The Southern Company (SO) Q2 2013 Earnings Report, Transcript and Summary

Good afternoon. My name is [Kamika] your conference operator today. At this time, I would like to welcome everyone to the Southern Company Second Quarter 2013 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator instructions) As a reminder, this conference is being recorded today Wednesday, July 31, 2013. I would now like to turn the call over to Mr. Dan Tucker, Vice President of Investor Relations and Financial Planning. Please go ahead, sir.

Thank you, [Kamika] and welcome to Southern Company's second quarter 2013 earnings call. Joining me this afternoon are Tom Fanning, Chairman, President and Chief Executive Officer of Southern Company; and Art Beattie, Chief Financial Officer. Let me remind you that we will make forward-looking statements today in addition to providing historical information. Various important factors could cause actual results to differ materially from those indicated in the forward-looking statements, including those discussed in our Form 10-K and subsequent filings. In addition, we will present non-GAAP financial information on this call. Reconciliations to the applicable GAAP measure are included in the financial information we released this morning as well as the slides for this conference call. To follow along during the call you can access these slides on our Investor Relations website at www.southerncompany.com. Tom will open today's call with an update on regulatory activities, as well as the latest on the construction on Plant Vogtle Unit 3 and 4 and Kemper County IGCC project. Art will then provide an overview of our second quarter financial results, as well as the discussion on sales and the economy and a brief update of our financing plans. After closing remarks from Tom, we will move to Q&A. At this time, I’ll turn the call over to Tom Fanning.

Good afternoon, and thank you for joining us. Our company continues to excel this longstanding mission of providing clean, safe, reliable, and affordable energy to the customers and communities we serve and our 26,000 employees remain committed to the customer focus velocity that has been the firm foundation of our company’s FERC 100 years. Throughout our business, we are developing innovative solutions to the energy challenges that can fund our region and our nation. We also continue through our traditional operating companies to engage constructively with elected and appointed officials at all levels of government. In fact, all of our operating companies have significant state regulatory activity in progress during 2013. [In summer], Alabama Power completed a series of informal hearings two weeks ago to review the Rate Stabilization and Equalization or RSE rate setting process. These hearings included constructive engagement by the public service commissioners, staff, interveners, and the public. We believe that Alabama Power demonstrated that its return on total invested capital is fair and reasonable and serve its customers’ long-term interest. We expect to learn and results of this review later this summer. Georgia Power has arguably the busiest calendar for the year with three major regulatory filings. First, Georgia Power filed an integrated resource plan in February, which was recently approved by the Public Service Commission. It was an important step forward in affirming Georgia Power plant for complying with the Mercury and Air Toxics Standards or MATS rule, included in the PSC ruling was the decertification of approximately 2100 megawatts of older coal generation unit and fuel switching for another 1400 megawatts. Second, Georgia Power founded eighth Vogtle Construction Monitoring or VCM report in February and is currently in hearing regarding its request. Georgia Power is seeking approval for actual cost of $209 million incurred…

Thanks, Tom. For the second quarter of 2013, we earned $0.34 per share compared to $0.71 per share in the second quarter of 2012, a decrease of $0.37 per share. For the six months ended June 30, 2013, we earned $0.43 per share compared to $1.14 per share for the same period in 2012, a decrease of $0.71 per share. Our results for the second quarter 2013 include an after-tax charge against earnings of $278 million or $0.32 per share related to the increased cost estimates for construction of the Kemper project. Recall that for the first quarter of 2013, we announced a similar after-tax charge of $333 million, or $0.38 per share. This brings the total of after-tax charges related to the Kemper project to $611 million or $0.70 per share for the six months ended June 30, 2013. As explained previously, Mississippi Power will not seek recovery of estimated cost to complete the facility above the $2.88 billion cost cap net of DOE grants and exceptions to the cost cap. Year-to-date 2013 also included an after-tax charge of $16 million or $0.02 per share, for the restructuring of a leveraged leased investment recorded in the first quarter of 2013. Also affecting year-over-year comparisons is a $21 million or $0.02 per share of an insurance recovery related to the 2009 litigation settlement with MC Asset Recovery LLC recorded during the second quarter of 2012. Excluding these items, earnings for the second quarter of 2013 were $0.66 per share compared with $0.69 per share for the second quarter of 2012, a decrease of $0.03 per share. Earnings for the six months ended June 30, 2013 excluding these items were a $1.15 per share, compared with $1.12 per share for the same period in 2012, an increase of $0.03 per share.…

Thanks, Art. As our business environment evolves, Southern Company remains the same, and enterprise that succeed by excelling at the fundamental and relying on the knowledge, skills, and dedications of our people. As always, we continue to focus on the long-term with customers at the center of everything we do. It enables us to deliver excellent value drivers, including our commitments, just relating financial integrity, regular, predictable, sustainable growth in earnings per share and likewise dependable dividend to growth. We are now ready to take your questions. So operator, we’ll now take the first question.

Thank you. (Operator Instructions) Our first question comes from the line of Greg Gordon with ISI Group. Please proceed with your question.

Hi, Greg. Greg Gordon – International Strategy & Investment Group LLC: Good afternoon, guys. First question is on sort of near-term, long-term earnings aspiration. I know that you guys expect GDP growth to be better in the second half. What can/would you do if we get into the deep into the third quarter and we are still seeing economic conditions, sort of below your expectations. Do you have the ability to manage your cost profile such that we could still be comfortable with this year's earnings guidance?

Yeah, I believe that.

Yeah, Greg, we kind of looked at the sensitivities around that. Of course, weather in the first half was less than what we expected to be and we flexed around O&M to offset some of that. As we look at the end of the year, if I were to assume that we would get no loan growth through the remainder of this year. The O&M flex is actually less than what the O&M flex would be last year in terms of our ability to move around that.

Last year we made up $0.11 of negative weather I think…

About 7.5% reduction in on-field O&M from what we had planned.

All right. So we feel confident. Greg Gordon – International Strategy & Investment Group LLC: Okay. And then longer-term is there a reason why your earnings per share growth rate slide is not in this deck as it was in the first quarter where you are targeting 4% to 6% long-term growth off 2013?

No, not really. Let's just kind of lay out what we do know. So if you lay out the equity issuances that Art described, kind of year-by-year dilutive impact of that, this year is like $0.015, next year is like $0.025, and the third year is $0.02 cumulatively that $0.015, $0.04, $0.06.And that that's our best guess at this point, okay. Outside of that, we've got all of these – as I described in detail, we have all of these regulatory proceedings going, and you know that the outcome of the Georgia hearings are really important to our forward earnings forecast. So we’re very confident and our forecast for the year, earnings range we described, and as has been our practice and everything else, once we get a little more clarity on these regulatory issues, we will cover long-term guidance as we always do in our January call. Greg Gordon – International Strategy & Investment Group LLC: Right. So when I look at the financing in the CapEx plans, which you've alluded to here were $1 billion higher over the next three years relative to the deck that you showed us on the Q4 call. And it looks like the majority of that is in generation and I'm presuming that the vast majority of that's Kemper?

That's correct. Greg Gordon – International Strategy & Investment Group LLC: But you are also somewhat higher on T&D, which obviously gives rate base growth, so that's positive, and there were some other small things. But it looks like the vast majority is the generation, right?

Yes,sir. Greg Gordon – International Strategy & Investment Group LLC: Okay. Thank you very much, guys.

Of course, the swing, yeah and the other swing factors will be how active we are at Southern Power.

Correct. Greg Gordon – International Strategy & Investment Group LLC: Right, yeah, that was my last part of the question was then those Southern Power numbers are to some degree placeholders for opportunistic, transactions to either build or require assets, is that right?

Perfect. That's it. Greg Gordon – International Strategy & Investment Group LLC: Got it. Thank you, guys.

Thank you. Operator: Thank you. Our next question is from the line of Michael Lapides, Goldman Sachs. Please proceed with your question.

Hey, Michael. Michael J. Lapides – Goldman Sachs & Co.: Hey, Tom, real quickly, following a little bit on Greg's question about Southern Power, how much of that CapEx $2.4 billion or so is actually spoken for at this point?

Well, we just closed the deal early, I guess, in the first quarter on Campo Verde, and the amount of total investment there is about $450 million. So there will be some equity allocated to that. But the rest are still placeholders, and we're actively working on other projects, but we are not in a position to make any statements at this time.

Yeah, you know, that our practice is to only announce stuff when it's basically done. I mean, we are closed on some things, but we’ll only announce that when we have clarity. Michael J. Lapides – Goldman Sachs & Co.: Understood. But it's an area where if you wanted to – if projects didn't meet the return hurdles compared to some of the regulated businesses you can alternatively invest in, you could ratchet down CapEx from this number at Southern Power pretty quickly?

Sure. The other issue is, as with all of our companies we have maintenance requirements, which requires capital et cetera. But you're right, I mean to the extent, we want to ratchet back capital at Southern Power that is absolutely at our discretion. Michael J. Lapides – Goldman Sachs & Co.: And is there anything in the incremental CapEx in the new generation line, incremental related to Vogtle?

No. Michael J. Lapides – Goldman Sachs & Co.: Okay, thanks. Thanks, guys, much appreciated.

Thank you.

Thank you. Our next question is from the line of Angie Storozynski, Macquarie Capital. Please proceed with your question.

Hey, Angie, how are you? Angie Storozynski – Macquarie Capital Inc.: Great. Thanks for taking my questions. So I might have missed it, but how do you incorporate the impact of those write-downs of Kemper County on your equity needs? And should I worry about a potential increase in dilution if those write-downs were to occur again?

Yeah, Angie, that was what I laid out when I was talking with Greg. The annual dilutive impacts of the actions we've taken today are $0.015 in 2013, $0.025 in 2014 and $0.02 more in 2015, that relates to the timing of the issuance of the equity, okay. Angie Storozynski – Macquarie Capital Inc.: Yeah, but that assumes that there are no additional write-downs wherein you haven't really started the gasifier yet and isn't that the most crucial portion of the IGCC plant?

That's right. Let me just repeat though just to be very clear with everybody. I gave you individual years in the aggregate, to give you the aggregate effect. It’s $0.015 in 2013; aggregate $0.04, aggregate $0.06 in 2014 and 2015. And you are right, so we believe we’ve taken action including adding $100 million to contingency. Most of that is related to the start-up and you are correct. The most important issues going forward really move away for materials to the start-up processes. And when we talk about meeting schedule, it’s important for us to highlight two guideposts, if you will, two milestones. Obviously, the endpoint is targeted in Service Day May of 2014. The most important milestone prior to that then will be achieving first fire in the gasifier, which we expect to achieve by year-end 2013. Angie Storozynski – Macquarie Capital Inc.: Okay. Great, and separately, could you tell us anything about Alabama. I mean, I see that you are showing a projected decision, but is there a possibility for settlements maybe some agreement on shedding some of the ROE and increasing your equity ratios?

The words we used were very intentional. When you look at Alabama's return on total invested capital, taking into account equity ratios, embedded cost of capital, they have one of the most attracted debt balance sheet off of the benefit of their customers in the utility industry. We think that they are in a very fair position. Rather than get what the Commission might do, let's wait and see. We think we'll get some clarity reasonably soon there. Angie Storozynski – Macquarie Capital Inc.: Okay, and my last question is what's going on with the legal dispute with Shaw?

So, recall, Shaw was purchased by Chicago Bridge & Iron, and the dispute really goes to the consortium, which is Westinghouse, Chicago Bridge & Iron, and the leader of consortium is Toshiba, okay. I can't give you much of an update except to say this, we could settle that shortly or it could get into a prolonged mode and go to litigation, in which case, it would just be whenever the litigation is concluded; might take some time. I will say that we think that the acquisition of Shaw by Chicago Bridge & Iron was positive in terms of our ability to negotiate and resolve that dispute. But in terms of giving you any further clarity as to amounts or timing, we're really not in a position to do that. I'll say one more thing. The decision by the Georgia – the situation essentially the breach of the (inaudible) and we think there's soon to be approval of the Georgia Public Service Commission with respect of eliminating the need for the recertification process. They recognized as one of the important factors as they don't want to get issues like that in front of our ability to negotiate successfully with the consortium. All of this, I think is constructive. Angie Storozynski – Macquarie Capital Inc.: Okay. Thank you.

Thank you.

Thank you, Angie.

Thank you. Our next question is from the line of Ali Agha with SunTrust. Please proceed with your question.

Ali, how are you? Ali Agha – SunTrust Robinson Humphrey: Hey, Tom. How are you doing?

Great. Ali Agha – SunTrust Robinson Humphrey: Just to be clear on the stipulation. So if I understood you correctly, you have said that you’re going to withdraw your request to certify the increase in the construction cost, is that what you're seeing in that stipulation?

Yeah, there is two factors that I think people recognize. When you consider the effectiveness of the VCM process that is essentially a process whereby the Commission evaluates and reviews and approves six months' worth of construction on some lagged basis, it's typically lagged six months. So in essence, right now in front of the Commission, our cost related to July 2012 to December of 2012. We will hear their decision in October. This is the eighth time we've been through the Vogtle Construction Monitor process. We think it's working exceedingly well. They have an independent monitor, Dr. Bill Jacobs and that process is going exceedingly smoothly and we feel like that process is essentially developed the standards where you to layer on top of that, another process to recertify the plant. So what we've decided and what we've stipulated to, shall we say, is eliminate the need to recertify. Just let the VCM processes work, so there will be VCM 8, 9, 10 and so on, until the conclusion of the project. We feel like that accomplishes the same thing in terms of evaluating costs.

And, of course, the other thing I just mentioned was you don't want to get issues out in front of the negotiation in terms of being able to resolve successfully the commercial dispute. Ali Agha – SunTrust Robinson Humphrey: Right, but to be clear then, so what you are seeing, Tom, is that both any extra cost that you incur as well as any delays that you may incur is that still – I mean, your sense is that through the VCM assuming they approve it, that should implicitly improve any cost overruns et cetera?

Yeah, and here again, I’m just going to pick a little bit. I wouldn't call those cost overruns. I know there are increases in cost, but remember the math here, originally we were at 12% associated with the capital cost of Vogtle 3 and 4, now we think we are between 6% and 8%. The remaining annual price increases that we expect to complete Vogtle 3 and 4 less than 1% a year. The $381 million largely increases in cost that are associated with changing the schedule as we have are largely, not exclusively, but largely associated with our own required oversite cost. Recall that the brick and mortar cost of Vogtle 3 and 4 over this period has only increased 0.5%. So we think all of these things work exceptionally well. And any of this increase to $381 million will not cause an increase in rates to customers. So we think that VCM process is going to handle this exceptionally well and we don't really need to go through the recertification that was originally contemplated. Ali Agha – SunTrust Robinson Humphrey: Great. Secondly, just to clarify, as you walk through the math on the equity issuance that you now factored into your plan and the $0.06 of dilution through 2015. So when we factored than in, does that still keep you on that 4% to 6% EPS growth rate or does everything ratchet down by that $0.06 is the way we should be thinking about this

So the question that we will address in January that I mentioned before, there is a lot in front of us right now in the state regulatory plate, if you will, and, obviously, the biggest issue there is Georgia's triennial rate case. The second probably biggest right now will be the Alabama decision; of course, a bit is related to the Gulf decision, and of course, we have the ongoing process in Mississippi. I think it's best for us all to understand, if we're talking about $0.015 and another $0.025 in 2014, I mean, that all feels very manageable to me. But what we've got to do rather than try and reassess long-term growth rates is let these processes go through, we'll give you a lot more clarity once we know how we end up in all four of our jurisdictions at the end of this year. This is just a big regulatory year for us. Ali Agha – SunTrust Robinson Humphrey: And so last question, Tom, looking at Kemper today with all the information and the extra roughly $1 billion of cost, is that project still as attractive to you as you thought it would be going in frankly given where we are today?

Let me split that into two answers. Is it attractive to Mississippi's customers as we honor the regulatory settlement that we reach, it has the economics of a nuclear plant; relatively high capital cost, very cheap energy. It's exceedingly attractive in that respect. Is it attractive to Southern shareholders? No. We are taking a hit here. We understand that nobody here is happy about that, but that's the honest truth. Ali Agha – SunTrust Robinson Humphrey: Thank you.

Yes, sir.

Thank you (Operator Instructions) Our next question comes from the line of Paul Ridzon. Please proceed with your question. Mr. Ridzon is with KeyBanc.

Hey, Paul. Paul Ridzon – KeyBanc Capital Markets: Good afternoon.

Paul, good afternoon. Paul Ridzon – KeyBanc Capital Markets: Most of my questions have been answered. Are you reaffirming guidance? I wasn’t quite clear.

We typically don't do that. We give guidance once a year and then we give estimates every quarter, but if you're asking are we confident for the year, yeah, we are. Paul Ridzon – KeyBanc Capital Markets: Okay, thanks. I’ll (inaudible).

Thank you. Our next question is from Steve Fleishman with Wolfe Research. Please proceed with your question.

Hi, Steve. Steve Fleishman – Wolfe Trahan & Co.: Yeah, hi, Tom. Just a clarification on the equity issuance plans. So at the beginning of the year, I think, you guys had ranges of zero to $300 million a year. Should we kind of assume that you are now kind of doing the $300 million for both 2013, 2014, and then adding another $700 million essentially for Kemper?

Yeah, I think that's – Steve, this is Art, I think that's fair. I think if you go back to where we were, the way we think about, we kind of wipe out zero to $300 million now. We're taking into account the needs for equity capital at Mississippi and possible equity capital needed for Southern Power and that's what the new numbers represent.

And we’ve already suggested we've done Campo Verde, which is $450 million. Steve Fleishman – Wolfe Trahan & Co.: Okay. So I guess obviously, time is just that reflecting more confidence that you are going to do the Southern Power projects or is it more just wanting to kind of have extra balance sheet strength given all those stuff around?

Yeah, there are some placeholders out there that we are providing for but it is also a supply thing. When you go out and raise equity capital, you can't just turn it off. So… Steve Fleishman – Wolfe Trahan & Co.: Right

…let you shut down your program.

I think we are conservative. So I think it is a conservative estimate. Steve Fleishman – Wolfe Trahan & Co.: Okay. And then I apologize just on clarifying the Georgia stipulation.

Yeah. Steve Fleishman – Wolfe Trahan & Co.: So you would still do the annual reviews of the six month cost, but the full recertification of the project with updated data you would not do?

Yeah, essentially eliminate, waive the rule… Steve Fleishman – Wolfe Trahan & Co.: Waive the rule to do full – and that's from here on in, that's not just this time?

Yeah. That's right and just let the VCM process work. Steve Fleishman – Wolfe Trahan & Co.: Okay.

Everybody is happy with I think the way that works out. There is one nuance, and I am actually glad you raised the question again, because remember in VCM 8, normally it’s a six month process and because we were going to do recertification and all that other stuff, we extended the timeframe from August into October. And so what we are going to do on that would give you either an overlap or a contracted period for VCM 9. What we’re essentially going to do is roll VCM 9 and 10 together. So we’ll probably make some filing around VCM 9, but that will go through the evaluation of that cost along with the filing associated with VCM 10. So imagine, if you will, 9 and 10 being rolled together, then we’ll be back on this six months cycle. Steve Fleishman – Wolfe Trahan & Co.: Okay. And just do other parties to the case kind of agree with this, I know it was just filed today, but do you expect there will opposition to this settlement, do you think everyone will agree?

I can't speak for the parties, Steve. I think the Commission will approve it. Steve Fleishman – Wolfe Trahan & Co.: Okay. And I think, wasn’t the report coming out from the examiner shortly?

I don’t know what you’re talking about. Steve Fleishman – Wolfe Trahan & Co.: From the independent monitor, sorry.

Friday. Steve Fleishman – Wolfe Trahan & Co.: Friday. Is that still going to come out?

I think so. Steve Fleishman – Wolfe Trahan & Co.: Okay. Okay, thank you.

Yes, sir.

Thank you. Our next question is from the line of Jonathan Arnold with Deutsche Bank. Please proceed with your question.

Hi, Jonathan. Jonathan P. Arnold – Deutsche Bank Securities, Inc.: Hi. The last question Steve asked was what I was going to ask. To follow that up with, there has been some noise in sort of local press about the Governor talking about potential sharing of additional cost of Vogtle. Could you have any comment on that, Tom?

Yeah. Absolutely, we've been in contact with the Governor about that. Actually, look, the Governor has been resolute in his support to this project. We think that quote that has been widely reported, probably over-reported in our view, was taken out of context. The quote that people are referring to which him responding to what something somebody else said, and there were statements after that quote. It really relates to he think Georgia Power is doing a terrific job at the project and those project is great. The State of Georgia is proud to help lead the renaissance and variety of other things. I would not view that quote taken by itself to lead to anything that says the Governor lead to anything that says the Governor wants something other than the process that is currently being followed to happen, nobody is suggesting that. Jonathan P. Arnold – Deutsche Bank Securities, Inc.: Okay. And then on Kemper, it seems like this latest cost increase had to do with the review you've been doing since you changed the management. And you have couple of places in your disclosures you suggest that this is something you'll be continuing to do on the go forward. Can you just give us any more comfort or characterize how this analysis is done and how your confidence level, say, versus when you took the initial big write-down before you changed management?

So, if you recall, the first adjustment we made was right on the heels, frankly, it was a surprise to everybody and it was right on the heels of all the big changes that we made. We also disclosed that in fact an ongoing review was occurring. And recall the first review was tied up, I would argue mostly with the issues related to material, and price, and quantities and metallurgy and all sorts of things, and not just price, it was cable and hangers and everything else. So that's kind of what I would say most of that was and it was our best estimate at the time, but we all were very clear that there was more to go and we had to go back and look very closely. I would argue that the 450 is characterized, I would say, the whole group and now we have – we brought the bear not only the outsiders and insiders we've been using, but construction industry specialists, particularly in gas handling systems, outside construction management evaluators, we have a variety of people in the boat right now. Like, for example, when we evaluated the contingency that we had, this $100 million extra contingency, we actually had five different estimates of contingency that were resolved into one estimate. It has been a very, very thorough review. And just to tell you this is nothing that is arm’s length, me and my management team, we have something called an Executive Review Board, that’s me and Art; and then it’s Paul Bowers of Georgia Power, he used to be President of Generation; Charles McCrary, CEO of Alabama, he used to be President of Generation; Mark Crosswhite, our COO; Kim Greene, our CEO of Southern Company Services; she actually had experience in generation at…

Hey, Jonathan, it may have been normal in New York, it’s been awful here. Jonathan P. Arnold – Deutsche Bank Securities, Inc.: Okay.

It’s raining right now. It’s unbelievable how much. It’s just didn’t mild, let me just put it that way, but lots and lots of rainfall. Jonathan P. Arnold – Deutsche Bank Securities, Inc.: So whatever you were saying Q2, you’re continuing to see it?

Yeah, it got a little warmer kind of at the end of July. But today again, it’s cloud cover and rain. Jonathan P. Arnold – Deutsche Bank Securities, Inc.: Okay.

So we will see. I think let me just give you a little more line, we would like to do that. What is normal weather? How much of that we had? I’m looking at Art right now.

Yeah, Jonathan, if you go back and look at above normal weather in the last 22 months, we’ve had three months out of those 22 that were above normal.

I know you said it was the seventh weather quarter for Alabama and Georgia, it was the second weather quarter for Georgia in the past 50 years. This is just extraordinary what we’re living through right now. Jonathan P. Arnold – Deutsche Bank Securities, Inc.: Okay. Thanks for all the color, Tom.

Yes, sir. Thank you.

Thank you. Our next question is from the line of Julian Dumoulin-Smith with UBS. Please proceed with your question. Julian Dumoulin-Smith – UBS Securities: Hi, good afternoon. Can you hear me?

Yes, sir, can hear you fine. Julian Dumoulin-Smith – UBS Securities: Excellent, so quick question, and again, this kind of relates back to SCANA’s comments at the Analyst Day, but when it comes to the timeline for Vogtle and receipt of modules, how is that going? I mean, they talked at least initially about receiving some parts perhaps ahead of schedule versus others. So, are you seeing anything like that, maybe offset some of the pressures on schedule that we’ve talked about thus far?

Well, look, I think the major milestones that we pointed out in the fourth quarter will be CA20, it’s kind of the major critical path for us, and then of course, flooring the basemat in Unit 4. So those are the two big ones. We have seen an improvement. we’ve noted and if you read the Independent Monitors’ report that has been an area of concern for some time is getting material out of the manufacturing facility in the Louisiana. My sense is now that the material is being manufactured. it’s really now focused on getting nuclear quality documentation related to the material that is being delivered. That’s what we’re working on now. We’ve sent our own people to the site. That process is improving, and recall too that Chicago Bridge & Iron’s acquisition of Shaw, we think it is a big plus to improving that situation. Julian Dumoulin-Smith – UBS Securities: Excellent. And then going back to the IGCC side of the equation, you talked about short-term debt last go around to the kind plug the balance sheet if you will temporarily. Is that all out of the picture here? Just want to be very clear, I mean, you talked all about equity, but just want to be sure on the debt side. What’s going on there?

Yeah. And again, I think we mentioned that it’s resolving Southern’s equity ratio back to a point before we began with the write-offs associated with the plant, that would be 43.5%, 44% and getting Mississippi by that same timeframe back to close to their 50%, which is contemplated in their seven or eight plant. So there maybe some intermittent that and downloading, but we’re not going to fund the cash to Mississippi until they needed to do the construction additions that we’d outline.

And that’s what we thought it was kind of instructive to give you the year-by-year effect that we’re seeing right now. Of course, you could see some variance there. Julian Dumoulin-Smith – UBS Securities: Great. so all of that’s out of the way, the equities will be done now resolved everything?

Yeah. what we’d describe relates to the effects of Kemper, completely. Julian Dumoulin-Smith – UBS Securities: Great. Thank you.

Yeah, sir. Thank you.

Thank you. Our next question comes from the line of Anthony Crowdell with Jefferies & Company. Please proceed with your question. Anthony C. Crowdell – Jefferies LLC: Hey. How are you guys?

Good.

Good. How are you? Anthony C. Crowdell – Jefferies LLC: So far, so good. Hopefully, two softball questions, the first one relates to the Great State of Alabama, and there was language in the press you saw – you read from some of the commissions in Alabama that there may be some change in Alabama’s rates or whatever. Just what is the processes, has that become like if there’s a decision to maybe change the rate structure for Alabama Power, has that become a full litigated rate proceeding and if rates were reduced it’s more of end of 2014 event than maybe an end of 2013 event? And the second question is, your relative potential exposure or what could potentially be higher in Kemper, would be maybe scheduling. Is there a way that – is the company I guess tied down to getting the unit on line, is there a certain date, or if you don't make the schedule, why spend the money; whatever, not work three shifts or whatever you're doing just to get the unit, I guess finished with a lower cost estimate?

Hey, well, let me take Kemper; you take Alabama. Art used to be the CFO of Alabama. He knows that State intimately. Look, we're spending some extra money every month now in order to hit the date. I mean, we've talked about that before. And remember, the first milestone, the focus on is to get that gasifier heat up by the end of the year, so 12/31 is kind of what we want to do there. What we save by spending more money now is exposure beyond the in-service date is essentially whatever is going to be required to continue to get startup complete, plus carrying cost, plus whatever, and depending on how regulations works. So this is kind of a murky area. We'll have more clarity on this probably later in the year. But the additional cost beyond May could be somewhere between $15 million a month and $14 million a month, and all that's driven by kind of how you recover the AFUDC, what happens to the test revenues, to the electricity you sell as you continue to start-up process, how the regulatory capture mechanisms will work and how much more kind of maintenance you will have to do in order to complete start-up. So I know that's a wide range, but it's a whole range of factors that we are looking at. In any event, we think that the actions we're taking now that relate to increased cost to meet schedule is a dominant solution and represents no regrets; ultimately delivering we think long-term, great value to customers. Art, why don't you talk about Alabama?

Yeah, Anthony, on the question about where does Alabama go and what kind of arrangement, does it become more formal or does it become some kind of agreement. It's really hard to say at this point, but I would imagine that it would be some kind of consent agreement that both the commission and the company would sign on to, but again that's a function of whatever the outcome of the commission's recommendation would be. Anthony C. Crowdell – Jefferies LLC: Great. Thank you for your time, guys.

You bet. Thank you. Operator Thank you. Our next question is from the line of Mark Barnett with Morningstar Equity Research. Please proceed with your question.

Hey, Mark. Mark Barnett – Morningstar Equity Research: Hey, good afternoon. Hey, how are you doing?

Good. Mark Barnett – Morningstar Equity Research: One quick question, that you've covered the big construction projects a lot, so I'll leave that. But I wanted to talk a little bit about the power usage situation. I know that there was a lot of impact from the weather, but I cannot look at the commercial and wonder a little bit about what's going on there so far in the year and wonder if you could provide a little bit of color on – and what you think is driving that kind of the decline?

Yeah, Mark, we kind of look at that as well, we were up in the first quarter on a weather normal basis. We're down in the second quarter on a weather normal basis. And as we look back over the last six or seven quarters, commercial has been very volatile, so it's kind of hard to get a pattern of growth. But as we think about it in the second quarter anyway, the lot of rainfall certainly has an effect on temperatures, certainly has an effect on usage from that perspective, but we think it also impacts recreational activity, which reflects a lot of usage in the summer time going to the beach in the rain or going to amusement park, what have you. These are just kind of examples and we try to cite to ourselves, but it’s again, it’s a contrary to us as well.

So let me give you an example. You would not believe the depth we go to, they get our keen information and try and get some enlightenment about this. We actually measure the traffic on the Pensacola Beach Bridge, and in fact in the second quarter, the traffic on the Pensacola Beach Bridge was down 10%. what that tells you is, nobody wants to go sit on the beach when it’s raining. Likely and I have heard this from some other folks at the fed, likely it reduces traffic to restaurants, I mean things like that moves itself. So I think that’s what we’re seeing here is just a lack of activity or reduced activity as a result. Mark Barnett – Morningstar Equity Research: All right, fair enough. I think this is going to be a little bit bigger picture. and I know MATS obviously, a much bigger impact on your fleet. but I’m just wondering if you could share some thoughts, you’ve got the rehearing of CSAPR here in October, and the administration’s new draft rule “on CO2” something that’s probably far out in 2015, but it’s kind of a line in the sand, I guess. So I’m wondering what your feeling is around the political situation and how that might play out?

So I’ll take the political situation in GHG. I’ll let you take the rest of the stuff if you want to, how about that? So it’s pretty clear I think that there is a succession of move increased regulation around carbon intensive energy forms. and the latest I think is greenhouse gases, the President came out and made an important speech in our view about that. Here is kind of our beliefs on that. Number one, nothing that President said to us was terribly surprising; I think we wait to see how the details emerge, so that will be key. our sense is consistent with what I think general beliefs are, and it’s what we’ve suggested in other calls, that probably the end of the summer sometime, they will come out with some standard for new sources, and probably 2014 will be existing sources. Recall there are important considerations that will need to be made in order to understand the aggregate effect of everything going on in EPA in terms of regulations, because you just had this big math rule that caused certain companies to spend billions of dollars. now it impacted us more in terms of shifting away from coal and shutting down some coal plants and converted some coal plants. We already had our scrubbers and SCR is pretty much in place. The other thing that’s just interesting to know, I mean think about Southern’s position relative to almost anybody else in the industry. When you think about new sources and exposure to carbon intensity, we’re leading the renaissance of nuclear in America, no carbon. We are going to get done successfully with Kemper County that has a carbon footprint equivalent to or less than natural gas. So that’s positive. We’ve made a huge shift away from coal to gas to where we used to be 70% energy from coal, now we’re 45% with gas. we’re the third largest consumer of natural gas in United States. We have extended our reach either through ownership or through contracts with now about 1,200 megawatts in about the last 12 months in terms of renewable, that’s for procuring wind energy and either procuring solar, or owning solar. When you consider that plus what we’ve already been doing in terms of energy efficiency. It’s easy for me to say that it would be hard to find somebody that’s doing more in terms of kind of handling the GHG issue in a very practical – both tactical and strategic way. Finally, we continue to be the only company in our industry, invested in proprietary robust research and development. We continue to work on new ideas. We continue to promote energy innovation. and I think that will be a keystone of ours going forward. In terms of things away from carbon, I’ll let Art comment on that.

Yeah, Mark. I guess the biggest item we’re dealing with right now would be the new affluent guidelines that were published in the proposed rules that were published in June. Our comments are due in September, I think they outlined eight different options with four preferred. we’re evaluating a lot of data around these and we will be involved in commenting on the rules by that September date. Don’t really have a good feel in terms of cost related to that at this point. The other rule as you’re probably aware, coal ash the final rule timing is still uncertain, but it might not be until next year. That’s certainly the biggest element in terms of cost for us. and then of course, 316(b), those rules were postponed from April till November. and we’ll get a better chance to see what that final rule looks like as well. But the biggest element of the three of those is probably the ash rule, and there is a number of other things going on as well, but I’ll stop at that point. Mark Barnett – Morningstar Equity Research: All right. Thanks a lot guys.

You’re welcome.

Thank you. Our next question is from the line of Dan Eggers with Credit Suisse. Please proceed with your questions.

Good afternoon, Dan Dan L. Eggers – Credit Suisse Securities LLC:

You bet. So, 525 megawatts were approved, 100 of that I think it’s targeting distributed generation, which I’ve talked about at some length in the past. And then kind of the other 425 would be your more traditional central station approaches. So that’s part of the 2013 IRP, Integrated Resource Plan that is competitive road. in other words, anybody can go through a process and try and win the business. What we have said internally is that we’d like to win a good bit of that business. And so there’s really three ways, at least three ways we can attack it. One is the Georgia retail approach, essentially rate basis, another would be Georgia wholesale that is Georgia providing generation on a wholesales basis like they do on some of their other energy contracts, third will be essentially Southern Power or something similar to Southern Power owning it. Now the only nuance, Dan, I’ll throw on you there is distributed generation is enough of a different animal. We may take even a special business unit approach to that. we may pull together some folks in the system and take a look at kind of how we might approach that business. That’s much more a people-intensive business than these central-station approaches. And then finally, recall that anybody they goes after this business will have to pass essentially an evaluation by an independent monitor that will regularly as they do here assess competitive bid. Dan L. Eggers – Credit Suisse Securities LLC: Tom, when do you think you could have more on that and would that be potentially carve out of money, if you think, we’re going to Southern Power or do you think that would be your additive to the CapEx program in the slides today?

I don’t know, I don’t think it’s near-term. I bet you, I don’t know when soonest you could probably get stuff done, maybe by 2015, 2016 somewhere in that timeframe, those will be kind of when I think the generation would come in. So back up a little bit, so a year or two in advance of that, something like that. Dan L. Eggers – Credit Suisse Securities LLC: Okay, got it. And then on just accounting anytime, you guys give a good rundown on the industrial side. but can you talk a little bit about residential as far as household formation and home construction looks right now and yeah, down demand for residential, how deep are the usage reductions you guys are seeing amongst that customer price?

Yeah, this is Art. What we’ve seen so far is we’ve added year-to-date about 15,000 new customers, new meters to our systems, and our estimate for the year was about 24,000. So we’re making good progress on that front. However, we look at the usage of some of those new customers; a lot of them are multifamily rent units, some are single family homes, but the vast majority, I think are multifamily. And the way I kind of view it Dan, is, you build a new multifamily apartment building and it's occupied over time. So, our usage per customer for those new units is way down. And I think there is a function of getting people to move in fully and to occupy those residences as a normal customer would. That will turn around. And we think that's part of our second half equation. But again, we've done a bit better than what we've expected on new customer growth and with the housing improving here in Atlanta and in Georgia. We see that continuing, again, with all the announced jobs, IT type jobs, in and around Atlanta that will be attracting new people into the state, will certainly put more pressure on that equation as well. Dan L. Eggers – Credit Suisse Securities LLC: When you guys look at kind of the relationship between usage in GDP and that sort of thing, if you look out to say 2014, 2015. What kind of load growth, do you think is durably sustainable, once we get past kind of the slow first half of this year, if we do see a recovery?

Well, it is our kind of long-term estimate. Heuristic, it's still pretty good 50% to 60% of GDP growth. So that's kind of what we've been doing. So the other thing it's interesting, in fact, we've just had a guy come speak to our Board. Dan, one of the interesting thing that really confounds people, I think, the people especially to think that energy efficiency is going to deplete electricity usage, is that the economy is getting more and more electrified. And there is all sorts of interesting dynamics, when I give these speeches, I always hold up my iPhone at that point. So we have all these juicy devices in here your arm. But it is kind of much more than that. When you stream something like you want to watch some episode of Mad Men or something, you watch it for an hour on your iPad. It isn't just what's going on in your house, you are lighting up servers all over the place. There are much more significant compound effect of greater bandwidth in the information economy that are electricity intensive. And we think and the work that we all have done and we showed this at the last fall financial conference, we continue to see the evidence. That in fact, electricity consumption is trumping the drag by energy efficiency. So, we think we'll see this for some time. Longer term, electricity sales we would think would be in the 1.3% range. Dan L. Eggers – Credit Suisse Securities LLC: I guess, one last question because it's been regionally tropical, has been kind of the long-term contracted generation going into some sort of yield coal mechanism where you can offer a big yield off the cash flows and then raise capital when you need to invest. Have you guys, you've always done this before. But have you guys looked at Southern Power as potentially unlocking some value going that route?

When you think about Southern Power and the long-term contracted business that it already has it is such a well good match to our regulated model. It really doesn't differentiate it like it would for say, NRG and provide them with that benefit. Southern Company is already a deal co, in a way I think but…

Here is the other way to answer that. We look at everything all the time and we will look at the deal co, concept. I am not sure unlocking value with Southern Power serves our long-term interest. We used the other word here that in the world of finance there is lots of tricks and no magic. We really like the way our pieces fit together now. If it ever does make sense and provide sustaining value increase rather than instant gratification we will do that. But we remain committed to a long-term prompter on those issues. Dan L. Eggers – Credit Suisse Securities LLC: Very good. Thank you, guys.

Yes sir.

Thank you. Our next question comes from the line of Videla Marti with CDP Capital. Please proceed with your question. Videla Marti – CDP Capital: Good afternoon.

Videla? Videla Marti – CDP Capital: Yeah.

Hey, how are you? Videla Marti – CDP Capital: I’m doing well, thank you. I'm wondering I missed the very beginning the date on which you expect to hear from the commission in Alabama? And secondarily, I think the, if I recall properly the ROE adjustments we've seen for a much smaller gas LDCs has been in the range of about 200 basis points roughly. So, I'm wondering if you could just remind us what your sensitivity is at Alabama Power for with regards to I'll call it 100 basis points or whatever adjustments on the current ROE range you have.

So, let me just first say and we said this in I think, we said a little bit in the script, we said it in our first question. Look, we think the ROIC that Alabama enjoys is appropriate and serves our customers’ long-term interest, and in fact when you consider the equity ratio, the debt ratio, the embedded cost of capital, Alabama is reasonable and fair. Number one, let's not get ahead of what the commission wants to do, but that's our position. In terms of when the commission will rule, it’s just going to be in the months ahead. We don't think it's going to be six months, but I think it will be in the next quarter or so. Videla Marti – CDP Capital: There is no president in Alabama for doing anything retroactive, I think the decisions – I don't call anything from the decisions from Mobile and whatever that had anything to do retroactive for the full year of 2013, this is all perspective, correct?

That's our understanding. But you remember Mobile and Alabama are completely different, they have a much thicker equity ratio than Alabama does. I would hesitate to draw parallel between one company and another. The other thing that would be fun to work at is if you could get a view of the webcast or whatever of – any of the proceedings. Alabama enjoys a lot of support by its customers. I think Alabama demonstrated successfully their side of the art. Videla Marti – CDP Capital: All right, Tom. Thank you very much.

Yes sir, thank you.

Thank you. Our next question is from the line of Paul Patterson with Glenrock Associates. Please proceed with your question. Paul Patterson – Glenrock Associates, LLC: Hey good morning.

Paul how are you? Paul Patterson – Glenrock Associates, LLC: How are you doing?

(inaudible). Paul Patterson – Glenrock Associates, LLC: First of all, if the Kemper schedule for coming online slips past to 2014 spring deadline, what happens to the deal we subsidy? Is there any risk there or…

Well, you lose them. Paul Patterson – Glenrock Associates, LLC: You lose them for sure?

You lose ITC. Paul Patterson – Glenrock Associates, LLC: Okay.

Not the deal DOE stuff, I'm sorry. So, the $133 million investment tax credit is what you would lose, I'm sorry I thought you were referring to Paul Patterson – Glenrock Associates, LLC: Okay

It's not the deal we're funding… Paul Patterson – Glenrock Associates, LLC: The deal we're funding with refine money.

Yes. Paul Patterson – Glenrock Associates, LLC: Just sort of bigger picture here, Vogtle, is the first new neutral plant in decades. And, I mean just how do we see it in terms of, in the context of Kemper? I mean, obviously Kemper has been a disappointment, as you mentioned, in terms of what was projected and what happened in terms of costs. Could just, I mean not any great detail, but just sort of a bigger picture, obviously, it's understandable that somebody might simply think hey, that Kemper, which is also sort of a cutting-edge technology kind of thing, why won't that happen at Vogtle?

Yeah. Let me give you a simple answer. Paul Patterson – Glenrock Associates, LLC: Yeah, simple.

The simplest answer is we agreed to a cost cap was only about 10% to 15% of the engineering done and what's happened is as we've completed the engineering, we ran into the problem that oh my goodness we're going to run over on cost and schedule, and we've reduced the schedule. At the same time, we agreed to the price cut. That actually occurred in early 2010, okay. We didn't know we had a problem then. But in fact, that's when we had a problem. We only knew we had the problem once the engineering became complete and we saw the implications of the rapid construction. By any investigation that we've done here the construction has actually been exceedingly effective, okay. That is completely the opposite of what we have seen in Vogtle, because recall the licensing process by the NRC. Remember there were two pieces, the DCD, the Design Control Document was essentially a large scale engineering effort of the technology AP1000 and then the COL, which put that technology on your site and took into account all the site-specific issues and then resulted in the combined construction operating license. Essentially, spoke for the lion share of the engineering as you thought about moving forward with construction. It was exactly the opposite of what we did at Kemper. Man oh man, I think that's going to serve us well on Vogtle. I think that's just one single big reason, why I don't expect Vogtle to be anything like Kemper. Paul Patterson – Glenrock Associates, LLC: Is there any risk of not having recertification at all to shareholders? In other words, I mean I'm just wondering, is there any by far going recertification, is there any – just could you elaborate what the impact, if any need that actually have?

Yeah Paul, I think it's really kind of a timing issue. You are going to evaluate all the cost along the way whether you do one or the up. If you force recertification now, the commission could do a lot of different things with the new cost, otherwise they're going to cover those same costs through the DCM process. Paul Patterson – Glenrock Associates, LLC: So just duplicate really is recertification.

Yeah, really is. Yeah. Paul Patterson – Glenrock Associates, LLC: Okay. I just want to make sure. And then just finally, on sales growth, the view of labor statistics I think released today the revised 2012 GDP at 2.8%. Now they also served lowered the first half of this year or the first quarter whatever. But I mean, generally speaking, this 0.5% to 0.6% of GDP growth doesn't seem to have held in weather adjusted for you guys right. It was like 0.4% for 2012 and you guys are characterizing with leap year, this year so far being flat. So without getting in to what's going on with industrials or commercial whatever just in general, I mean, and I just also noticed with the Gulf Power saying that you guys are coming in a little bit sooner to expected because of sales growth. So, I’m just sort of wondering is there any thought about potentially revisiting of the projections there with these sort of adjustments?

Yeah, Paul, we look at that all the time. Our marketing research, load research folks are constantly evaluating. We've had some extreme weather in both 2012 and 2013. And so when you get to weather normalization, it begins it gets a little more fuzzy on the margins than it does when you got more normal weather. So there’s lots of issues here that could influence your actual results. Again, the long-term, we kind of use that more long-term than we do short term. But sometimes those things will move on either side of it. Just in the period of strange weather and slower than expected economic growth.

Just to underline what Art said, and we try to get you guys to, I mean, we understand you have a difficult job trying to figure all this stuff out, that's a good long-term heuristic to use to help you understand it. Just remember that what we do is detail bottoms up approach and then we circle back with the economic forms that are on hold to confirm what we're seeing inside. And then we have also insight through my work with the Fed. And I will say that what we're coming up with internally is very consistent with what the Fed is timing. Paul Patterson – Glenrock Associates, LLC: Okay, and then just in terms of long-term EPS growth and I know this is, I think Ali and Greg were asking about this. Just to understand this, I mean you did mention that it's a regulatory year obviously, things with Kemper didn't work out exactly as we had previously expected, is the 4% to 6% growth I know that you guys usually address this in the fourth quarter. But I mean, you did mention to Paul Ridzon that you were sort of reiterating the guidance when asked in terms of 2013, in terms of your confidence. How should we think about your confidence for the 4% to 6% growth in January, if you could just elaborate a little bit more on that just in terms of how do you feel about that given all the stuff that's been happening?

Well, yeah, I think, I would say what I said before, I appreciate you asking again. The most dominant thing is what's going to happen with Georgia. The second most dominant thing is what’s going to happen with Georgia. The second most dominant thing is what’s going to happen with Alabama. I think we’ve separated out the effects of Kemper, $0.015 this year, $0.025 independent, $0.04 in the aggregate next year, et cetera. I mean, we’ve been through that. So my view is, I’m just a little reluctant. I guess, what I’m saying is our 4% to 6% remains until I see a reason to change it, and I’m not going to change it until I see what happens with these regulatory calendar that we have in front of us in 2013. Paul Patterson – Glenrock Associates, LLC: Okay, I appreciate it.

We’ll stick to our guns on that. We will give you new estimates in January. Paul Patterson – Glenrock Associates, LLC: Okay, I appreciate it. Thanks a lot guys.

Yes, sir. Thank you.

Thank you. And our last question is a follow-up question from the line of Michael Lapides with Goldman Sachs. Please proceed with your question. Michael J. Lapides – Goldman Sachs & Co.: Hey, Tom, just a follow-up on Vogtle, real quick. I want to make sure I understand the stipulation you guys signed today.

Yeah. Michael J. Lapides – Goldman Sachs & Co.: Every six months, will you all simply go in and ask for approval of the money you spend the prior six months on the plant and you won’t come in and give the commission an update on here is what we expect the total plant costs to be overall meaning till the end of construction or will that last data point still be given to the commission?

Yes. You know, this is… Michael J. Lapides – Goldman Sachs & Co.: No, it’s Michael, I’m sorry.

I’m sorry, Michael, I forgot. The way we think about it is there will still be communications with the commission about total costs. And we’ll still file those projections with them, but the actual approval will come in each of the six-month processes as Tom has described.

That’s right. Michael J. Lapides – Goldman Sachs & Co.: Got it.

And all that, Michael, you should know was hand in glove, we have an independent evaluator. It’s exactly the processes that we’ve been following so far through VCM 1 through 7 and the process we’re following now with the exception we are not going to do the recertification, with a 5% cost figure includes. Michael J. Lapides – Goldman Sachs & Co.: Got it, okay. So, it’s strictly not having to go through the formal process of getting commission approval, but they will still be the disclosure in the public domain about whether the cost has gone down, due to construction or due to lower financing costs or whether – kind of your long-term projection of the total plant cost?

That’s correct. Michael J. Lapides – Goldman Sachs & Co.: Okay. Thank you, guys.

Thank you, Mike.

Thank you. And at this time, there are no further questions. Sir, are there any closing remarks?

The only thing we didn’t talk about I was just interested, I think I want to throw out that we received some positive momentum certainly since we have Secretary Moniz assume his position with respect to loan guarantees. Our view is that, we had a renewed sense of urgency. I can’t tell you that we’re more likely to get it or not, but I can tell you that the temperature has been turned up on the parties in seeking to achieve resolution on that negotiation. We didn’t talk about that. I probably ought to throw that out there. That is another important factor that’s positive for Vogtle. Anyway look, we’re continuing to work hard. We hate the fact here, we had another increase on Kemper. We’re continuing to work to make sure that that covers everything that we know. It is our best estimate. We’re going to work hard to bring that thing in now on time with the new numbers. We appreciate you following us and we’re going to work hard on your behalf. Thank you very much.

Thank you. Ladies and gentlemen this does conclude the Southern Company’s second quarter 2013 earnings call. You may now disconnect. Thank you.