1.

That portion of the power produced in the Georgia-Alabama System to be marketed within the service areas of South Carolina Public Service Authority, South Carolina Electric & Gas Company, and Duke Power Company.

2. That portion of the power produced in the Cumberland System which is wheeled outside the TVA service area as well as that portion to be sold within the TVA service area.

3. All power produced in the Kerr-Philpott System to be marketed in the Appalachian Power Company, Virginia Power, and Carolina Power & Light Company service areas.

4. That portion of the power produced in the Cumberland System and designated to be marketed in the service areas of Carolina Fower & Light Company (Western Division), and Kentucky Utilities.

With respect to that portion of the power produced in the GeorgiaAlabama System and sold in the Southern Company service area (Georgia, Alabama, Mississippi, and the panhandle of Florida), wheeling charges will be handled, to the extent possible, by "net billing" with the affected utilities during this period. Decreasing quantities of capacity will be sold to the utilities through May 1991, and charges to the utilities for this capacity will be used to offset charges by the utilities for transmission services provided. During FY 1987, increased funding will be required for payment of transmission services under contractual arrangements with Georgia Power Company, since capacity sales to the company will be insufficient to fully "net bill" the charges for transmission services provided by the Company.

Additionally, purchase power and wheeling funds are required under the provisions of existing contracts for the sale of power produced at the Jim Woodruff project and now sold in the Florida Power Corporation

service area.

Southeastern's projects are grouped for marketing purposes into four financially independent systems. The power systems, customer

locations, and status of wholesale rate adjustments are hereinafter discussed. Southeastern has accomplished all of its recent rate adjustments with a minimum of difficulty.

GEORGIA-ALABAMA SYSTEM

The Georgia-Alabama System is comprised of the Allatoona, Buford, Carters, Clarks Hill, Walter F. George, Hartwell, Robert F. Henry (formerly Jones Bluff), Millers Ferry, Richard B. Russell, and West Point projects. Two of the four units at Carters are pump-generator units. Power from the system is sold to customers located in Georgia, Alabama, North and South Carolina, Mississippi, and Florida.

Power rates for this system, applicable from October 1, 1985, through September 30, 1990, were approved on an interim basis by the Deputy Secretary of Energy on September 30, 1985, and forwarded to the Federal Energy Regulatory Commission for final approval.

The Richard B. Russell Project began initial generation in January 1985, with three conventional units (225,000 kw) beginning initial generation during FY 1985, and the remaining conventional power unit, (75,000 kw) scheduled to be online during FY 1986. The four pumpgenerator units, which will provide an additional nameplate capacity of 300,000 kw, are scheduled to begin operation during 1990.

The addition of this project's nameplate capacity of 600,000 kw represents the most significant increase in the marketing product of Southeastern Power Administration since 1975.

CUMBERLAND BASIN SYSTEM

The Cumberland Basin System includes the Wolf Creek, Center Hill, Dale Hollow, Old Hickory, Cheatham, Barkley, J. Percy Priest, Cordell Hull and Laurel projects. The projects are located on the Cumberland

River, or its tributaries, and are located in northern Tennessee and southern Kentucky.

System power is marketed to customers located in Tennessee and in portions of Mississippi, Kentucky, and Illinois. Power rates, applicable from July 1, 1984, through June 30, 1989, were approved by the Federal Energy Regulatory Commission on a final basis on December 27, 1984.

KERR-PHILPOTT SYSTEM

Power from the John H. Kerr and Philpott projects, located in the Roanoke River Basin in Virginia, is marketed to customers in Virginia The Federal Energy Regulatory Commission approved

and North Carolina.

power rates for this system on a final basis on July 6, 1983, effective April 1, 1983, for the period ending September 30, 1986.

JIM WOODRUFF SYSTEM

The Jim Woodruff Project is located on the Apalachicola River on the Georgia-Florida state line. All dependable capacity available at the Project is sold to preferred customers in peninsular Florida.

Revised power rates for the Jim Woodruff Project were approved on an interim basis by the Assistant Secretary for Conservation and Renewable Energy and were placed in effect on August 20, 1982. Final approval of the rates was issued by the Federal Energy Regulatory Commission on January 10, 1983, for the period ending August 19, 1987.

POTENTIAL ADDITIONAL RESOURCES

Southeastern has been coordinating with various District offices of the Corps of Engineers in examining the feasibility of installing generating units at several existing projects in the area within which Southeastern has marketing responsibility and at selected projects outside the area.

The potential hydropower project examinations that Southeastern will be performing during fiscal year 1987 include but are not limited to the following:

(1)

the replacement of the William Bacon Oliver Lock and Dam in Alabama, (2) the Bluestone and Tygart projects in West Virginia, (3) four existing reservoirs in the Green River Basin in Kentucky, (4) the Celina Project on the Cumberland River, (5) locks and dams on the Ohio River, (6) projects in the Lehigh River Basin in Pennsylvania, and (7) the addition of hydropower to existing projects in Indiana and Ohio.

POWER MARKETING POLICY FORMULATION

Southeastern has been deeply involved in the formulation of new written power marketing policies for its several systems, with broad public participation, to replace previous ad hoc approaches to power marketing. Major issues requiring attention in each instance include marketing area, allocations of power, handling of pumped-storage energy, utilization of area utility systems, wholesale and resale rates, and conservation measures. The major goal of each policy is to market all available power to preference agencies.

Southeastern has published final marketing policies for its tenproject Georgia-Alabama System, its nine-project Cumberland System, and its two-project Kerr-Philpott System. Policy action with respect to the Jim Woodruff System is not anticipated in the near future since all dependable capacity and energy is presently being sold to preference customers.

All Southeastern power marketing policies contain guidelines, including proposed marketing areas and allocation formulas, for marketing the available power for approximately the next ten years.

POWER MARKETING POLICY IMPLEMENTATION

Long-term contractual arrangements implementing the Cumberland System Power Marketing Policy have been negotiated and placed into effect with the Tennessee Valley Authority (TVA), benefiting 160 preference customers within the TVA service area, and with preference customers in portions of Mississippi, Kentucky, and Illinois.

The Cumberland Policy also provides for the sale of Cumberland power to public bodies and cooperatives located in the Kentucky Utilities Company service area and in the Western Division of the Carolina Power & Light Company area. Service to these preference customers will be delayed pending development of wheeling contracts with these utility systems. Southeastern plans to move expeditiously to complete the marketing program in this area as soon as possible.

New long-term arrangements have been placed in operation for the western portion of the Georgia-Alabama System implementing the Georgia-Alabama System Power Marketing Policy. Contracts have been executed with the operating utilities of the Southern Company (Georgia, Alabama, Mississippi, and Gulf Power Companies) and preference customers in their service areas. Under these arrangements, the conversion to the policy of ultimately marketing all power to preference customers will be phased in over a seven-year period.

Negotiations have been completed and contracts executed with South Carolina Public Service Authority, Duke Power Company, South Carolina Electric & Gas Company, and preference agencies within their service areas covering the marketing of power produced in the Georgia-Alabama System and sold in the eastern portion of that System. These negotiations added 26 new preference customers.