energy, Inc. ("Southern Energy") to which this Transition Service
Schedule is attached and end on [__________] unless otherwise indicated below.

         Indicate below if other start/end date:

         Start Date:
                    -----------------------------

         End Date:
                   ------------------------------

         If Start and End dates vary by service and/or location, please
indicate in Section 5 below.

         4.       Summary of Services (Describe the service to be provided in
appropriate detail.

<TABLE>
         <S>                                     <C>
         Service Name                            Description
</TABLE>

         5.       List of services to be provided per location and site: (List
all the services to be provided at each site. Enter Start Date and End Date if
different from Section 3 above.)

<TABLE>
             <S>                    <C>              <C>               <C>              <C>
             Location               Site             Service(s)        Start Date       End Date
</TABLE>

         6.       Performance parameters/Service level: (State minimum
performance expected from each service, if applicable.):

         7.       Estimated Total Compensation

<PAGE>   21

         8.       Describe cost methodology and cost drivers affecting Estimated
Total Compensation (Describe on an individual service basis if necessary):

         9.       Describe the process by which the cost of services will be
adjusted in the instance of an increase/reduction in the services provided:
(Describe on an individual service basis if necessary.)

         10.      Software: Will software be used or included with the Services
to be provided under this Transition Service Schedule: ____ Yes ____ No

         List software/licenses to be provided, if any:

         11.      Contract Administrators. List Service Representatives from
Southern and Southern Energy:

         Upon execution of this Transition Service Schedule by both Parties,
this Transition Service Schedule is hereby deemed incorporated into and made
part of that certain Transitional Services Agreement between The Southern
Company and Southern Energy, Inc.

THE SOUTHERN COMPANY                           SOUTHERN ENERGY, INC.

By:                                           By:
   ----------------------------                  ----------------------------

         (Authorized Signature)                    (Authorized Signature)

Date:                                         Date:
     --------------------------                    --------------------------
Name:                                         Name:
     --------------------------                    --------------------------
Title:                                        Title:
      -------------------------                     -------------------------

                                       2
<PAGE>   22

                                  Schedule 3.7
                         Senior Service Representatives

Southern Energy

<TABLE>
<CAPTION>
          Service                         Senior Representative (Title)
          -------                         -----------------------------

<S>                                     <C>
Engineering and Technical Services      Chief Technical Officer

Intellectual Property/
Information Technology                  Chief Information Officer

All other Services                      Senior Vice President of Administration
                                        and External Affairs

Southern
</TABLE>

<TABLE>
<CAPTION>
          Service                              Senior Representative (Title)
          -------                              -----------------------------

<S>                                          <C>
Engineering and Technical Services;
Procurement                                  President of Southern Company Generation

Intellectual Property/
Information Technology                       Chief Information Officer

Human Resources                              Senior Vice President of Human Resources,

Legal                                        General Counsel

External Affairs                             Vice President of External Affairs

Finance and Risk Management                  Chief Financial Officer

Accounting                                   Senior Vice President - Chief Accounting
                                             Officer

Internal Auditing                            Director of Internal Auditing

System Aircraft                              Vice President, System Aircraft
</TABLE>

                                       3
<PAGE>   23

                                 Schedule 11.4
                                   Insurance

                               INSURANCE COVERAGE

<TABLE>
<CAPTION>
Types of Coverage                   Limits of Liability
-----------------                   -------------------

<S>                                 <C>
Workers' Compensation               Statutory Minimum

Errors and Omissions                $1,000,000

Commercial General
Liability
Bodily Injury and                   $5,000,000 Combined
Property Damage                     Single Limit

Automobile Liability
Bodily Injury and                   $2,000,000 Combined
Property Damage                     Single Limit
</TABLE>

                                       4

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