Southern Company (SO) Earnings Report: Q1 2015 Conference...

CompanyName:SouthernCoCompanyTicker:SOSector:Utilit iesIndustry:Utilit ies

EventDescription:Q12015EarningsCallMarketCapasofEventDate:40.60BPriceasofEventDate:44.11

©2014TheStreet,Inc.Al l R ightsReserved Page1of27

SouthernCompany(SO)EarningsReport:Q12015ConferenceCallTranscriptThefollowingSouthernCompanyconferencecalltookplaceonApril29,2015,01:00PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

DanTucker;SouthernCompany;VP-IR,FinancialPlanningTomFanning;SouthernCompany;Chairman,President,CEOArtBeattie;SouthernCompany;CFO

OtherPart icipants

GregGordon;EvercoreISI;AnalystJamesvonRiesemann;MizuhoSecurities;AnalystBrianChin;BankofAmericaMerrillLynch;AnalystMarkBarnett;Morningstar;AnalystAnthonyCrowdell;Jefferies;AnalystMichaelWinter;UBS;AnalystDanielEggers;CreditSuisse;AnalystAliAgha;SunTrustRobinsonHumphrey;AnalystMichaelLapides;GoldmanSachs;AnalystShahriarPourreza;GuggenheimPartners;AnalystPaulRidzon;KeyBancCapitalMarkets;AnalystDanJenkins;StateofWisconsinInvestmentBoard;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Goodafternoon.MynameisJoseandIwillbeyourconferenceoperatortoday.Atthistime,IwouldliketowelcomeeveryonetotheSouthernCompany'sfirst-quarter2015earningscall.

(OperatorInstructions)

IwouldnowliketoturntheconferenceovertoMr.DanTucker,VicePresidentofInvestorRelationsandFinancialPlanning.Pleasegoahead,sir.

DanT ucker (VP-IR,FinancialPlanning):

Thankyou,Jose.Welcome,everyone,toSouthernCompany'sfirst-quarter2015earningscall.JoiningmethisafternoonareTomFanning,Chairman,PresidentandChiefExecutiveOfficerofSouthernCompany;andArtBeattie,ChiefFinancialOfficer.

Letmeremindyouthatwewillmakeforward-lookingstatementstodayinadditiontoprovidinghistoricalinformation.Variousimportantfactorscouldcauseactualresultstodiffermateriallyfromthoseindicatedintheforward-lookingstatements,includingthosediscussedonourform10-Kandsubsequentfilings.

Inaddition,wewillpresentnon-GAAPfinancialinformationonthiscall.ReconciliationstotheapplicableGAAPmeasureareincludedinthefinancialinformationwereleasedthismorning,aswellastheslidesfor




thisconferencecall.Theslideswewilldiscussduringtoday'scallcanbeviewedonourinvestorrelationswebsiteatinvestor.Southerncompany.com.Atthistime,I'llturnthecallovertoTomFanning.

T omFanning (Chairman,President,CEO):

Goodafternoonandthankyouforjoiningus.ManyofyouhaveheardmespeakbeforeaboutthefullportfolioanditssignificancetoSouthernCompanyandtoourindustryaasawhole.Simplyput,weareinventingthefutureofclean,safe,reliableandaffordableenergyforthebenefitofthecustomersandcommunitiesweserve.Ourfullportfoliostrategy,whichincludesnewnuclearandinnovativenewtechnologiesfor21stcenturycoal,aswellasnaturalgas,renewablesandenergyefficiency,isafundamentalcomponentofthatmission.

I'dliketotakeafewmomentstohighlighthowthisall-of-the-aboveapproachcontinuestobebeneficialtocustomersandtodiscussseveralprojectshelpingtoshapethefullportfolioforthefuture.Tobeginwith,ourdiversegenerationfleetenablesustoquicklyadapttoconstantlychangingmarketconditionswiththeabilitytoutilizethemostcostefficientgenerationresourcesatanyparticularpointintime.Whennaturalgaspricesarelow,forexample,weareabletotakeadvantagebyburningmorenaturalgasandlesscoal.

Suchwasthecaseinthefirstquarterofthisyear.Gasenergyclimbedto48%ofourenergyproduction.Ouruseofcoalforthequarterwasthelowestinseveraldecades,fallingto32%ofourenergymix.Andasahallmarkofourintegratedbusinessmodel,wepassedthosesavingsalongtoourcustomers.

Naturalgas,ofcourse,willcontinuetobeadominantsolution.Recently,ourgasconsumptionwasabout1.5Bcfperday.Thisyear,itcouldapproach1.9Bcfperday.Andby2020,theamountcouldbeasmuchas2.3Bcfperday.

Butnaturalgasisnotapanacea,aswecannotassumethatcurrentpriceswillendureindefinitely.Wemust,therefore,continuetopursuethedevelopmentofatrulydiversegenerationportfolio,onethatprovidesthenecessaryoptionalityandflexibilitytoadjusttochangingmarketconditions.

Inadditiontonaturalgas,21stcenturycoalandnewnuclear,wearerapidlybuildingoutourenergyportfoliowithrenewablesincludingsolarandwind.Withthatinmind,Iwouldliketotakeamoredetailedlookathowwe'veexpandedourrenewableresourcesinrecentmonths.

FourSouthernCompanysubsidiariesrecentlymarkedmajormilestonesinthestrategicexpansionofoneofthenation'slargestrenewableenergyportfoliosthroughtheannounceddevelopmentoracquisitionoflarge-scalesolarprojects.GulfPowerandMississippiPowerrecentlyannouncedpowerpurchaseagreementswithsolarfacilitiestotaling173megawattsthatarecurrentlybeingdevelopedonmilitarybasesintheirrespectivestates.GeorgiaPowerbrokegroundatFortBenning,thefirstoffour30-megawattretailratebasedsolarprojectsindevelopmentwiththeUSDepartmentofDefense.

Andthere'smorelikelytocome.InFebruaryourSouthernPowersubsidiaryannouncedtheacquisitionoftwosolarprojectstotaling99megawattsinGeorgia,the80-megawattDecaturParkwaysolarprojectandthe19-megawattDecaturCountysolarproject.Andmostrecently,SouthernPowerannouncedtheacquisitionofacontrollinginterestinthe32-megawattLostHills-BlackwellsolarfacilityinCaliforniafromFirstSolar.

AlsoinMarch,SouthernPowerannouncedanagreementtoacquirethe299-megawattKayWindfacilitycurrentlyunderconstructioninOklahoma.Thisacquisitionisexpectedtocloseinlate2015,uponsuccessfulcompletionoftheproject.

KayWindwillbethelargestrenewableelectricgenerationplantintheSouthernCompanysystemand




thefirstwindfacilitywewillown.Uponcompletionoftheseprojects,theSouthernCompanysystemexpectstoownorpurchasetheoutputofmorethan3,100megawattsofrenewableresourcessystem-wide,including44solarfacilitiesinsevenstates.

Let'snowdiscussourtwolargeconstructionprojects,whichareequallyimportanttoourfullportfolioofgenerationresources.Ournewnuclearproject,plantVogtleUnits3and4andour21stCenturycoalfacilityinKemperCounty,Mississippi,featuringcoalgasificationtechnologydevelopedbyourresearchersinpartnershipwithKBRandtheDepartmentofEnergy.Bothoftheseprojectsstemfromstate-specificresourceplanningprocessesthatvaluegenerationdiversity,includingthehedgethatthesenewresourcesrepresentagainstpotentialcarbondioxideregulationsinthefuture.

First,anupdateonPlantVogtleUnits3and4.Theprimaryfocusoftheprojectcontinuestobeonqualityandsafety.GeorgiaPowerhasmaintainedanexceptionalsafetyrecordforaconstructionprojectofthissize,whichcurrentlyhasover5,000peopleonsite.Duringthefirstquarter,ouroutstandingsafetyculturemanifesteditselfasweperformedover1millionsafeworkhourswithoutarecordableinjury.

Thequalityoversightfromournuclearteamcontinuestobeinvaluable.Thisisacomplexprojectwithnumerouschallenges.WeareproudofhowwellourprocessesandcontrolsareholdinguptotheinspectionofboththeNRCinspectorsandGeorgiaPower'sregulator.

Moreimportantly,ourownrigorousoversightisbeingmanifestedinthequalityofthefacility.ThenewVogtleUnitsarebeingbuilttoserveGeorgiacustomersfor60-plusyears,andtheoversightinplacetodayshouldhelpensurethattheseunitswillfunctionatahighlevelfordecadestocome.

ConstructionactivitiesaretrackingcloselywiththerevisedscheduleprovidedbythecontractorsinJanuary.Thegreatestrisktothescheduleforbothunitscontinuestobeinthetimelydeliveryofstructuralsub-modules.

I'mpleasedtoreportthatthequalityattheLakeCharlesfacilityhasimprovedandwenolongerexpectsub-modulesfromthatfacilitytorequireremediationonsitebeforebeingreleasedforassembly.WeanticipatecontinueddeliveryofpanelsthroughouttheyearfromLakeCharles,andwe'vebeeninformedthatthescopeofworkmaybeexpandingthere.

Criticalpathremainscloselyalignedwithdeliveryandinstallationofpanelsfortheshieldbuilding.ThesepanelsarefabricatedbyNewportNewsindustrialandqualityhasbeengood.AccelerationofworkatNNI,alongwithimprovingthepanelinstallationprocessrepresentsoneofourbestopportunitiestoimproveonthescheduleprovidedbythecontractors.

Criticalpathrunssomewhatparallelwithactivitiesinsidethecontainmentvessel.TheCA01moduleisoneofthemajornextstepsinsidethisareaofthenuclearisland.ThefinalconcretepoursnecessarytoinstallCA01werecompletedlatelastweek.CA01isnowprojectedtobeliftedintoplaceearlyinthethirdquarterofthisyear.

Anumberofyouhavevisitedthesiteinpersonandtheprogressisobvious.Whiletheentireprojectisproceedingwell,theUnit3annexbuildingisanareaofnoteworthyprogress.TheannexbuildingisnecessaryfortheinitialenergizationofthecontrolsystemsforUnit3,animportantearlystepinthestartupprocess.

Theconcretefoundationsandstructuralsteelforthisfacilityarewellunderway.AndinlateFebruarythefirstof34wallsub-modulesfortheUnit4CA20modulewasupended,markingthestartoftheassemblyprocess.

Ontheregulatoryfront,$198millioninexpendituressubmittedinthe11thVogtleconstruction




monitoringreportwereunanimouslyapprovedonFebruary19,withacumulativeamountapprovedtodateof$2.8billion.Additionally,theproceduralandschedulingorderforthe12thVogtleconstructionmonitoringreportwasapprovedonApril7.

Consistentwiththelong-standingGeorgialaw,theorderreaffirmedthatneithertheproject'scertifiedcost,northeVCM8stipulationin2013constituteacostrecoverycap.GeorgiaPowerwillbeallowedrecoveryofallreasonableandprudentstartupcosts,uptoandabovethecertifiedamount.Andwebelievethesemi-annualVCMprocess,includingthetestimonyoftheindependentmonitor,continuestobuildarecordthatthoroughlydocumentsGeorgiaPower'sprudentmanagementoftheproject.

Theorderalsoestablishesascheduleforfilingsandhearingsonourrequest,oftheCommissiontoverifyandapprove$169millioninexpendituresforthesecondhalfof2014.GeorgiaPowerexpectstofiledirecttestimonyonFriday.HearingsarescheduledtobeginonJunethesecond.Andweanticipateadecisioninmid-August.Afullscheduleisincludedinourslidedeck.

Nowlet'sturntoanupdateontheKemperCountyIGCCproject.TheKemperprojectalsoboastsaterrificsafetyrecord.Withnowover2,500workersonsite,nosafetyincidentsoccurredduringthefirstquarter.

InearlyMarchwecompletedthefirstfiringwithnaturalgasofthefacility'sgasifierburners,asignificantmilestone.Wecontinuetomaketremendousprogressonourotherstart-upactivitiesaswelookaheadtothefirstsynthesisgasproductionplannednowforthethirdquarter.Inthemeantime,thecombinedcycleatKempercontinuestoperformexceptionallywell,withafirst-quarterequivalentforcedoutagerateoflessthan1%andacapacityfactorinlinewiththerestofourcombinedcyclefleet.

Turningtothelegalandregulatoryfronts.TheMississippiSupremeCourt'sorder,whichdeemedthatthe2013Kempersettlementunenforceableandreversedthesubsequentrateorder,hasbeenmetwithvocaloppositionfromstate-wideindustrygroups,businessorganizations,thestateeconomiccouncil,andmembersofthepublicutilitystaffandCommission,aswellasotherpublicentities,throughamicusbriefsfiledwiththeMississippiSupremeCourt.

Mostofthebriefsemphasizethattherateplanagreedtoin2013wasofgreatbenefittothecustomersofMississippiPower,andthatatraditionalratecasecouldmeanrateimpactapproaching40%forsomecustomers.Thiscomparestothe25%rateincreasecontemplatedintheoriginalsettlement,18%ofwhichisalreadyinplace.

Whileweawaitthecourt'sdecisiononrehearing,wewillcontinuetoworktowardsareasonable,comprehensivesettlementwiththepublicutilitystaff.However,asapossiblealternativetoasettlement,wearealsopreparingtofilearatecasebymid-May.Withthecompletionoftheprojectinsight,wewanttoensurethattheraterecoveryisadequatelyaddressedinatimelymanner.I'llnowturnthecallovertoArtforafinancialandeconomicoverview.

ArtBeatt ie (CFO):

Thanks,Tom.Asyoucanseefromthematerialswereleasedthismorning,wehadsolidresultsforthefirstquarterof2015,reportingearningsof$508millionor$0.56pershare,comparedwithearningsof$351millionor$0.39pershareinthefirstquarteroflastyear.

Thefirst-quarterresultsfor2015includea$6millionafter-taxchargerelatedtoanincreasedconstructionestimateforMississippiPower'sKemperIntegratedGasificationCombinedCycleproject.Thefirst-quarterresultsfor2014includeda$235millionafter-taxchargefortheKemperIGCCproject,or$0.27pershare.

Excludingtheseitems,SouthernCompanyearned$514millionor$0.56pershareduringthefirstquarter




of2015,comparedto$586millionor$0.66pershareinthefirstquarterof2014.Earningsforthefirstquarterof2015wereinlinewithourexpectationsandwerepositivelyinfluencedbyretailrevenueeffectsatSouthernCompany'straditionaloperatingcompanies,offsetbymilderwinterweatherthanin2014,andincreasedoperatingandmaintenanceexpenses.

Movingnowtoaneconomicandsalesreviewforthefirstquarter.Economicgrowthinthefirstquarterof2015wasmodest,butourretailsalesacrossallcustomerclassesareencouraging.Totalweather-adjustedretailsalesgrew1%inthefirstquarter,ledbyindustrialsales,whichwereup2%.

Wehavenowenjoyedeightconsecutivequartersofpositiveyear-over-yearindustrialsalesgrowthinourregion.Industrialsalesgrowthremainsbroad-basedacross8ofourlargest10industrialsegments.

Thestrongestindustrialsegmentsincludepetroleum,up10%;stone,clayandglass,up6%duetoimprovementsinthehousingmarket.Transportationimproved5%asautomotivemanufacturersexpandedoutput.Weather-adjustedresidentialsaleswereslightlypositiveforthefirstquarterof2015,primarilyduetostrongcustomergrowthofnearly16,000,a55%increaseovertheapproximate10,000newcustomersgainedinthefirstquarterof2014.

Weatheradjustedcommercialsaleswereup0.7%forthequarter.Officevacancyratescontinuedtoshowsignsofimprovementandmoreofficeretailprojectsarebeingannounced.

Currently,morethan1.9millionsquarefeetofofficespaceisunderconstructioninMetroAtlanta.Inaddition,anumberofnewAtlantaprojectsareexpectedtobeginconstructionsoon,includingtheMercedes-Benzheadquarters.

AccordingtotheUSBureauofLaborstatistics,non-farmemploymentincreasedinallthestatesofourretailserviceterritory,betweenFebruaryof2014andFebruaryof2015.Nationally,Georgiarankednumberfiveamongallstatesforjobgrowth,andAtlantawasrankedamongthetopfivemetroareas.

Meanwhile,oureconomicdevelopmentpipelineremainsrobust,withmorethan300potentialprojectsrepresenting37,000potentialnewjobsandover$34billioninpotentialcapitalinvestment.Theclimateforbusinessandinvestmentremainsstronginourserviceregion.AlabamaandGeorgiawererecentlyrankednumberoneandnumberfour,respectively,amongstatesinwhichtodobusinessbySiteSelectionMagazine.

TurningbrieflybacktoSouthernPower.AsTommentionedinhisopeningremarks,SouthernPowercontinuestofindnewprojectsthatmeetitsinvestmentcriteria.Inourfourth-quartercallinearlyFebruary,weoutlinedtwocategoriesforSouthernPower'sCapExprojections,baseCapExandplaceholderCapExforgrowth.

BaseCapExincludesprojectswehaveidentifiedaslikely,eventhoughwemaynothavereachedfinaltermsorreceivedallregulatoryapprovals.InFebruary,ourbaseCapExincluded,amongothers,theKayWindandDecaturprojectsTommentionedearlier.

Sincethen,SouthernPowerhasidentifiedanumberofadditionalprojectsfor2015and2016.Asaresult,weareshiftingdollarsoutoftheplaceholdercategoryandintobaseCapExforSouthernPower.

Theresultisthatwehaveaccountedforallofouroriginal2015placeholdersandhavemoved$100millionfromtheplaceholdertobasein2016.Withour2015successthusfarandthelongrunwaybetweennowandtheendof2016,weareconfidentaboutourabilitytofindsolidprojectstoaccountforourremaining2016placeholders.

BeforeturningthecallbacktoTom,letmecovertwofinalitems.First,ourearningsestimateforthesecondquarter,whichis$0.69pershare.




Secondly,I'dliketohighlightourdividendannouncementlastweek.OurBoardofDirectorsapproveda$0.07increaseinourcommondividendtoanannualizedrateof$2.17pershare.Thisisour14thconsecutiveannualincreaseandmarks270consecutivequartersdatingbackto1948,thatSouthernCompanywillhavepaidadividendequaltoorgreaterthanthepreviousquarter,toitsshareholders.

Overthepasttwodecades,ourdividendhasaccountedfornearly70%ofourtotalshareholderreturn.ItisthecornerstoneofourvaluepropositionandtheBoard'sdecisionlastweekreinforcesitsconfidenceinthestrengthofourlong-termfinancialplan.IwillnowturnthecallbackovertoTomforhisclosingremarks.


Thanks,Art.Afterasuccessfulyearin2014,SouthernCompanyhasenteredthenewyearwithstrongmomentum.Weseeafranchisebusinessthatisoperatingbetterthanever,solidifyingitspositionasanindustryleaderinallphasesofthebusiness.Weseeimportantprogressonmajorcapitalprojectsandwecontinuetoexcelwithourcustomer-focusedbusinessmodel.Wealsoseeastrengtheningeconomyandaregionpoisedtogrowinthemonthsandyearsahead.

Inshort,webelieveSouthernCompanyiswellpositionedtosucceedin2015andintheyearsahead,behindthestrengthofour26,000employeesandtheircommitmenttoprovideclean,safe,reliableandaffordableenergytothecustomersandcommunitiesweserve.SouthernCompanyiskeenlyfocusedonremaininganindustryleaderforthelongtermandforward-thinkingdecisionswithregardtoourgeneratingportfolioareakeyaspectofthateffort.

Buttheevolutionofourbusinessdoesnotstopthere.WerecentlyannouncedthelaunchofanewEnergyInnovationCentertobelocatedinAtlanta'sTechnologySquare.Whileweremainsteadfastinourcommitmenttoexcelatthefundamentalsofmaking,movingandsellingandconsumingelectricity,wealsounderstandthatthewayinwhichcustomersuseenergymaychangeovertime.

Theenergyinnovationcenterisjustonewayinwhichweareworkingtoanticipatethefutureandleadthewaywiththedevelopmentofnewenergyinnovations.Goingforward,wewillcontinuetobuildonourlonghistoryofinventingthefuturebyrelyingonthethinkingofourentireworkforce,andwithpotentialpartnerssuchasMethandothermajorestablishedandnewentrantstotheenergyindustry.

Initialpossibilitiesinvolveexpandingthenotionofenergyinfrastructuretoassetsbeyondthemeter,unmannedaerialvehicles,hydrogenproductionfromunder-utilizedgeneratingfacilitiesanddesalinationplants.AsArtindicatedearlier,thestrengthourunderlyingfranchiseaswellasourcontinuedfocusonremaininganindustryleaderthroughinnovation,underpintheBoard'sdecisionlastweektoincreaseourdividend,whichsupportsourobjectiveofprovidingsuperiorrisk-adjustedtotalshareholderreturntoinvestorsoverthelongterm.Wearenowreadytotakeyourquestions.Operator,we'llnowtakethefirstquestion.

QUESTIONS&ANSWERS

Operator :

Thankyou,sir.

(OperatorInstructions)

AndourfirstquestioniscomingfromthelineofGregGordonfromEvercoreISI.Pleaseproceedwithyourquestion.





Hello,Greg.Greg?

GregGordon (Analyst-EvercoreISI):

I'mhere.Canyouhearme?


Yes,wecannow.


Sorry,Iwasonmute.It'sbeenalongdayalready.You'relikeourfifthcall.SowhatisthelegalpathinMississippitodaythateithergetsyoubacktoasettledratedealorputsyouinaformalratecasefiling?WhatarethedifferentpathsthatgetusbackintoasettledlowratehikeorputusintoaratefilinginMay?


Justaswedescribed,there'stwopaths.Oneiswe'vebeenhaving,asyouallknow,aprolongedseriesofdiscussionswiththestaff.Wecontinuetothinktheyareconstructive.Ithinktheresultofasettlementcould,inessence,preserveandformtheratestructurethatweputinplacein2013.

Failingtoreachasettlement,wewillfilearateincreaseinaconventionalratecase.Itisconceivableyoucouldfiletheratecaseandfilethesettlementatthesametime.Butthosearethetwopaths.


Okay,buttheSupremeCourt'sdecisionhasessentiallyclosedoffthecreativeapproachyouusedtopre-fundingthecapitalprojectoristhatnotthecase?


No,that'snotthecase.Thesettlementwouldessentiallypreservethestructure,whichwouldmimicwhatwasapprovedin2013.


Thatwouldbegreat.Secondquestionisonyourcontinuedexpansionoftherenewablesplatform.Whenwelookat--soessentiallytheannouncementofthiswindprojectacquisitionfillsinsomeofthenotionalspaceinyourSouthernPowerCapExbudget?


That'sright.


It'snotincrementaltothebudgetthatyou'vealreadyarticulatedtous?


It'spartofthe--yes,itwasinthebasealready.


Gotyou.





Whatwe'vedone,isthechangehere,it'sonthegraphweshowed,isthatweessentiallyhavespokenforalltheplaceholdersin2015.Sowe'reveryconfidentofhittingournumbersforSouthernPowerin2015.


Right.HowmuchofyourtotalCapExin2016atSouthernPoweriscurrentlymoneyprojectsthataredefinitelygoingforwardversusplaceholders?


About$400million.


Oh,that'shereon,sorry,page12.Sorry,Ididn'tseethat.


About$400million.


Andthencanyouarticulate--Sorry,goahead.


Wefeelreallygoodabouthittingourplaceholdersin2016also.Butwe'renotatthestatewe'rereadytodeclarethoseaspartofbase.We'veimproveditby$100million.


Gotyou.Andthenisthere,whatyoucanarticulate,whatyouthinktheearningscontributionisgoingtobefromtheKayWindfacilitywhenitcomesin?

ArtBeatt ie (CFO):

Well,theKayWindfacility,thebenefitsarenotinvestmenttaxcredits,they'reproductiontaxcredits.SoIdon'trecallthe2016benefit,butitshouldnotbenefit2015atall.Itwillbea2016addition.


Itwillbealittleover$0.01ayear,somethinglikethat,forwhatever,10years.


Okay,that'sgreat.Whenisthenextmilestone,ifwehaveafirmmilestone--thisismylastquestion.(laughter)


It'safilibuster.


YourconversationswithyourEP&CcontractoratVogtlewithregardtothedelaytheyannouncedinthein-servicedate.





Sowecontinuetohaveconstructivediscussionsthere.OneofthethingsIthinkwetriedtohighlightintheinitialremarksisthatwecanseeourwaythroughtosomewaystoimprovetheschedulethatthecontractorshavedeliveredtous.We'vebeenprettyclearaboutthatinourdisclosures.Sowecontinuetoworkwiththemandwe'retryingtofindwaystoreachanamicableresolutiontothat.


Andisthereasortofdefinitivemilestonetolookforthereintermsofadropdeaddateor--?


Notreally.TheultimateconclusionwouldbelitigationintheCityofAugusta,Georgia.


Allright,thankyou,guys.


Yes,sir,thankyou.

Operator :

AndournextquestionscomefromthelineofJamesvonRiesemannfromMizuho.Pleaseproceedwithyourquestion.


Hey,Jim.

JamesvonRiesemann (Analyst-MizuhoSecurities):

Tom,howareyou?


Super.Hopeyou'rewell.


Thankyou,Iam.Ihavetwoquestionsforyou.Thefirstquestionis,canyouguysprovidealittlebitmorecoloronthecontinuingdisconnectbetweenthe3%GDPgrowthintheserviceterritoryandyet0.2%residentialgrowth?

ArtBeatt ie (CFO):

Yes,Jim.Ourexpectationwas,fortheyear,about3%GDPgrowth.Thatwasunderlyingourforecastoflowgrowththisyearofthe1.3%.

We'vehadaverystrongeconomyhereintheSoutheast.Ithinkournumbersandresultsreflectthat.Asweoutlinedinthescript,it'sdrivenbytheindustrialsalesgrowth.Butwe'rebeginningtoseemovementontheresidentialandthecommercialendaswell.

Thisisthefirstquarterinaboutfouryearswherewe'vehadpositivegrowthinallthreecustomerclasses,sowethinkit'sbroad-based.Andifwelookatemploymentgrowth,bothinthemanufacturingsectorand




inothersectors,it'sbeatingthenationalnumbers.TheeconomyintheSoutheasthasbeenabitstronger,inourview,thanwhatwe'reseeingonthe0.2%.


AttheriskoffallingintoFed-speak,too,there'sfascinatingdevelopments.Someofthethingswe'reseeingarebetterthan,butinsomewaysmimic,whatwe'reseeingnationally.

Betterthanclearlyisintheindustrialgrowthsector,evensurprisingtoushowstrongitis.Andevenprobablybetterthanwhatwe'reshowing,wethinkthatchemicals,forexample,wasslightlynegative,butthosewereoutages.Soweexpecttoseechemicalsrebound.

Recall,acontinuingthemehasbeensegmentswhicharedependentuponnaturalgas,thosearegoingtobereallystrong,wethink,fortherestoftheyear.Theonlycloudonthehorizonthere,primarymetals,andwethinkthat'sstrongdollar,strongimport,lowoilpricesandtherefore,metalassociatedwithpipelinesprobablyslowingdownabit.

ButoneofthethingsthatIthinkisreallyinterestingthatArtalludedtoontheresidentialsector,we'restartingtoseeapick-upinhouseholdwellformation.Prettymodestbutstillapick-up.Interestingly,theFedguysareconcernedbythat,inthatitlookslikethey'renotconsumingthispick-upineitherthetop-linerevenueorareductionincostlikelowergasolineprices.They'resavingit.

Wearewithinanhistoricalrangeofsavingsrates,soit'snotparticularlytroublingtome.Andfrankly,ifhouseholdsarereducingdebtorinvestingorevenjustputtingmoneyinacheckingaccountfornow,atleasttheyarelessexposed.They'remoreresilienttofutureeconomicdislocations.

Soit'snotallbad.IfvalueisafunctionofriskandreturnandGDPgrowthisreturn,increasedsavingsratesisanimprovementinrisk.Soit'snotallbad.

AndwhenyouconsiderthattheUnitedStates'GDPwas0.2%growthinthefirstquarter,youlookatournumbers,clearlybetter.Wefeelprettygoodaboutourprospectsgoingforward.


Sotheanswer--thankyou--theanswertothequestiononthegrowthandtheimprovementleadsmeintomynextquestion.IfIlookatyourtrailing12months,onaweather-normalizedbasisyou'reat276.ButifIremembercorrectly,inconjunctionwiththefourth-quartercall,youhad276to288wasyourexpectationsfortheyear.Howdoyougettotheupperendofthatband?Oreventhemiddleendofthatband,giventhatyourtrailing12'sattheverybottom?


ImprovementatSouthernPowerisaneasyway.

ArtBeatt ie (CFO):

Weather,goodweather.Betterthanexpectedeconomicoutcomes.


There'snothingelsethatI'mmissing,amI?

ArtBeatt ie (CFO):

Idon'tthinkso.





No,andifyouremembertoo,oneofthethingsIthinkwesaidthisbefore,Art,wasthelowerendofourrangewasboundbySouthernPowernotfillinginitscomplementofCapEx.Itkindoflivedwiththebasescenario.Well,wethinkwe'retherefor2015,andpotentiallycouldevenimprove.


Okay,thanks,guys.Appreciateit.


Youbet,thankyou,Jim.

Operator :

AndournextquestionscomefromthelineofBrianChinfromMerrillLynch.Pleaseproceedwithyourquestion.


Hi,howareyou?

BrianChin (Analyst-BankofAmericaMerrillLynch):

Verygood.Justaquickone.Thelong-termEPSCAGRslideisn'tinthedeck.Arewejusttoassumethatit'sstill3%to4%longerterm?

ArtBeatt ie (CFO):

Yes,weonlyadjustthatonceayear.WecomeouteveryJanuary.Wegiveguidancefortheyear,andourlong-termgrowthestimate.AndthenweonlyupdatethatinourOctobercalloncewe'vegottenthroughthebigearningsmonthsinthesummer.

BrianChin (Analyst-BankofAmericaMerrillLynch):

That'sright,great.Thanksalot,that'sit.

ArtBeatt ie (CFO):

Allright,thankyou,Brian.


Seeyou,Brian.

Operator :

AndournextquestionscomefromthelineofMarkBarnettfromMorningstarEquityResearch.Pleaseproceedwithyourquestion.


Hey,Mark,howareyou?

MarkBarnett (Analyst-Morningstar):

Goodafternoon,guys.Verywell,thanks.Coupleofquestionshere.Onebiggerpicture.Yougavealittle




bitofdetailaroundwhatyou'reseeinginthecommercialsector.Obviouslyit's,fromausageperspective,it'slaggedalittlebit,butwehaveanicepick-uphereinthequarter.I'mwondering,isthisaboutthelevelofimprovementthatyou'vebakedinforexpectationsinyourguidancehere?


Actually,we'relookingforalittlemoreimprovement.

ArtBeatt ie (CFO):

That'scorrect.


Theexpectationsfortheyearintermsofsegments--

ArtBeatt ie (CFO):

Like1.4%oncommercial,about1%onresidentialand1.7%onindustrial.Sowe'reabitaheadofourindustrialnumbers.We'vestillgotalittlewaystogooncommercial.


1.3%fortheyeartotal.


Sorry,thatnumberhadslipped,the1.4%oncommercial,that'sthelevelthat'sinyourguidance.Okay.Andthenyearoveryear,obviouslybasebusinessgrowthdrivingalotofthatOpEx,I'msure.Isthisleveloftheyear-over-yearincreaseaguidefortheremainderoftheyear?Ordoyouhavealotofflexibilitythere?

ArtBeatt ie (CFO):

I'msorry--


OurflexibilityonCapExisgoingtogoto--


I'msorry,OpEx.


Yes,ifit's--O&M.

ArtBeatt ie (CFO):

Operatingexpenses?Yes,thefirstquarterwasabitofananomaly.Youmayremember,Mark,thatfirstquarteroflastyearwedeferredalotofexpensesatAlabamaPower.Theywerenon-nuclearoutagecostsunderanaccountingorderthattheywereoperatingunderlastyear.

Also,ifyoulookatyearoveryear,thereweremoremegawattsoutthisyearacrossthesystemthantherewerelastyear.Sothereweremoreoutagecoststhisyear.Andthenyoujustgotnormalgrowthfortherest.That'sabigpieceofitaaswell.




Soifwelookatwhatweexpectfortheyear,Istillthinkmyguidancefromthelastcall,ofabouta3%to3.5%growthinnon-fuelO&Mfortheyear,stillapplies.Andthefirstquarterisjustanoutlierthatwillcorrectitselfthroughtheyear.


Whenwecameupwiththe$0.55estimateforthefirstquarter,italmostexactlyexpectedthislevelofO&M.

ArtBeatt ie (CFO):

Gotit.


Okay.Thanksforthereminder.Ithasbeenalongday,assomebodyhasmentionedearlier.(laughter)

Lastquestion.CanyouremindmeifGovernorDealhassignedthenewsolarbill,theHB37?Andgenerallywhatyouexpecttoseeasaresultintermsofyourownprogramsorofferingsinthestate.


Hehasnotsignedittoourknowledge.ButIcantellyouallthisisveryconsistentwithourplan.IhavealwaystriedtopositiontheCompanyasgivenwhateverbusinesscircumstancesexistforustofindwaystoplayoffense.Andtotheextentdistributedgenerationbecomesimportanttothecustomersofthisstate,itistheclearmissionofourbusinessestoprovidethatserviceandthoseassetstoourcustomers.

Sowefullysupportanydevelopmentwithrespecttodistributedgeneration,whetherthat'srooftopsolarorsomeideaassociatedwithstorageorcommunitysolarorfinancingoranythingelse.Now,whetherwedothatourselvesordoitthroughthirdparties,ourjobistofindwaystosucceedinthischangingbusinessenvironment.AndIthinkwe'redemonstratingthatinasuperbway.


Allright,thanks,guys.


Thanks.

ArtBeatt ie (CFO):

Yes,sir.

Operator :

AndournextquestionscomefromthelineofAnthonyCrowdellfromJefferies.Pleaseproceedwithyourquestion.


Anthony,howareyou?

AnthonyCrowdell(Analyst-Jefferies):

Notbad.IjustwantedtofollowuponMr.GordongoestoWashington'squestionsonMississippi.(laughter)Itseemslikethere'sadisconnectthere,whenyoulookatthetworoadmapsyouhaveofa




conventionalratecase,witha30%to40%rateincrease,or,I'mnotsureifyouusedthisterm,butmaybeaglidepathorsometypeofnicetrajectoryofrateincreases.

Itwouldseemlikeano-brainerifyouwerearegulatororyouwereoneoftheintervenerparties.CouldyouhighlightwhatthatdisconnectisandhandicapwhatyouthinkthechancesareofapotentialsettlementinMississippi?


Anthony,theonlythingIcantellyou,Idon'twanttocharacterizethedecisionthat'sinfrontofthesefolks.Butifyoulookatthebroad-basedsupportthattheCompanyhasenjoyed,toasktheSupremeCourttoreconsidertheirdecisionintheamicusbriefs,includingthestaff,tomeitisanobviousdecisionthatbenefitsthecitizensofMississippitopursuethesettlement,oratleastrestorewhattheSupremeCourtinvalidatedinitsrecentorder.Eitheroneofthoseis,Ithinkinabroadsense,theobviouswaytogointhestate.

AnthonyCrowdell(Analyst-Jefferies):

Great,thanksfortakingmyquestion,guys.


Youbet,hopeyou'rewell.

ArtBeatt ie (CFO):

Operator?Operator,canwetakethenextcall?

Operator :

OurnextquestionscomefromthelineofMichaelWinterfromUBS.Pleaseproceedwithyourquestion.


Goodafternoon.

MichaelWinter (Analyst-UBS):

Hello,howyoudoing?


Good.


Firstquestionisaboutpipelinesandmidstreamopportunities.Wonderingifyou'restillconsideringgoingforwardwiththat,andhowseriousisthatconsideration?


Yes,here'ssomefascinatingsupportingdata.We'reactuallylookingatseveralopportunities,inactivediscussions.We'llseehowthatgoes.

Whenyouthinkaboutit,beforeIcameintothisrole,wewereconsumingcoal.70%ofourenergycamefromcoalandthen16%fromnaturalgas.Whenyoulookatrecenthistory,1.5Bcfperday,nowthisyearmaybeashighas1.9.Anddependingonwhathappenswith111(d)andavarietyofotherthings,thatper




daygasconsumptioncanaveragesomewherearound2.3Bcfperday.

SowhenyouthinkabouttheattractivenessofSouthernCompanybeingoneofthenation'slargestconsumersofnaturalgas,ourvalueasakeytenanttoanyoftheinfrastructurethatneedstobebuiltouttomeetthatkindofdemand,reallygivesussomeopportunitiestopursueavarietyofinvestments.Andwe'realloverthatstuff.Sowe'llseewhathappens.


Howaboutgasreservesandratebase?You'reconsidering--


ThisgoeswaybackevenwhenIwas--geewhiz,IthinkIwasCFOandCOO.Sowe'retalking10yearsagowe'vebeenkickingthataround.Backthenweweren'tconsumingthatmuchnaturalgasanditwasn'tasimportant.

Certainlyitisanideathathasmerit.Andasnaturalgasbecomesmoreimportanttous,especiallygivenitsvolatilityrelativetootherfuelstocks,we'llcertainlykeepthatonthefrontburnerofideas.


Andalso--


Inanycase,wewouldnotwanttotakepriceriskonmoleculesintheground.Thiswouldallbeafuelclause-relatedissue.


Right.Oneotherquestionaboutnuclear.We'veheardrecentlyfromCommissionerEcholsthatheseestheneedforanothertwounitsbeyondthecurrent.Andthatitdependsonhowwelltheprojectgoesandwhether111(d)goes(technicaldifficulty).

I'mjustwonderingifyouhaveactuallybeeninconversationsaboutthat.Isthatsomethingthat'sactuallybeenplannedoutatthispoint?Orisitjustbeing--isitjusttalkfornow?Andalso,isthissomethingthatyoucanholdovertheconsortium'sheadso-to-speak,thatguaranteessomekindofgoodperformancegoingforwardalsointhelitigation.


Somanyofyouonthecallmayrememberin2014,Iwanttosayitwasthesummer,inaQ&Asessionatthebipartisanpolicycenter,Ithink,afteratalkImade,thatIdidalludetothefactthatwewouldbe,Iforget,delightedtoconsidernewnuclear.Thestepsthatwouldbetakenfirstwouldbetoessentiallybeginthepermittingprocesstoundertakeanewplan,notnecessarilytocommittobuildanewplant.Soinessenceit'sfairlymodestdollarsinordertosecuretheoption.

WemovedalongandthenwewerehitinDecemberwiththechangeinscheduleputforthbyourcontractorgroup.Wewereveryclearthatwedon'tbelievethatthecontractorsaredoingeverythingtheycandoinordertofullymitigatetheirschedulepertherequirementsofthecontract.

AndsowhatIsaidatthattimewasthatIthoughtitwassensibleforustosetasidealotoftalkaboutnewprojectsuntilwecametomoreresolutionastothecommercialdispute.ItiscleartomethatifthecontractorswanttosucceedintheUnitedStateswithAP1000,thentheyneedtoperformwellonVogtle3




and4.Itis,infact,thebenchmarkplantforallAP1000sgoingforward.Youcandrawyourownconclusionsastotheirmotives.


Thanksalot,Tom.


Youbet.

Operator :

AndournextquestionscomefromthelineofDanielEggersfromCreditSuisse.Pleaseproceedwithyourquestions.


Hey,Dan.

DanielEggers (Analyst-CreditSuisse):

Hey,goodafternoon.Hey,howareyou?


Great.


Tom,onthenuclearconversation,canyousharesomeofthethingsthatyouguyssawtoexpediteortocatchuponthedelaysoftheEPCfolks,numberone?Numbertwo,ifyoulookathowtheygottheirdelaysinschedule,aretherethingsyou'regoingtobeabletodotomitigatethatfromhappeninggoingforward?Sowedon'trunintothis12or18monthsfromnow,themsayingwehadthesamesortofdelayproblems.


Yes.Sowetriedtosuggestthatinthepreparedremarksattheoutset.Ithinkthere'saclearopportunitytoadvancesomeschedulemitigationwithNewportNews.That'souropinion.

It'snotonlyproductionoutoftheirfacilities,butalsotheinstallationofthepanels.Weneedtomakesurethatallofthatisdonewell.

Also,youmustknowthat,especiallythoseofyouthathavevisitedthesite,andweencourageeverybodyonthephone,ifyoucanfigureoutawaytogettothesite,weloveshowingitoff.Ithinkthepeoplethatweretherewere,Ithink,reallystruckwiththekindofprogressandqualityoftheworkthere.

Wehaveanenormousqualityassuranceprogram.Andaslicenseeoftheplant,weultimatelyareresponsibleforhavingtherightkindofplantbuiltthere.OurQAprogramhasbeenfocusednotonlyonsitebutalsoatplaceslikeLakeCharles.AndIthinkourworkingwiththecontractorhashelpedputtheminthepositionwherenowweessentiallyhavebeenabletoacceptproductionoutofthatfacilityandgoaheadandputitinaproductionprocess.

Aswemovetomoreworkinsidethenuclearisland,thatprocessimprovement,qualityassurance,andultimatelyproductiononsiteisgoingtomovetheneedleintherightdirection.Soweremainrelentlessly




focusedonwaystoworkwiththemtodothat.AndIwouldargueinthepastquarterorso,Ithinkwemadesomeprogressinourthinking.


IknowMikejustaskedthequestion,butonthegasreservesandratebaseissue,thelegislationinMississippiseemedtoopenthatasalittlebitmoreofawindowthanpreviouslydiscussed.Isthatsomethingyouguysaregoingtolooktopursue?Orhowdoyoureadthatlegislativeaction?


Well,it'salawlargelyfocusedontheEMC'srecoveryofeconomicdevelopmentprojects.ItdoesauthorizethePSEtodeemthatnaturalgasreservesareusedandusefulasutilityplan,orwhatever.

Soitissomethingwewouldconsider,asthereisnaturalgasgenerationinMississippi.Ithinkonceyou'repostKemper,PlantRatcliffe,it'sathird,athird,athird,coal,gasandKemper.

AsimilarconceptthatwehaveatKemperis,infact,thelignitemine.It'sasimilarideawhereessentiallyweowntheligniteandit'sinratebaseanditservestohedgeanyfuturepriceswings.Remember,thatisalmostnovolatilitygoingforward.Soit'scertainlyavalididea,somethingweconsider,andmakessense.


Okay.Andontherenewablesideofthebusiness,youguysareabletoputrenewablesandratebaseinGeorgia.You'vebeendoingPPAsintheotherstates.Istheregoingtobeanopportunitywhenyouguyscanstartputting,orfeelmorecomfortableputting,someofthoseassetsintoyourratebaseratherthancontractingoutwherethecostofcapital'shigher?


Yes,sure.AndIthinktotheextentthoseassetsevergetflipped,sold,whathaveyou,Ithinkwe'reanaturalbuyer.Oneofthethingsthatwealwaysthinkaboutis,foranyofourassets,andalthoughwetendtoacquiresome,youknowwe'vesoldsomeorswappedsome,whoisthebestowner.Andwealwaysseektoachievethatposition.

SoIthinktherewillbeopportunitiesforusshouldthoseassetsevercometothemarket,forustobeastrongplayerinacquiringthem.ThatmaybeatSouthernPower.ItcouldbeattheOpCo.


Butyoudon'tnecessarilyseetheutilitiesdoingmoretodeveloprenewablesinterritoryinaratebaseasset.


Oh,no,absolutelywecould.Infact,ItriedtosuggestthatinthatlittlefunnysentencewhereIsaidthere'sprobablymoretocome,ifyourememberthatsentence.We'vedonealotofbusinessinGeorgia.We'vedonefourtimes30withDoDfacilities,andIsaidandthere'smoretocome.

SoI'mverybullishonthat.We'vehadaterrificrelationshipwiththeDoD.YouknowthattheDoDhasarenewablesmandategoal,whathaveyou.AndIthinkwewereprobablythefirstonesintheUnitedStatestoworkwiththemconstructivelytofulfillthatmandate.


Verygood,thankyouguys.





Yes,sir,thankyou.

Operator :

AndournextquestionscomefromthelineofAliAghafromSunTrust.Pleaseproceedwithyourquestion.


Ali,howareyou?

AliAgha(Analyst-SunTrustRobinsonHumphrey):

Hey,Tom,goodafternoon.


Goodafternoon.


Firstquestion,Tom,justwantedtoclarifyyourscenariosongettingclosureontheMississippiissue.IrecalloneoftheoptionspreviouslywasfortheSupremeCourttooverturntheruling,whichIguesswas5-4.Isthatstillanoption?Orareyoureallythinkingit'sglobalsettlementcouldaddressalltheissuesthereisintheoriginalrulingandtakecareofitfromthatperspective?


Ali,it'sbothofthose.TheCommission--Imean,theSupremeCourtcouldcertainlyreconsidertheirdecision.Thatobviously.Andthinkaboutthebroadsupportinthestate.Justabouteverybodyinthestatethatwehadhugeparticipationintheamicusbrief.

Butfailingthat,wecouldreachaglobalsettlementwhichwouldineffect,mimicmanyofthecharacteristicsoftheoriginalrateorderthatenteredintoin2013.Wecouldgetthataswell.

Wethinkanyofthosearebetterthanfilingfora40%increaseinaratecase.Butwe'llseehowitgoes.Thosearethepathswewillfollow.


Alsotobeclear,Ithinkyoumentionedthinkingaboutfilingthatratecasebymid-May,acoupleofweeksfromhere.Soinyourmind,theothertwoparts,whetheraglobalsettlementoraSupremeCourtreversal,realisticallycouldhappenwithinthenextcoupleofweeks?


Sure.AndthenIsuggestedonthecallearliertodaythatanotheralternativeforustofilethesettlementproposalatthesametime,contemporaneouswiththeconventionalratecase.


That'sright.Secondly,thisforshowcausenoticethattheyputouttheretoyouguys,onmarketballotissues.Howbigofadealisthatandhowdoyouseethatplayingout?





Wedon'tthinkit'sabigdealrightnow.Look,Idon'tthinkthere'sanyevidence.Inmyopinion,there'sverylittleevidence,noevidence,thatSouthernPowerhasanymarketpowerinthesoutheast.

IthinkthiswasareactionbytheFERCstaffthatbasicallypointedoutthattherewasnotmuchactivityinourauctionmechanismthatwehadputinplacereallyupuntil2014.In2015,weintroducedatweakonthatauctionprocesswhichincreasedtheactivityoftheauctionmany-fold.

Butyougottounderstand,throughthisperiodwe'vebeenanetpurchaser,notseller.Soheavenssakes,Idon'tknowhowweexercisemarketpowerasanetpurchaserofenergy.

Numbertwo,thesoutheasthasbeentraditionallyabilateralmarketandpeopleareveryhappy.There'sbeennocontentionatFERCthatsuggeststhatthere'ssomethingwrongwiththeauctionprocesswehaveinplace.This,infact,wasarulebytheFERCthatbasicallyisraisingaquestionwhereI'mnotsurethere'sanyproblematall.

Sowehaveachancetorespond.We'llprovideourevidenceandhaveagood,constructivedialoguewithFERC.Andwe'llseehowitgoes.Inthenearterm,youshouldthinkaboutthatinthenextthreetofiveyears,atleastinthethinkingwe'vedonesofar,there'salmostnopotentialadversefinancialimpactsfromthis.


Isee,okay.Andtheninyourfinancialplanning,youstillhaveassumednoequityissuancethrough2017.Iwasjustcurious,howmuchcushiondoyouhaverightnowsothatscenario,differentscenarios,keepyouinthatnoequityissuancemode?Orareyoufairlyclose,ifyougetmoreSouthernPoweractivity,etcetera,thatequitycomesbackintotheequation?

ArtBeatt ie (CFO):

Yes,Ali.Justrecall,lastyearweissued$800millionversusthe$600millionweplanned.Sowewereabitaheadofwherewethoughtwe'dbe.

Wedon'treallyhaveanyscenariosintheforeseeablefuture,evenwiththeSouthernPowerinvestmentsthatwehaveoutlined,inourCapExprogramwhereweneedmoreequity.Itwouldhavetobeinexcessoftheamountsthatweforecastedandyoucanseewefilledupourbucketin2015onplaceholderprojects,andwestillhaveawaystogoin2016.

SoIthinkwe'regood,togiveyouafeelforit.Idon'thaveanumbertogiveyouaboutwhereweareinthelimit,butIthinkwe'reinprettygoodshape.


Ithinkwe'vesuggestedinthepastthataswestarttowinddownourCapEx,andifyoulookatourCapExslides,whatwasit,6.8to5.5orsoto4.3orsomethinglikethat.We'reprobablyover-equitizedtosomedegree.Sothere'snotpressuretosellmoreequity.


Gotit,thankyou.


Youbet.

ArtBeatt ie (CFO):




Thankyou,Ali.

Operator :

AndournextquestionscomefromthelineofMichaelLapidesfromGoldmanSachs.Pleaseproceedwithyourquestion.


Hey,Michael.

MichaelLapides (Analyst-GoldmanSachs):

Hey,Tom,congratsonagoodstarttotheyearandespeciallyontherenewableside.OnequickMississippiquestionandthenonenaturalgasquestionforyou.

InMississippi,thecourtdecisionreferencedprettyclearlytheneedforaprudencyreviewbeforetheCommissioncangrantanykindofrateincreases.Andgiventhatthisstemsfromaratepayeroracustomer'sactingaslitiganthere,doyouneedtohaveaprudencyhearingofsomekindaspartofanysettlementdocket?


We'vealreadyfiledaprudencyrecordlastyear.SowethinkalltheevidenceistherenecessaryfortheCommissiontoactrightnow.


Gotit.SotheCommissioncouldissueaprudencydeterminationbasedonwhat'sintherecordrightnow,andthatshouldsatisfyeffectivelywhattheSupremeCourtsaidhadnotbeensatisfiedwhentheSupremeCourtmadeitsruling?


Thatisourbelief.


Okay.Onthenaturalgasside,whenyoulookattheinfrastructureofthenaturalgassystemthroughoutyourservicecareterritoryandmaybeevenslightneighboringareas,wheredoyouallseeasthebiggestbottlenecks?Meaning,whereistherealackofmidstreaminfrastructurethatisneededtobeableoverthenext,Iwanttosay,5to10years,becauseit'shardtolookmuchmorebeyondthat,tohelpalleviatesomenaturalgasorothermidstreamrelatedbottlenecksinyourarea?


That'safascinatingquestion.IwishIhadmymapandmypointerand--itreallydependsonwhatyoubelieveoutof111(d)andwhatwedowithotherdisplacedcoalassets,shouldtheyarise.Recall,underhalf-MATSorMATS,wewentfrom20,000megawattsdownto13,with4ofthe1,000coalunitsbeingretired,beingconvertedtogas,3,000retiredcompletely.ByEPA'sownmath,andI'mnotgoingtostandbytheirmathbecauseIfranklydon'tbelieveit'sachievableinthetimeframestheydo,buttheywouldhaveusretireenoughcoaldowntoabout4,000megawatts.

Sowhatdoyoudo?Doyouconvertthattogas?Doyoubuildgreenfieldgas?Wheredoyoubuildit?Ifyouwanttothinkaboutthewaythepipesworkinthesoutheast,there'stwobigthemes.Thenormalconventional,historicalthemewouldhavecomefromthewest.




AndyougotalotofpipelinesthatrunfromtheGulfofMexico,upthroughthenorthwesternpartofGeorgia,ifyouwanttothinkaboutitthatway.Whereyoudon'thaveawholelotofdistancetocover,youhavesomeembeddedcoststhatareattractiveandwecouldcertainlylinkintosystemstothewest.Andthere'seven--it'snotjustGulfofMexicostuff--there'sFayettevilleandsomeotherareasouttherethatareshalegasrelated.

Theotherthemewouldcomeoutofthenorth.Soyouwouldthinkaboutpipesthatmaycomedownnorthtosouthandapproachourterritorymorefromtheeast.Andsowe'llseehowthatgoes.

You'retalkingaboutprobablymoreexpensivepipes.Socanyougetabasisdifferenceinthegasbetweenthenorthand,say,aHenryHub-lookingkindofproxy.That'sreallythetwobigthemesingasinfrastructurethatweseemtosee.


Gotit.Andmyapologies,realquickbackonMississippi,andthismaybeanArtquestion.Art,giventhecourtcaseandwhereitstandsnow,whathappenedinthefirstquarterfromaGAAPaccountingperspectiveinrevenuesinMississippiversuswhathadbeenbasicallygoingonthroughallof2013and2014?

I'mjusttryingtomatchupourGAAPrevenuenumberstotheMississippirateincreases.AretheyreflectedinGAAPrevenue?Iknowthecashwascollectedpreviously.I'mjusttryingtothinkthroughtheputsandtakeshere.

ArtBeatt ie (CFO):

Michael,wedidn'trecordany[Miraquip]revenueinthefirstquarter.Butthereweresomeimpactsforequityreturnonsomeotherpiecesthatactuallywentbackintofourthquarteroflastyear,whereweun-bookedsomeofthat.Butitwasallreallydeferred.Idon'thaveanumbertogiveyou,butIcangetyousomethingafterthecall.


Justtryingtothinkbigpicture.You'rebasicallynolongerbookingtherevenuerelatedtoKemper,that$156millionnumber.

ArtBeatt ie (CFO):

Well,allofthatwasnevergoingtoincome,perse.Itwasallbeingbookedonthebalancesheetasaregulatoryliability.Anditwasgoingtobeusedtooffsetrateincreasesastheplantwentintoserviceovertime.ThatwasthewholedesignofMiraquip.


Right,okay.I'llfollowupoff--

ArtBeatt ie (CFO):

SoIdidn't--Yes.


Icanfollowupoffline.Sorrytogettoofardownintheweedsonthisoneonthecall.Muchappreciated,guys.





Yes,welovethatstuff.Noproblem.

Operator :

AndournextquestionscomefromthelineofShahriarPourrezafromGuggenheimPartners.Pleaseproceedwithyourquestion.


Goodafternoon.

ShahriarPourreza(Analyst-GuggenheimPartners):

Howareyou,Tom?Hi,Art,howareyou?


Super.

ArtBeatt ie (CFO):

Hey,Shar.


ArealquickquestiononMississippi.Iknowyou'reworkingonpotentiallystrikingtheglobalsettlement.Canyouremindusiftheassethasacapacityfactorhurdleithastomeetonceit'slive?It'sgoodtoseethatit'srunninglikeaCCGT,butI'mcuriousonwhatthehurdlesareonceit'slive.


Well,recallthatthecombinedcyclethat'srunningrightnowisrunningonnaturalgas.Ultimately,wehavebeenworkingwiththeCommissiononanarrangementinwhich,whenyouthinkaboutit,whenwehadtheprojectcertified,therewasacapitalcostcomponentandthentherewasanenergycostcomponent.Andwhatwe'vebeenabletothinkaboutinthesettlementisawayforustoessentiallyassurethatMississippicustomersareheldharmlessfromanycostoverruns.We'vedonethat,painfully,forallofus.

AndthenotherwisetoassurethattheenergybenefitsarethereforMississippi'scustomers.AndIthinkwecangetthatdone.

Now,youallmustrecognizethatwhenPlantRatcliffewasoriginallyapproved,thisisaprocessthatoccurredin2009and2010,andrememberweonlyhad10%oftheengineeringdone.Therehavebeenahostofchangesinavarietyoffronts,includingnaturalgasprices,commodityprices,awholehostofthings.

IthinkwhatwewouldundertaketodoismakesurethatwecoulddelivertheenergybenefitthattheCommissionthoughttheyweregettingwhentheprojectwasapproved.We'vealreadyspokenforthecapitalcost.Ithinkwecangetthatdone.


Gotit.Andthenonequestiononrenewables,Tom.We'restartingtoseesomemorecontractsbeingsignedpostITCstep-down.Curiousonifyou'reseeingthatwithinthesoutheast?Andthenwhatthat




placeholdercouldlooklikeforSouthernPowerbetweenwindandsolar,saypost2016.


Yes,soyouknowwhat'sinteresting,Shar,isthatrightnowthere'sanenormousrushtogetstuffdone,particularlyinsolar,beforetheendof2016.Andcertainlythathasfilledupourwheelbarrowofcapitalplaceholdersfor2015.Andwefeelreallygoodaboutwherewearefor2016.

Thewinddeal,wasawaytostraddle--infactitwasinteresting,oneofourowndirectorsusedthephraseadivot,inthedevelopmentactivityofrenewablesandthereforeearningsassociatedwiththerenewables.Theotherthingthat'sfascinatingisaswestarttoconsiderbeyondrenewablesto111(d),we'llprobablyhaveafinalrulethereinthesummer,say,August.Thestateswillnowhavetostartprovidingfortherealityofcomplyingwiththatrule.

Andtherefore,we'vegottostartthinkingaboutgas.Andremember,asIsuggestedearlieronthecall,ifwe'regoingtodonewgasgeneration,weneednewgasinfrastructure.Thosethingscangohandinhandinfillinginthatflatspot.


Gotit.Andthenonanyofthesoutheaststates,isanybodyclosetosubmittingastateimplementationplan?Orarewelikereallyfaroff?


Youdon'thaveafinalruletoreactto.Hey,Shar,Artjustpointedsomethingout.Whydon'tyousaywithitonthesolar?

ArtBeatt ie (CFO):

IfyoulookatourCapExbudgetintermsofgrowthCapExin2017,it'slike$200million,but--


Ofsolarprojects.

ArtBeatt ie (CFO):

Ofsolarprojects.Soit'svery,verysmallcomparedto2015and2016.


Sothereis$200million,anyway.It'swaylessthanwhatwe'reseeingrightnow.


Gotit.Excellent,thankssomuch.


Youbet.Thankyou.

Operator :

AndournextquestionscomefromthelineofPaulRidzonfromKeyBanc.Pleaseproceedwithyourquestion.





Hello,Paul.

PaulRidzon (Analyst-KeyBancCapitalMarkets):

Tom,howareyou?


awesome,howareyou?


Well,thankyou.Itseemsincrementallywitheachcallyou'reembracingmoreandmorerenewables.Ifthistrendcontinues,whatareyourcurrentthoughtsaboutwhenaYieldComightcomeintoseriousconsideration?


Sowe'rereallyfollowingthroughonwhatwesaidwewoulddo.It'sfunny,it'swhatyousayandhowyousayit,Iguess.Thewhatsofwhatwe'vebeensayingherehavebeenprettyconsistentforawhilenow,thatwethoughtthatrenewableswouldbeimportant.Certainlysolarrenewablesthrough2015and2016whileyouhadthe30%investmenttaxcreditenvironment.Andthatbeyond2016,into2017and2018,where30%goesto10%,allofasuddenwindstartslookinglikeawaytoaddressthatgap.

Also,youshouldknowthestrategicsynergy.Westartedprocuringwindenergyviacontract.Soforustotakeanequitypositioninwindputsusinadifferentposturethanwehadbeenbefore.

WithrespecttoaYieldCo,youknowthatwe'llconsideranything,butIthinkonbalancewefeltthatSouthernCompanyinandofitselfwasaYieldCoanyway.Wehavereallyefficientwaystoraisecapital.Ithinkitintroducescomplexityintoyourbalancesheet.Andlongterm,I'mnotsurethatitinurestothebenefitofshareholders.Itcertainlyhasshort-termappealbutIwouldneverwanttoimpairthelong-termviabilityofthisCompanybydoingfinancialengineeringortricks.

Theotherthingyoushouldknowandlet'spointoutagain,wehaven'treallytalkedaboutonthiscallbutwehaveinothercalls,wehaveterrifictaxappetite.Andgivenourscale,givenourtaxappetite,youknowthatwe'vealwaysbeenconservative.Geewhiz,ourtaxappetiteremainsacompetitiveadvantageforustoplayinthesefields.

Linkinthatwithourexperiencewiththemajorvendors,ourlowcostofcapital,accesstocapitalmarkets,geewhiz,IthinkthedevelopersthatwanttodosomethingsignificantlooktoSouthernasthepremierpartnerrightnow.That'swhywe'vebeenabletofillupourdancecard.


Okay,thankyou.AndthenitwasrefreshingtoseetheKemperchartsimmaterialthisquarter.How'sthefuturelookthere?


Tellmeaboutit.(laughter)Hey,look,we'reinstart-uprightnow.There'sasmidgenofconstructionleft,butwe'reessentiallyinstart-upandtheteamthereisworkingwonderfully.

Webroughtinaguythathashadatremendousamountofexperienceinstart-upofthesetypesofprocesses,ChipTroxclair.Heandhisteamhavereallydoneadynamitejobofstayingtoscheduleand




workingaroundtheissues.It'srefreshingtousaswell.They'redoingagreatjob.


Okay,thankyou.


Youbet.

ArtBeatt ie (CFO):

Thanks,Paul.

Operator :

AndournextquestionscomefromthelineofDanJenkinsfromStateofWisconsinInvestmentBoard.Pleaseproceedwithyourquestion.


Hey,Dan,howareyou?

DanJenkins (Analyst-StateofWisconsinInvestmentBoard):

Verygood,goodafternoon.Firstquestion'sonslide18,yourfinancingplan.Inoticethereareacouplerevisionsfromtheslidefromlastquarter.ThebigonesbeingAlabamain2015wentfrom$700millionto$1.375billion.AndtheninMississippibankdebtin2016wentfromzeroto$900million.Waswonderingifyoucouldtalkaboutwhat'sdrivingthosechanges?

ArtBeatt ie (CFO):

IbelievetheAlabamatookadvantageandissuedsomeadditionaldebtthisyear.Itactuallydidsomerefundingthatprobablywasn'treflectedinthescheduleweshowedyouonthelastcall.

TheMississippibankdebtwasreallyarenewalofbanknotesthatwerematuringthisyear.Therewasabout$775millionmaturingthisyear.Andweactuallyrenewedthose,plusacoupleofhundredmillionor$175millionorsoofadditionalmoney.Andreallythat'sservingasbridgefinancinguntilwegetintopositionwherewecaneithergotothecapitalmarketsordooursecuritizationfinancing.


Okay.AndIwantedtogobackalittlebitonyourretailsalesgrowth.Youtalkedaboutthechangeintheweather-normalizedsales.Iwaswonderingifyoucouldgiveusalittlecoloronthecustomergrowth.Isthatgoingconsistentwithyourexpectationorhowisthatplayingout?


Yes.Well,wetalkedalittlebitaboutcustomergrowthintheresidentialside.Wehad16,000new.Ithinklastyearweadded10,000inthefirstquarter.Soprettygoodjumpingrowth.

Ithinkifyoudoayear-over-yearlook,it'sabouta37,000increase.Ifyoutookwhatwehaveaddedsincethefirstquarteroflastyear,37,000.Youmayrecallthatpriortotherecession,wewereaddingalmost60,000ormoreayear.Soit'snotbacktowhereitwas,butit'sshowingstrongergrowth.





Okay.Andthenlast,IwaslookingattheVogtleconstructionupdateonslide5,Ithinkitis,andInoticedyoudidn'treallychangeanyoftheinformationrelatedtoUnit4.Iwaswonderingifthatwasstillaccordingtoplanorifthere'sbeensomeslippageintheneartermandonthehorizonthey'reessentiallythesameaswhatyourecordedlastquarter?

ArtBeatt ie (CFO):

Idon'thavelastquarter'sslideinfrontofmebutIbelievethatwhatyou'reseeingthereisstillconsistentwithwhereweare.Thebiggestnewmodule,thatCA04moduleisnotaverybigone.NeitherareCB65or66.SothenextbiggestmoduleforUnit4willbeCA20,andwementionedthatinthescript.ThatisjustnowbeginningassemblyintheMAB,themoduleassemblybuilding.


Sotheschedulehasn'treallychangedforUnit4fromwhatyoureportedlasttime?

ArtBeatt ie (CFO):

NotthatI'maware.


Okay.Thankyou.That'sallIhad.


Yes,sir.

Operator :

Andatthistimethere'snofurtherquestions.Mr.Fanning,arethereanyclosingremarks?


Yes,thankyou.Listen,everybody,weappreciateyoubeingonthecall.IthinktheCompany'sofftoagreatstart,aswe'vesaid.Thefranchiseforsometimenowhasbeeninasgoodofshapeasit'severbeen.Wecontinuetoexecutelikechampionsandwe'regoingtodoourbesttomakesurethatasshareholdersyou'rehandsomelyrewarded.Thanksverymuch.Talktoyousoon.

Operator :

Ladiesandgentlemen,thisdoesconcludetheSouthernCompanyfirst-quarter2015earningscall.

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Southern Company (SO) Earnings Report: Q1 2015 Conference...

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