The Southern Company (SO) Q1 2017 Earnings Report, Transcript and Summary

Good afternoon. My name is Carlos, and I will be your conference operator today. At this time, I would like to welcome everyone to The Southern Company First Quarter 2017 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. As a reminder, this call is being recorded, Wednesday, May 3, 2017. I would now like to turn the conference over to Mr. Aaron Abramovitz, Director of Investor Relations. Please go ahead, sir.

Thank you, Carlos. Welcome to Southern Company's First Quarter 2017 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, 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. The slides we will discuss during today's call may be viewed on our Investor Relations website at investor.southerncompany.com. At this time, I'll turn the call over to Tom Fanning.

Good afternoon and thank you for joining us. As always, we appreciate your interest in Southern Company. Each of our major business units had a great start to the year. Despite headwinds from unseasonably warm weather during the first two months of the year, our traditional electric and gas operating companies performed well and they are on track to deliver on their targets for 2017 and beyond. Southern Company Gas, including its seven premier state-regulated gas utilities, performed exactly as expected. Art will update you on our financial results in just a minute, but I'd like to first provide brief updates on the status of the Vogtle and Kemper projects. First, Plant Vogtle Units 3 and 4. As you know, Westinghouse, the primary contractor for the Vogtle expansion, declared bankruptcy on March 29. Georgia Power and the co-owners of Vogtle were well prepared for this event. The owners immediately entered into a 30-day interim agreement, which was, as announced last week, extended through May 12. The Interim Assessment Agreement allows work to continue and maintains momentum on the site while we develop comprehensive schedule and cost assessments for the project. Thanks to the Interim Assessment Agreement and close coordination between Georgia Power, the co-owners, Southern Nuclear, Westinghouse and Fluor, approximately 6,000 workers have remained on site, safely completing multiple concrete placements and other work within the two nuclear islands in the balance of the plant. In fact, we've seen meaningful improvements in productivity since our last earnings call in late February. Currently, we are working on an agreement with Westinghouse that will allow work to continue even if current EPC agreement is rejected as a part of the bankruptcy proceeding. Westinghouse has indicated its intention to reject the EPC contract. The limitations on Westinghouse's execution of the project imposed by the bankruptcy creates uncertainties that are not good for the project, especially over an extended period of time. If Westinghouse is not committed to perform under the EPC contract, Southern Nuclear is well positioned to manage the site. The agreement we are negotiating is intended to ensure a smooth transition and continued access to Westinghouse resources. This should put us in the best possible position, whether the ultimate decision is to complete the project or not. Separately, we are seeking to add structure to Toshiba's payment obligations under the $3.68 billion parent company guarantee. Ultimately, Georgia Power's objective is to be positioned with sufficient information to make a fully informed recommendation to its regulators within the next month or two. It is possible that we will need more time to ensure that we have the best information possible and to reach consensus with the co-owners regarding the best path forward for customers and all other stakeholders. More importantly, the conclusion of our assessment and development of a recommendation will merely begin a regulatory process that does not yet have a definitive timeframe. An important consideration as we move forward will be ensuring that the regulatory recovery framework for the project continues to support the financial integrity and strong credit ratings of Georgia Power. Now let's turn to an update on the Kemper County project. Over the past two months, Mississippi Power has continued its efforts to improve gasification reliability as we work towards reaching sustained operations using both gasifiers in the production of electricity. As we discussed earlier this week, the ongoing challenges with various systems had led to extending the estimated in-service date to the end of May. Mississippi Power expects to file its Kemper rate case with the Mississippi PSC by the June 3 deadline. In connection with this filing, Mississippi Power expects to request an accounting order to defer all costs incurred after in-service that cannot be capitalized, are not subject to the cost cap and are not already included in rates. As a reminder, Mississippi Power's current strategy is to file both a traditional rate case and an alternative multi-year rate mitigation plan as provided for under Mississippi law. A negotiated settlement with interested parties that would be subject to PSC approval is an acceptable outcome. We don't want to get ahead of that process on today's call. Our goal remains to achieve an outcome that balances the interests of customers and other stakeholders. I'll turn the call now over to Art for a financial and economic overview.

Thanks, Tom, and good afternoon, everyone. As you can see from the materials we released this morning, we had solid results for the first quarter of 2017, reporting earnings of $658 million or $0.66 per share compared with earnings of $489 million or $0.53 per share in the first quarter of last year. First quarter results for 2017 include after-tax charges of $67 million related to increased cost estimates for work at Mississippi Power's Kemper County integrated gasification combined cycle project. First quarter results for 2016 included after-tax charges of $33 million for the Kemper Project. First quarter results for 2017 also include after-tax charges of $20 million associated with Plant Scherer Unit 3 as a part of Gulf Power rate case settlement, approved by the Florida PSC. This settlement resulted in Gulf Power's remaining $240 million investment in Plant Scherer being placed into retail rate base. Additionally, the settlement provided for an increase in the equity ratio from 46% to 52.5% while preserving the 9.25% to 11.25% allowed ROE range. Overall, it was a very constructive result. Excluding these and adjusting for other items described in our earnings materials, Southern Company earned $652 million or $0.66 per share during the first quarter of 2017 compared to $536 million or $0.58 per share in the first quarter of 2016. The major earnings drivers year-over-year for the first quarter of 2017 included results for Southern Company Gas and improved performance at Southern Power, offset by increased shares and interest expense. Moving now to an economic and sales review for the first quarter. Collectively, the economies of Southern Company's regulated electric and gas markets continued to enjoy increased population and employment growth in the first quarter of 2017. While consumer spending is tepid, measures of consumer confidence are at record high. Similarly, leading indicators of industrial activity are improving and suggest that the U.S. economy should continue to expand in the first half of 2017 with real GDP projected at 2.4% for the year. The ISM Manufacturer's Index remains in a solid expansion mode at 54.8 in April. The increase in this index mirrors the jump in consumer confidence seen since the election last November and bodes well for improving industrial sales throughout the year. Year-over-year, weather-normal retail electric sales in the first quarter of 2017 were down 1.1%. Customer growth remained strong in both our regulated electric and gas markets. We added 13,500 new electric customers on the residential side and 7,500 new residential gas customers in the first quarter of 2017. This strong growth was offset by expected declines in use per customer in our electric, residential and commercial classes, driven by energy efficiency and increase in multifamily housing, e-commerce and the closing of brick-and-mortar retail store. Overall, we continue to believe our forecast of retail electric sales growth in 2017 of 0% to 0.5% is achievable. Before turning the call back to Tom, I want to provide our earnings estimate for the second quarter and share a brief reminder on our financing plans for this year. First, we estimate that Southern Company will earn $0.70 per share in the second quarter of 2017. Second, our various equity plans continue to operate throughout the first four months of this year and our current plans are to continue issuing new shares consistent with the outlook we've provided at our Analyst Day. We remain steadfastly committed to the financial integrity of Southern Company and our major subsidiaries. I'll now turn the call back over to Tom for his closing remarks.

Thank you, Art. Following an eventful 2016, Southern Company has entered 2017 with strong momentum. Our franchise businesses performed at a high level, solidifying our position as an industry leader as our customer-focused business model continues to serve us well. Finally, I'd like to highlight that our Board of Directors recently approved an $0.08 increase in our common dividend to an annualized rate of $2.32 per share. This is our 16th consecutive annual increase and for 69 years, dating back to 1948, Southern Company's paid a dividend that was equal to or greater than that of the previous year. But more importantly, the Board's decision to increase the rate of growth of the dividend speaks to the resilience of our long-term plan, which is underpinned by a firm foundation of premier state-regulated electric and gas utilities. Moreover, it supports our objective of providing superior risk-adjusted total shareholder return to investors over the long term. In conclusion, we believe Southern Company is well positioned for continued success in 2017 and for years to come. Now, 32,000 employees strong, we remain committed to providing clean, safe, reliable and affordable energy to the customers and the communities we are privileged to serve. We're now ready to take your questions. Operator, we'll now take the first question.

Our first question comes from the line of Greg Gordon with Evercore. Please proceed with your question.

Hey Greg.

Thank you. Good afternoon guys. Good afternoon. So if I'm thinking about the timeline here, you have the next month or two, to make a what you consider a fully informed decision, get all the stakeholders involved. And at that juncture, you'll then proceed with the dialogue with the Georgia PSC, is that right?

No. You should view our relationship with the staff. You know, they have independent monitors. They're commissioned. It's kind of real-time, so it's continuous, not discrete. The notion of the 1.5 months or 2 months or whatever it is, is really this idea of getting consensus among us, our co-owners, our Board and the Commission staff as to how to proceed. Based on what our assessment is at that point, we will work constructively as we have, gosh, since, I don't know, 1992 or so, to develop a constructive approach. The reason why we're kind of vague as to what that approach is, it may change based on what our recommendation to the Commission is. So until we kind of get a better feeling within this next month or two, we really won't have very much to say about what the continuing process of the Commission will be and what timeframe it will occur over.

Understood. I'm just trying to get a sense of the milestones, Tom. And so at some point, there'll be a path that you've decided to...

Recommend.

...go down which you're going to file with the Commission or a menu of paths.

That's it.

That you want to potentially go down, with you filing with the Commission in a formal proceeding, correct or incorrect?

No, that's right and I was just picking on a couple of words, you said a decision before. This is going to be a collaborative dialogue, I think, between the co-owners, us and the Commission about how to proceed.

Okay, and then – but you will continue, and I may be presuming incorrectly. It sounds like you will continue to build the plants, continue to keep construction moving forward until you get to an end of that process.

That's exactly right.

Because you may continue to build all the units. You may continue to build one unit. You may continue to build no units, but until you know the path you're taking, you'll continue to construct as on the front schedule?

Because that preserves the option.

Okay.

That's exactly right.

Okay. Well, my last question, because I'm sure you've got a ton. You have the $920 million letters of credit that were posted. Have you requested from the banks to pull down on those letters of credit and at this juncture, have you actually received any cash as a result of those requests to draw down on the letters of credit?

Yeah. Greg, there is a process under which you propose to draw under those letters, and we're following that process to the letter. So as of today, we've not drawn on those LCs, but we're following the process.

But you've requested to draw, but you've not yet received. Is that what you're saying?

There's a period in which you provide a notice to draw.

So, you've provided that notice?

Yes.

Okay. Thanks, Tom. Sorry to be a stickler. Take care.

Yeah, no problem.

Our next question comes from the line of Jonathan Arnold with Deutsche Bank. Please go ahead.

Hey, Jonathan.

Hi, guys. On the Vogtle subject, I noticed in the 10-Q, there's a number of aggregate liability under the Interim Assessment Agreement of $470 million, of which your share is $215 million. Is that a current, like through right today number, or is it – because it also says that $245 million was paid or accrued at the end of March. Just trying to get a sense of the pace at which that number's increasing during this period.

So that would be an assessment as to the first 30-day period plus any liens that have been placed on the property in order to clear the liens, so we can continue to progress the work. It really represents kind of how much we've spent.

Okay. But it seems to imply couple of hundred million a month is sort of the spending rate. Is that about right?

It's a decent guess, yeah.

Okay. And then just on the other, I mean obviously you made the disclosure as well this morning that your current assessment is that the cost to finish the plant would exceed the value of the parent guarantee. Can you give us any more sort of indication of by how much or is that a close-to-call currently or how do we think about that in the...?

Yeah, but I wouldn't view that as a conclusion at this point. Let us do our work and we'll figure out kind of what we believe the hours remaining to complete, the costs remaining to complete. And certainly along the way, we will evaluate the $3.7 billion in round numbers guarantee and what remains, and whether that all looks like a good deal for our co-owners and certainly for our customers and we'll be – I can assure you in ongoing dialogue with the Commission about that. So let us continue to progress over the next 30 to 60 days and we'll figure it out. And certainly, we'll absolutely use the LCs to offset damages we've incurred and will incur going forward.

But you're not – it is that you have disclosed though that you already think it's more than the guarantee, right?

It might be, that's a possibility and we'll just assess it when we get to the end. We're not in a position to say what that amount is.

I get it. And then can I just quickly on Kemper, if the plant hasn't entered service by the June date for filing, do you still file?

Yes.

Okay, thank you.

You bet.

Thank you, Jon.

Our next question comes from the line of Anthony Crowdell with Jefferies. Please go ahead.

Hey, Anthony.

How are you doing, Tom?

Super. How are you?

Another day in sell-side paradise. In the Q, it stated that I guess the owners of Vogtle do not believe the revised in-service dates are achievable. If, I guess, we think of a best case option through this interim period, what do you think your new in-service dates are?

We really haven't reached that conclusion, that's the whole point. So if you recall the process from back, I guess, earlier this year, it was that we were going to review all the documentation and all the schedule and all the cost information associated with that schedule. And then along the way, before we complete that, Westinghouse files bankruptcy. Now as part of our agreement in working through the bankruptcy, Westinghouse has completely opened their books to our valuation of time and costs remaining to complete, that's what we're in right now. So it's almost as if we're in one track and now we're in another track of evaluation because now, we can't rely on them. We have to look at an option other than Westinghouse finishing here.

What – if we think about it, is the option of a fixed-price contract, the next stage of Vogtle even likely? Or should we all be thinking that the type of contract to finish this project is going to be more of a, like a cost-plus type contract?

It could take a variety of different forms. Certainly, we could find a third party to kind of give you a fixed-price. That would be most likely a Fluor, Bechtel kind of thing. We could certainly take over the project ourselves and act as general contractor. And all this really has to do with what we think is the best way to most economically complete the plant and in concert with our regulator, an equitable kind of division of risk and return as to how we intend to proceed. So all of that is part of an ongoing discussion.

And just lastly, do you get that feeling at all that Westinghouse, even through this bankruptcy, would like to continue on the project, or there's no sense in that?

I think, they pretty well signaled the reason they went into bankruptcy was to insulate themselves and so we'll see. As we said I think in the comments, in the script that we believe their intent is to reject the contract. They'll do that once we conclude these interim agreements.

Great. Thanks for taking my question.

Yeah. And hey, Anthony, let me just be very clear what we're referring to, you and I were both referring to there, were their obligations as a general contractor in the construction. They still have the obligations to play ball on things like intellectual property and whatever else they're going to do to finish the plant.

Great. Thank you.

Thank you, Bud.

Our next question comes from the line of Stephen Byrd with Morgan Stanley. Please go ahead.

Hey, Stephen. Stephen Calder Byrd - Morgan Stanley & Co. LLC: Hi. Good afternoon. Wanted to discuss the Department of Energy and approaches that the DOE could take in support of Vogtle. What sort of the range of possible options and the range of types of support that we could potentially see?

Yeah. And let me just be – I'm going to be a wee bit coy here, because there's lots of conversation going on. Let me first say that the most obvious thing the United States government can do is to lend support to extend the in-service or the timeframe on the production tax credits. My assessment is, they are absolutely willing to do that. This is an issue that is bigger, I think, at the United States government level, certainly bigger than Vogtle and Summer. This is a national security issue and it follows on the heels of what, by all accounts, is a very successful visit with Abe and Trump, and recall that as a result of those successful meetings, I guess the Prime Minister and the President instructed Deputy Prime Minister Asō, along with Vice President Pence to set up essentially a commission, an effort to evaluate lengthening and strengthening the kind of infrastructure investment opportunities that we could collaborate on between our two great nations. There were three segments of activity. One of those segments was energy infrastructure and then some weeks following that, we have a bankruptcy in Westinghouse. And so I think this is something that has taken the attention of our elected officials. I would assess the support of the Trump administration and the relevant Cabinet officers as A-plus. They had given us all kinds of support and we have constructive dialogues underway with them ongoing. Likewise, in Congress. I think we have tremendous support because I said before, this is bigger than Vogtle and Summer. This is a national security issue. If the United States wants nuclear in its portfolio for the future, we've got to figure out a way to be successful here. I'd rather kind of leave it there, if you don't mind, Stephen, rather than go through and explore specific options. Stephen Calder Byrd - Morgan Stanley & Co. LLC: Very much appreciate that given where we are. We'll wait for the....

Yeah. Thanks. Stephen Calder Byrd - Morgan Stanley & Co. LLC: ...study outcome and recommendations.

Thank you, sir. Stephen Calder Byrd - Morgan Stanley & Co. LLC: If I could shift gears over to just philosophically, thinking about how you think about the risk of further cost overruns and the regulatory treatment for that, assuming again that you decide to continue to move forward, are there certain sort of philosophical guideposts that you would want to secure in terms of how you think about addressing and sort of allocating for that (27:21) further overruns?

Well, right now, I mean, we have an agreement that was entered into in 2016 that essentially doesn't have a cost cap. So theoretically, one approach is that we could live with the prudent stipulation; that addresses return levels during construction. And then following construction, presumably, the amounts of capital will revert back to GPC base rates. And even when you think about Georgia law, it really has been very consistent over the years and this is now decades for the recovery of all reasonably and prudently incurred costs for a certified IRP resource, regardless of the original certified cost and let me also remind you of the math, when this thing was originally certified, the amount of price increase we thought we would have would be about 12%. Now we estimate it will be in the 6s to 8%. So we feel that we have at least the structure to begin a dialogue. Certainly as we have to make a recommendation. Once Westinghouse decides to reject the contract, which they'd given us every intent of doing so, then we, Georgia Power and the co-owners have to make a recommendation as to whether to proceed or to recommend not completing the plant. We have structures available for both of those. Certainly, it's a different risk posture and that will be part of the conversation with the Commission. And certainly, all of this, as we have in the past and we've demonstrated it over with Mississippi and others, Southern Company has always been committed to supporting the ratings of our subsidiaries and I think we've shown our hand and that we are faithful in that resolution. Stephen Calder Byrd - Morgan Stanley & Co. LLC: Understood. Thank you very much.

You bet. Thank you.

Our next question comes from the line of Michael Lapides with Goldman Sachs. Please go ahead.

Hey, Michael. Michael Lapides - Goldman Sachs & Co.: Hey, Tom. Thank you for taking my questions.

You bet. Michael Lapides - Goldman Sachs & Co.: Turning to Mississippi. If I read the detail in your SEC filings correctly, you've got $25 million per month or so of costs, including the depreciation that are not in rates once the plant goes online and that doesn't necessarily include a return on capital of the plant, the PP&E that's not in rate base or that's not in customer rate. So $25 million, 12 months, that's $300 million a year, plus the return on capital of, pick a number, but it's not a small one. On a utility this size, that's a pretty big rate increase. Are you having conversations in Mississippi with the legislature, the governor or others about potentially expanding the use of things like securitization, which I think you need a legal change to do to be able to mitigate some of that rate impact?

Yes, look. I think we've said this in the past, but remember what we said in the script here is that we're going to file traditional rate case and then we had, as provided by law, a rate mitigation plan, the notion of the rate mitigation plan is to essentially put in place revenue requirements that are similar to the revenue requirements associated with the original order. So if we provide the plant and the plant is operational consistent with the original owner, and we have revenue requirements that are similar to the original owner, that's kind of a way to approach. Of course, there are a host of other opportunities that we can engage in beyond those two things, and that's really what we were pointing to when we started talking in the script about the settlement conversation as an acceptable outcome. So rest assured that we're working constructively, being very mindful of the total rate impact in Mississippi's customers and the way, the best way to structure a regulatory outcome that meets everybody's needs. Michael Lapides - Goldman Sachs & Co.: Are other folks within the state outside it, meaning are other legislative or folks in the governor's office involved in this process? And do you need legislation to implement some of the things that might come across the table in these talks?

In terms of need, probably not, but we don't want to, again, get ahead of the process that we're going to be following through here as we approach any court settlement or as we approach the filing. Michael Lapides - Goldman Sachs & Co.: Okay. One or two for Art, and these are just kind of housekeeping types. Southern Power recognized a pretty big benefit – tax benefit in the quarter, a little over $50 million, just curious what is in your guidance for the tax benefit at Southern Power this full year?

Are you referring to production tax credits and investment tax credits or? Michael Lapides - Goldman Sachs & Co.: I'm looking at the whole kit, kat and caboodle. I'm looking at Southern Power's income statement in your Q.

In the Q. Okay. Michael Lapides - Goldman Sachs & Co.: Yes. Sir.

Let me address that first. There was a couple of timing things that went on in the first quarter. One of them related to the manner in which we recognize PTCs. When we gave our estimate for the quarter, it was $0.57. We assume that we would recognize production tax credits under a earnings before tax perspective for Southern Power. We actually changed that methodology during the quarter and went to an as-production basis. So we recognized more income at Southern Power related to production tax credits in the first quarter, but we merely accelerated them out of the second and third quarter and you'll see that flip back around during the year. So we don't expect that to occur throughout the year and it won't have an impact on income. For the entire year, it's all based into our guidance. Michael Lapides - Goldman Sachs & Co.: Okay, so your guidance, I'm just trying to think about how much renewable tax-related items is embedded within your full-year guidance.

Okay, so $53 million of one-time of those PTCs, ITCs and $178 million of ongoing PTCs.

And I think it's interesting to point out that when you look at the one-time events as compared to 2016 and 2017, something like, 50%, what was it, 51%, something like that were one-time events and 2016 and 2017, it's down to about what, 17% or something?

Yes, I think quarter, for the year, between PTCs and ITCs, we'll end up with $16 million less in total year-over-year. Michael Lapides - Goldman Sachs & Co.: Got it, and last question...

What you're losing on ITCs, you're picking up on PTCs. Michael Lapides - Goldman Sachs & Co.: Right. It seems pretty flattish year-over-year. And one last one, also a housekeeping one. At Southern Gas, if I – and I know you didn't own it in the first quarter of last year. But if I were to back out the mark-to-market in both periods, how significant of a change was net income at Southern Gas and what were the biggest drivers?

Yes, hold on just a sec. It was pretty flattish. You look at four distinct segments, the Gas Distribution operations was pretty flat. Gas Marketing Services was down a little, maybe $9 million in net income. Midstream Operations were bigger, mostly due to Southern Natural Gas being added and the other, there was some other mishmash of some couple million, so $13 million year-over-year increase. Michael Lapides - Goldman Sachs & Co.: And that fell within what you expected even after you considered things like rate base growth and O&M synergies, those type of items?

Every thing's in, yes.

It was amazing. It hit it exactly on the nose for the Fluor, what we expected and that's after backing out a really big positive in Sequent, which we will regularly do. We will not include Sequent as our ongoing earnings. Michael Lapides - Goldman Sachs & Co.: Got it. Thank you, guys. Much appreciated.

You bet. Thank you.

Our next question comes from the line of Paul Fremont with Mizuho. Please proceed with your question.

Hello, Paul.

Hey, how are you?

Awesome.

My first question is if you were to go the abandonment route, is it reasonable for us to assume that it seems like through March of 2017, the total Vogtle investment is $5.4 billion including financing? Is that sort of a reasonable starting point in terms of a number to assume?

Yes.

Okay. And then I think the Georgia legislation provides for recovery of your investment plus a return. In a proceeding to determine what that return would be, would that be the Georgia Public Service Commission who would decide that?

Yes, and the law provides for all prudently incurred costs.

Okay. And I guess the other question that I have is, it looks as if the banks financing Westinghouse took a collateral interest in the intellectual property or the, I guess, it's the EPC plan. How does that affect your situation if you decide to continue with construction?

Yeah, man, so that's exactly this filing that we've made with the bankruptcy court. Potentially, the debt financing wanted to have essentially access to everything. However, the funds used in the debt financing only applied to the so-called GoodCo , which is kind of the nuclear fuel processing business, their services business, O&M, decommissioning and others and don't flow to the benefit of our project. And so we don't believe they should have lien rights on the IP or anything to do with our project. And frankly the Creditors Committee agrees with our position. There will be a hearing on that on May 10, but I think we're on pretty firm ground there.

And then it would be up to the bankruptcy judge to decide how to resolve that?

That's right. It would be odd for the debt financing to only apply to some of Westinghouse and not others, and then to get the benefit of – and then to get the benefit of all of the security potential to the debt financing. So it seems like an awfully logical position here.

Okay. All right. Thank you very much.

Yeah. Hey, let me just make sure that we clarify something. I think it was Michael – it was Paul that raised the issue. In the scenario for abandonment, the only amount at risk for the abandonment charge is $4.1 billion, not $5.4 billion. The delta is the financing cost, and that's already under recovery. So just want to make sure everybody understands that. Math was right, $5.4 billion, but the amount at risk for recovery under the abandonment scenario was $4.1 billion. Okay?

Thank you.

Yes, sir. Thank you.

Our next question comes from the line of Praful Mehta with Citigroup. Please go ahead.

Welcome.

Hi guys.

Go ahead.

So most of my questions have been answered, but just wanted to clarify on a couple of points, coming back to Vogtle. If you don't find – if Westinghouse steps out and you don't find anybody who's willing to accept a fixed price contract and so Southern steps in to complete the project. Is there any sense of what that – how much overrun, firstly, that could entail given Southern's going to do it? And secondly, what does that actually mean operationally? Are you hiring all the people? Like, what will that actually mean practically to kind of complete that project by Southern itself?

Sure, okay. So let's kind of take it step-by-step. There's already been a tremendous amount of work that's been complete on the site. And then what you have to do is evaluate what is left, okay? So that would be time to complete, cost to complete. It is our intention that absent any kind of smaller changes in management, that the people that we need are already present on-site. We've been able to do that with these interim agreements to keep people working, and that's really important. So we evaluate what's been spent, we evaluate what needs to be spent. Recall, we have the Toshiba Guarantee, so that would be round numbers again, $3.7 billion, that would offset those future payments. So then, we would evaluate if there was – if that was sufficient or if there was anything in excess even of the $3.7 billion in addition to the normal budgeted costs and we'll evaluate that in terms of schedule and potential costs within the construct of whatever our co-owners need and what we need via our regulatory regime at Georgia. Recall also that I think we've got a great deal of flexibility in how we think about this. You must realize that Southern is pretty well unique in being able to fulfill these kinds of obligations. We have been involved uniquely in the supply chain efforts throughout the project. We have been involved uniquely in terms of the scope of presence on our site. I think we have roughly 400 people that have been engaged in oversight work even with Westinghouse and with Fluor. And now, we have provided for, as we started to see Westinghouse get under duress, a transition plan even before Westinghouse has filed bankruptcy. So we have a transition plan in place. The people are turned on. They're on-site. We won't have to go grab bodies if in fact, that's the course that we decide to take.

I think it's important to add that we've got stepping rights to all the subcontracts, so we choose to do so, we can step in and contract with Fluor and any other subcontractor that has a primary contract with Westinghouse at this time.

Got you. That's very helpful color. And just quickly on the $3.7 billion parent guarantee, that – there is no risk to it at this point as I understand. The only risk being if Toshiba files for bankruptcy, then you become just unsecured creditor, but apart from that, there isn't any other risk, is that correct?

Well, I mean, we're trying to be very rigorous in our approach here for all these things. When we think about the guarantee, we don't want to get into a position where there's an argument about the amount We don't want to get into a position whether that amount is available, whether we finish or don't finish the plant if Westinghouse rejects it and then we're in that position. We don't want to get into a position of arguing how the draws under the guarantee might be available and we want to have some assurance as to the security of those draws. So we're working through a lot of issues there. Likewise, with Westinghouse, I never want to get into a position, look at them; they're in bankruptcy of relying on Westinghouse's efforts. I want to have clear, commercial agreements set forth for the IP that currently is under development and you know all the IP is not finished. There's some related to instrumentation and control that is currently under development. That's not a surprise to anybody, but we want to make sure that there is a commercial obligation for Westinghouse to finish that IP, to make available the skills and resources necessary to carry it forward. Also, you should note too that there will always kind of be, along the way, some opportunity to change the intellectual property as design changes are manifested on the site. Further, you should know that this notion of transition is a critically important issue. It sounds like a detail, but getting all the clearances, getting the transfer of contract, the transfer of personnel, et cetera. We want to be very clear about all that, so we're taking a very rigorous approach to all these issues. So these two big issues, the certainty around the structure of the guarantee and certainty as to the commercial relationship we have with Westinghouse, I think, are really important in order for us to even consider moving ahead should Westinghouse ultimately reject the contract.

Got you. That's really helpful color, so you do expect to continue to update as you have further color on these discussions, I'm assuming.

Oh, absolutely. If there's material information, we'll put it out in an 8-K.

Great. Thank you so much, guys.

You bet. Thank you.

Our next question comes from the line of Ashar Khan with Visium. Please go ahead.

Hello, Ashar.

Hi, Tom. How are you doing?

Fantastic. I hope, you're well.

I just – what I can't understand is you guys, as you are spending on these projects, as we're going through this analysis, right, and you mentioned, you're spending at a run rate of about $200 million or so a month. So I guess by the time the decision takes place, it might be eight to nine months into the year, and that would imply another, I don't know, whether the $200 million was for the whole and your share is $100 million, but could be another $1 billion spent on the project by the time you make the decision. Doesn't that make it – the real decision is going forward and how to recover the cost, how can you – I just don't get the chance of abandonment. If there was any chance of abandonment or anything like that, you should have slowed down and not let spend more on the project, because in the end, the customer has to pay for it and it would be really bad for the customer to be given a bill of another $1 billion that you make the decision. So am I missing something? To me, the chances of abandonment are really low. If they were a little bit higher, then you should have slowed down the process and kind of like thought of it and that would kind of indicate the options are more there, or am I thinking through this wrongly?

Yeah. No, no, Ashar, you're raising a good point. Let's just kind of walk through it a bit though. As this next 30 to 60 days, we're working with our co-owners and, of course, with our board, and in conjunction with the staff, the independent monitors and the Commission. I think we'll reach a point where we're in a position to start making a recommendation and also as we finish the resolution of these commercial contracts I just talked about. I think then we'll kind of be in a position to say, yeah, I think it looks likely that we're going to recommend going forward. Otherwise, if it looks likely, the best thing for customers is to not complete these plants. I think at that point, you may take a totally different posture on-site. So long as it is viable for us to complete the plant, it is absolutely, I think, important for us to not only maintain, but improve productivity on the site so that the ultimate long-term cost is as attractive as it can be. Were we to start sending people home, the chances of us getting those people back on site would be awfully difficult. The other thing – hey, the other thing is recall some of these first amounts that we've been talking about were amounts that were already owed, okay, so this is really just fulfilling the contract as it exists. And yeah, I think we said this before, but if we didn't, let me just be very clear that $200 million or so a month, it could be a wee bit less than that, but that's a decent conservative number, is 100%. So Georgia's share of that would be $45.7 million (49:59).

Okay. That's what I thought. Okay.

Yeah.

Okay. Thank you.

Thank you, sir.

Our next question comes from the line of Paul Ridzon with KeyBanc. Please go ahead.

Hey, Paul.

Good morning, Tom. Good afternoon, Tom. It's been a long day. The $3.7 billion, is that inclusive of the $920 million?

Yes.

Yes.

And the $3.7 billion is for 100% of the project, both units?

That's right.

Right.

And then just switching gears, a big driver in the quarter was O&M. How much of that is sustainable?

Yeah, Paul, some of that is certainly timing that will be spent later in the year. There were some outages pushed out of the quarter into the second, so you're going to see some of that, but a lot of that is going to be sustained as we move through the year. As you know, the third quarter of each year is our big quarter and will determine how much O&M is spent between then and end of the year. So we still believe that we can hit our targets in light of the under-run on O&M in the first quarter.

The other thing though that we're doing, Art and I have been kind of pushing it at the Southern Company Management Council level is to approve the growth profile of the operating companies. And one of the things that we're looking at is are there some things that we can do that can maybe do capital investment, technology investment, a variety of other things that will actually improve the reliability, customer service and price of our product, associated with those investments, may be, some permanent reductions in O&M. So we're pushing very hard to make the grid more resilient, to really understand and right-size the amount of investment in our fossil/hydro fleet to automate what otherwise are some administrative processes. I think we have the opportunity to improve the organic growth profile of our operating companies and reduce O&M at the same time.

And is the permanent piece of the O&M, does that push you to one end of guidance, the top end there, or is it just one of the gives and takes that we're seeing?

No. You know, Paul, we don't even mess with that until the end of the third quarter. We just keep our guidance where it is. What I'm really doing with that initiative though is not worrying about the tactics of where we are within a range in a year, but rather make even more resilient the 5% long-term growth rate that we referred you to. I said before in October, I thought October 16, I know it was hard to knock us off the balance beam. We've been talking hard about resilience and how well-founded, I think, our long-term plan is. And remember I said back then, if you want to really see proof of where our board sees that and where we see it for heaven's sake, is let's watch and see what the board does on the dividend. And sure enough, they increased their growth rate and the dividend as we thought they may this April. I think that was a big vote of confidence in our long-term ability to hit the growth rate.

Understood. Thank you very much.

You bet. Thank you.

Our next question is a follow-up from Jonathan Arnold, Deutsche Bank. Please proceed with your question.

Thank you, guys. So just could you quantify how much the change in accounting for PTCs benefited the quarter versus what you had in your guidance for the quarter?

About $0.05.

Great. Thanks, Art. That was it.

Yes, sir.

Our next question comes from the line of Steve Fleishman with Wolfe Research. Please go ahead.

Hey, Steve.

Yeah. Hi. Hey, Tom. Good afternoon.

Good afternoon.

Just a couple technical questions on Vogtle. If it's going to take a month or two, you think, to decide why was the interim assessment only moved to May 12 and not further and why shorter than, let's say, what SCANA did?

Yeah, I think it's very clear. We're working very hard on these agreements related to the Toshiba Guarantee and related to the ability for us to effectively transition the plant away from Westinghouse, should Westinghouse reject the contract, it is, I think, clear to us that once we reach that point, making the transition at the management on the site is really important as to the effectiveness. So keeping a short leash on the relationship with Toshiba and Westinghouse, and ultimately, should Westinghouse reject the contract, having us take over the site, if that's what we choose to do, in a shorter timeframe is good for the project. Keeping Westinghouse in this kind of limbo role under bankruptcy is not good for the project for any period of time. We want to keep that as short as we can.

Okay. That makes sense. Second question is just I know you're kind of keeping the Commission staff apprised. I guess when we ultimately get your decision in a couple, a month or two, whatever it is, how should we think about how much they are onboard with it already or not?

Yeah, I mean, Steve, you know us. I mean, we've been working with collaboratively with the Commission. I guess we had the original Vogtle decision back in 1992 with the last one there and then in 1995, we reached the agreement on these three-year accounting orders and every three years, we've put in place a series of interesting accounting orders. It seems like every 30 years, we had a unique set of challenges in which to handle. We just have this track record of constructive regulation here in the south. And Georgia has been a tremendous kind of example of how an integrated, regulated system meets the needs of customers. We have the best reliability, prices significantly below national averages, the best customer service. It works. And so our evaluation is we'll be able to work constructively with the Commission to handle these very challenging issues. And I think that with our no-surprises way of working with the Commission, I think when we reach the point of beginning a filing process, I would assume we have a decent degree of consensus around that approach. I would be surprised if we reached that and there were a lot of surprises on either side.

Okay. And then last question, just on the nuclear PTC, unless something happens quickly in Congress, we're probably not going to have an extension to that prior to you making the decision. Should we just assume that your confidence level is high enough in that that you're going to assume in your analysis that that is going to get extended if needed for delayed dates?

Yes, that's an important variable in all of this and I can tell you that the conversations we've had and it's just going to be broadly across government, whether it's Congress or the administration, have been very constructive and supportive. They understand that this is kind of bigger than Vogtle. This is a national security issue and that frankly, the cost of extending this timeframe is almost nothing as they scored in Congress. So we've experienced a tremendous amount of support. We could come up with a variety of ways to evidence that support, but I'm just going to assure you that as we reach the end of our deliberations and make a recommendation, this will be central to that recommendation. And if we decide to go forward, it would be because we believe, and we may have evidence at that time of our belief that we'll be able to manage it. There may be ways we can demonstrate their support even without the law or the tax reform building path is my point. Hello, Steve? Operator?

His line is still open, sir.

Okay. Steve, you still there? I don't know what happened. Operator, you want to go to the next question? Steve, I hope that answered your question. Certainly if it doesn't, call us back. Sorry you got cut off. Operator, you want to go to the next question?

Yes, Sir. Our next question comes from the line of Ali Agha with SunTrust. Please go ahead.

Hey, Ali. How are you?

Good, thanks, Tom. Good afternoon.

Good afternoon.

First question, Art, I may have missed this, but if I were to bridge the gap in the first quarter between your $0.57 original guidance and the $0.66 you reported, was that all coming from that change in accounting for the tax or what's causing that $0.09 delta?

No, I think what you're seeing is a lot of it was from the PTC recognition of Southern Power. The vast majority of that, $0.05, the other $0.04 really came by better O&M management across the fronts of all operating companies to do a little better than what we had buried into our $0.57 estimate.

I see, got it. And then, Tom, on Kemper, do you see at all any scenario in which the plant ultimately just ends up being a CCGT?

So I mean, the way you asked that question, sure, I mean there's that possibility, but that's going to be taking into account the deliberations in the state of Mississippi. Recall the nine cell (1:00:58) kind of red, green diagram they use in order to assess the viability of the plant, still under high gas scenarios, we still get green cells in there. And certainly, it remains a hedge. And along the way, as we have built into the technology the ability to operate under dual fuels, we've been able to demonstrate the ability to deliver whatever energy is the cheapest. So there is a possibility you could do that, we'll just have to see.

I see. Would that be part of sort of the rate case and prudency review or will that be outside of that scope?

Well, it's all part of the conversation. So the conversation is kind of underway and we don't want to ever get in front of that conversation. So Ali, whenever you ask a question, is it possible, there's a lot of stuff that's possible. Let the process run and we'll give you illumination when we get it.

Okay, and then a different topic. As you pointed out, electric sales, weather-normalized, were negative 1% this quarter. In fact, if I'm right; I think that's the fourth consecutive quarter we've seen negative weather-normalized sales. I'm just wondering how you square that with the economic growth profile that you're seeing out there and how should we think about that going forward.

Yes. Ali, we got a couple things going on in both commercial and industrial classes. We began to see a reduction in use per customer in the commercial class in the second quarter of last year, if you go back and look at our history. And so when you're looking at the first quarter year-over-year, that trend continues in 2017, but it wasn't in 2016. So you still have the effect of that showing up. And in the industrial market, it was kind of the same thing. We had some industrial customers who had announced that they were shuddering portions of their process or operating processes, mid-year, last year, that were in process for the first quarter of last year. So year-over-year, you're going to see some effects of that as well. More importantly, I think if you look at our sales compared on a weather-normal basis compared to what we estimated they would be, we were only down 4.3%.

Yes, and let me throw in the other stuff, you probably heard this. But leap year, February of 2016 as compared to February 2017, that matters in the numbers. The other thing, and our numbers have been very consistent with what I'm seeing in my work at the Fed, and I said this on Squawk Box this morning, but January was kind of a bad month. February was an awful month year-over-year in comparison. But then, holy smokes, March, especially the end of March, turned around and I would do not only a year-over-year comparison, but a momentum comparison. The momentum comparison for March as compared to the quarter showed that of the 10 largest industrial sectors, in March, nine of them were positive and one of them was reasonably flat. So it's fascinating to me that we saw a big turn. The Fed saw that also for the nation. So very, very fascinating stuff. We're a little bit stronger than the rest of the nation in terms of our economic growth, job creation, 1.9% versus 1.5%. Listen, I think there is reason for us to hang with our annual projection of between 0% and 0.5% growth this year. Let's see what happens on the sustainability of that March performance.

Okay. And last question. Tom, if I recall, in your legacy regulated business, when we looked at the long-term growth, the expectation was that at the back half of the decade, environmental CapEx would likely pick up and drive rate base and earnings. That probably won't materialize currently in this scenario. What takes the place of that? What can you use to offset that growth in the future?

Sure, man, absolutely. In fact, boy, I remember showing this to my board almost day one I got on, and everything else. But we went through a period there where we were kind of at the end of David Radcliffe's timeframe. For a while there, I was CFO and then Paul Bowers took over I went over to COO where we were talking about really healthy EPS growth rates. That's where we were spending capital like crazy as compared to a rather modest net committed capital base. And so our earnings per share growth rate was going off the charts. And then as we started winding down on a lot of environmental construction, as I took over, and then as we saw the riskiness of Kemper and Vogtle at one time, our long-term growth rate got real flat. And I started saying that to you all and started saying that well, it may flatten out through the last half of the decade, but as you remember correctly, it should turn back up with environmental CapEx and then with new capital associated with new generation coming back in. What we were able to do in 2016 was execute on a growth strategy. You may remember too, I had been talking for some time about the wisdom of natural gas infrastructure and getting ahead of natural gas being a primary source of fuel for the future, a bridge, if you will, between now and 2050. And we recognized early on in our strategy deliberations here under my tenure that I get gas, but boy, you know what, the gas resource isn't where the load is. And so there needs to be a new rethinking of natural gas infrastructure. And that's where we started pursuing ideas that ultimately became realized with Southern Company Gas. That is AGL Resources and the Kinder Morgan, 50% of the Southern Natural Gas pipeline. And now, we're adding to that a little bit. So the last thing is just a tiny little thing, but PowerSecure is really an option for the future. It doesn't add meaningfully to earnings in the near term. But Ali, if you think about it, we have added to our growth rate, as I suggested, we drop down to, I forget where we were, 3% to 4%. And then when we went to AGL, it became 4% to 5%. And then when we added on the rest of Sonat plus everything else plus Southern Power, man, we jumped all the way up to 5%. And what we've been able to demonstrate, I think, is the resilience of that 5%. In other words, we stress-tested that against a variety of scenarios and really put it through some tail risk and we believe our 5% long-term growth rate is, in fact, resilient against a variety of outcomes. So we're very happy with that. And I think frankly, we've accomplished through those series of transactions and through the strategy we play, and now for the future, what I'm suggesting is there may be a way to rethink the growth rate of the organic business in the electric companies that frankly has been a wee bit lackluster to improve that and really improve service to our customers at the same time. All of those things lead me to believe that we don't need new generation in the future until, say, the low 20s. We think we have a reasonable estimate as to environmental expenditures. I think we're in terrific shape to achieve the 5%. We've done that work last year and the work we're doing continuing.

Understood. Thank you.

Yes, sir.

Our next question comes from the line of Mike Weinstein with Credit Suisse. Please go ahead.

Hey, Mike. Michael Weinstein - Credit Suisse Securities (USA) LLC: Hey, Tom. How are you doing?

Awesome. Michael Weinstein - Credit Suisse Securities (USA) LLC: Thanks for taking the call.

Yes, thank you. Michael Weinstein - Credit Suisse Securities (USA) LLC: Hey, in the event of abandonment for Vogtle, what's the possibility that prudence prior to 2016, through VCM number 16? What's the possibility that they could be revisited in light of the fact that the project would not be online, used and useful and as anticipated?

Yeah, the notion of prudence presumes we build the plant. And so I mean, it's a fair question. We believe that the costs were prudent, but it's a fair question. But anyway, we believe they were prudently incurred. I think you go through the process thinking you're going to build a plant. Who could have predicted that Westinghouse would have had the difficulty it had? So I actually think we're in reasonably good shape. But I mean, it's a fair question. I think it's a tail risk kind of question, in my opinion. Michael Weinstein - Credit Suisse Securities (USA) LLC: Do you think prudence includes a full return on capital though?

Yes. Prudence under the Georgia law, that basically puts it in a rate base. Michael Weinstein - Credit Suisse Securities (USA) LLC: I mean, even though the current deal for everything above $5.44 billion, you only get a debt return through construction. I mean, could we see something like that? Is it possible that they could go back and say that you only get a debt return on an unfinished plant?

When you say is it possible? I guess anything's possible, but recall, even under abandonment, what you would do is take the Toshiba Guarantee against those amounts. So kind of use that in your thinking. Michael Weinstein - Credit Suisse Securities (USA) LLC: Yeah, that's true. Also, is there a possibility that you could be held, I guess, in any way responsible for not achieving the production tax credits, if the plant schedule goes beyond 2021 and there is no extension?

That's conceivable also. I just – we're dealing with little hypothetics. I think it's going to happen though. I think even if you don't get tax reform this year, I feel reasonably confident given the importance of this issue, given the fact that it doesn't cost anything in the OMB scoring that I think we'll get support to figure out a way to get it done, that's just my belief. Michael Weinstein - Credit Suisse Securities (USA) LLC: And just to follow up on Steve's question about those credits. Is that, is the $800 million that you're expecting to get in value, is that included in the comparison analysis that's in the back of the VCM reports when you compared with CCGT?

I believe that's true. Michael Weinstein - Credit Suisse Securities (USA) LLC: Part of that, right?

Yes, but you need to remember, it's $400 million per each, so it's Unit 3 and Unit 4 split. Michael Weinstein - Credit Suisse Securities (USA) LLC: Okay. So I mean – basically, everything is assuming those credits are coming in and that's – yeah.

The only thing I would just add is that remember that the certificate assumes we only got 50% of those credits and we think we're going to get 100% now. Michael Weinstein - Credit Suisse Securities (USA) LLC: Right, right. Okay. Thank you very much.

Yeah man. Thank you.

Our next question comes from the line of Kevin Fallon with Citadel (01:12:49). Please go ahead.

Hey guys. How are you?

Hello, Ken (01:12:54). How are you?

I am good. Thanks. Could you guys provide some color on the decision-making process amongst the co-owners at Vogtle? And in particular, have your co-owners designated Southern to act as their agent on the decision whether to go forward or not go forward? Or does each individual owner make their own discrete decision?

Well, we act as agent in the execution of the EPC contract and all that stuff, but there are also provision for everybody to make their independent assessment as to how to proceed and if those assessments are different, what happens. But in general, the way you should think about that is we all generally agree on how to proceed. We've got a great working relationship. We've got a great working relationship with the co-ops and the munis in the city of Dalton. So I think I would just say that there are – we are the agent in executing the contract. We have ongoing conversations. And generally, I think almost exclusively, we reach consensus on how to approach these things. We have a really good relationship with those folks.

Okay. And the parental guarantee from Toshiba, does that stay with the project? Or does that travel pro rata with the co-owners, if they choose differently?

Well, probably we'll choose the same, okay? I mean, there are scenarios where they could be different, but no, it would be a pro rata guarantee.

The individual owners would have the right to their percentage of the guarantee individual of all the other parties?

Yeah. But it would be – I mean, I'm trying to think of an example that would fit your hypothesis. For example, that we only finish one unit and we decide not to do another unit, and somebody steps out and the other people stay in. The $3.7 billion would be divvied up based on the final arrangement that we enter into in this commercial agreement. We think that the draw schedule would be reasonably fixed and that they would access that guarantee on that basis, on a pro rata basis.

Okay. That's helpful. Thank you very much.

Our next question comes from the line of Dan Jenkins with State of Wisconsin Investment Board. Please proceed with your question.

Hello, Dan.

Hi. Good afternoon. My question kind of relates to when you talked about your Vogtle update, you mentioned that you have seen some meaningful improvements in productivity. I was wondering if you could give us a little more color on what you've been able to achieve and then of – related to that, how do you incorporate assumptions around productivity into your assessment, both of the scheduled length and costs because obviously those would be key inputs.

Oh, absolutely, man. In fact it's a great, it's a great question. What we've seen since the last call is a productivity improvement of around 20%, from 20% to about 30%. Use those as round numbers and we don't know whether they can be sustained or not. But productivity on the site since the last call has improved by that amount, okay? We want to get that number up to more like 40%. So Dan, in the evaluation of time to complete, cost to complete, we absolutely vary scenarios based on what we think we can sustain, from a productivity level. It's a very good question you're asking. And so what we do is take different cuts, okay? If it's 40%, it's this. If it's 30%, it's this. That's exactly how we're looking at it.

Okay. So can you give me a little more detail on what kind of improvements you're seeing – like has it just been the amount of time that's taken to do things or the number of people that's taken to do things or what are the kind of...

Yeah, the key in improving productivity on the site is to reduce dead time. In other words, transit time from check-in to workplace, to have more effective management on-site, so that they do their job site briefings and then get work done. It's really that kind of thing.

Okay. And then just on the details of the project. I just wondered – I know last time you mentioned that the steam generator installs were a key path item in that – for Unit 3. And then you mentioned the last CA modules for Unit 4. Are those upcoming? And I noticed they're still kind of in the same location on the slide that you included, so I just wonder if you can give us some updates on the critical path.

Yeah. Dan, this is Art. Those things are constantly in motion around what gets prioritized. The steam generators had been moved back a little bit, but that doesn't mean that they were on the critical path to begin with. And so the critical path itself is in the nuclear island, but just those have now been put on the horizon rather than in the near term, but doesn't mean that we're not staying on schedule and improving the productivity within the nuclear island itself.

How about on Unit 4?

Unit 4 is maintaining. You still have some modules yet to be placed, CA02 and CA03, but those are smaller modules compared to, say, CA01, which is already in place.

Okay. And then, in terms of equipment on-site, what's the status of that and...?

Well, I think we've got 90%-plus of the equipment on-site already.

I think all major equipment is on-site, what you're really lacking now are commodities.

Okay. How about the shield panels? Are those onsite (1:19:21)?

Yeah. That's doing – we're very well on the shield panels. I think on Unit 3, we're at the – at level or course 5 or 6, and on Unit 4, I'm not sure that we've started the shield panels yet, but we have. It's going to be much lower. But that's all on schedule.

Okay. Thank you.

Thank you.

Thank you, Dan.

Our next question comes from the line of Mr. Julien Dumoulin-Smith with UBS. Please go ahead, sir.

Hey, Julien. Welcome.

Hey. Thank you very much, team. I appreciate it. So let's hopefully wrap this up perhaps with a little bit of a question on the resiliency, you guys have talked about in the past. I'd just be curious, what are the positive drivers that you're thinking about that you'd like to flag, to kind of offset any potential risks whatever they may be across either Kemper or Vogtle? And then a second specific question on the Kemper side of things, obviously, the previous conversations had suggested that you would get this thing in time for a June rate case. What does it mean if you don't necessarily trigger that? Is that all that meaningful?

Well, so let's hit the resiliency thing first. I think when we started talking about the balance beam and resiliency and all that early on, I know there were some questions about the ability of Southern Power to hit its numbers. Southern Power, I believe, has already done about half its CapEx round numbers this year and Southern Power already has the ability, I think, to hit its number this year as per our plan, which I think we flagged $300 million to $330 million last October. $315 million is a working number and they're going to hit that number unless the wheels fall off somehow. And then from 2018 to 2000 – what is it, 2021, we struck the agreement with RES and others and I think they've basically spoken for the CapEx that may show up there. So to the extent we do more than what we've already signaled, there's upside there. Further, I think there is a plan underway to improve the growth profile of the operating company further from October, there, I think, has the ability to improve the pace of pipeline replacement programs that are associated with safety elements and the – all the AGL Resources jurisdictions. We've expanded that and hopefully we've expanded the pace of investment there. So I think we have plenty of opportunity to do a little better. The other thing that you should know, you've followed us for 100 years or so, is that we are reasonably conservative in our estimates. When we say we're going to do something good or bad, that's kind of what we believe. We don't just throw about billions of dollars of CapEx filler; we really kind of know what we're going to do and we do that in concert with long-term regulatory relationships. When we put out a starting point, we do it with the notion of a no-regrets strategy. That is, we've already stress-tested against downside scenarios. So what you should know is that even within our 5% long-term growth rate, we have stress-tested against negative outcomes, and we're still confident in saying that we believe our 5% growth rate long-term is viable. So for all those reasons, we're sticking with it and I think the evidence of that is the board's decision to increase, even with Vogtle and Kemper, the rate of growth of our dividends per share. Second issue, was what?

Kemper.

Oh, I'm sorry. Yes, certainly would have been helpful. Let's not kid ourselves, to have Kemper up and running before the filing of the rate case. But you know, the rate case will take some period of time and so our expectation is that we will resolve the issues between now and then and be able to demonstrate performance. Recall though that the evaluation of performance in terms of reasonable period is 2018 and so that's kind of the first time we have to step up to some disclosed performance. And I think we've already disclosed that in 2018, our expected availability was around 30% to 35%. So that's a 2018 number, okay?

Got it. All right. Excellent. So basically, bottom-line, you could file a rate case nonetheless or is this more about just shifting the rate case timing irrespective and...

No. We will file the rate case. The law in Mississippi basically says within a reasonable period of time before the asset is in service, we could certainly do that. So the asset's in service in Jan 1, 2018, I think this is easy. So June 3 is the deadline to get that done.

Okay, all right, so yeah, you'll just prove it up at some point during the pendency of the rate case.

That's it.

Excellent. Thank you all gentlemen.

Yes, and actually our performance criteria really goes to the year of 2018. Okay.

Right. Excellent. Thank you.

Yes, sir. Thank you very much. Appreciate you being on.

Our next question comes from the line of Paul Patterson with Glenrock Associates. Please go ahead.

Good afternoon.

Hey, Paul.

How are you doing?

Awesome.

So just – most of my questions have been answered, but there was a comment by one of the Georgia Commissioners that he was sort of looking into the idea of a Kemper type of cap for Vogtle. And I just was wondering if you could sort of address how we should think – I know you guys are very risk knowledgeable and what have you. How we should think about your ability – obviously, it's early, but how you think about that kind of an idea? That's number one. And then number two, I was wondering if you could just address this Reuters story that seemed to be pretty critical of Westinghouse management, and whether you think the issues that were addressed in that article have been resolved, is that old history? Or just how you view that rather – that article, which seems kind of negative if you follow me in terms of Westinghouse.

Yes, let's hit the first one. I think I've kind of gone through this at length a little bit. The relationship between Georgia and its Commission in terms of putting into place effective regulation for the benefit of customers and reliability and price and service, has served us all so well for so long. There is nothing out there to me that indicates that that constructive relationship – I mean, they're tough regulators, don't get us wrong, but that constructive relationship will remain in place. And certainly, any sort of regime we consider in the future will be central to our belief as to whether it is appropriate should Westinghouse reject the contract for us to proceed with construction or not. All of that is integral into how we intend to proceed. So my best advice to you guys is to believe that we will continue to have a constructive relationship. And certainly, anything that seems to go away from that would also seem to inhibit us from going forward with a commitment to build. With respect to the Westinghouse thing, that's really a question for Westinghouse. I'll just say this. Steve Kuczynski is one of the best nuclear people in America today. He's come – I hired him away from Exelon, Steve, I mean, Steve. Christopher Crane is just a great guy, the CEO of Exelon. I think he might be the best nuclear guy in America, but he, I mean, Steve Kuczynski learned under his leadership, and Steve's brought a lot of those concepts to us and improved dramatically, I think, the whole performance of our nuclear fleet. I believe that even with the short period of time where we had been a lot more intrusive, we've seen some improvement. I think our ability is rather unique in this regard in order for us to take over as general contractor as apart from Westinghouse. Commenting on Westinghouse's own shortfalls is really not productive at this point.

Well, and I'm not asking you necessarily to comment or to pile on them or anything like that. But the reason why I asked the question is because you guys may end up taking over the project. And if you do, I guess it's kind of – I guess, the idea obviously would be, what are you sort of taking over? Do you follow me? I mean.

That's – yeah. I'm sorry, bud. Go ahead.

No, that's basically. I think you understand what I'm saying. I mean, in other words, my concern is what one's concern could be is that if you take this thing over and it's been – what exactly are you taking over? Do you follow what I'm saying?

Yeah. Are we taking over a bag of bones?

Yeah.

Yeah, yeah. No, thanks for the question and then it's a very fair question. Look, we have had – and just kind of to mention this. We had about 400 people on active oversight here and you can imagine there has been a lot of give-and-take as to our evaluation of what was going on first between Westinghouse and Shaw and then Westinghouse and CBI and then Westinghouse by themselves. And we have always had suggestions for improvement and we didn't want to interfere with the fixed price contract that we had because that would limit our ability to collect under that contract and take away the liability of Westinghouse. So from a commercial standpoint, we had to be reasonably careful about how intrusive we were. But you should know that we have, I think, great transparency into what we think it will be required in order to finish from an hours and cost standpoint. We'll have a darn good idea of what we're taking over and I think a darn good idea as to our ability to execute successfully given the different levels of productivity we may see. I don't think we're going to go into this blindly. Steve Kuczynski is leading the effort to evaluate those issues. And I think given his background, given his performance with us, I think we'll reach an effective recommendation for go, no-go, sometime after Westinghouse rejects and within the 30- to 60-day timeframe we've suggested.

Okay. Thanks a lot.

You bet. Thank you.

Next question comes from the line of Andrew Levi with Avon Capital. Please go ahead. Andrew Levi - Avon Capital/Millennium: Hey, guys.

Andrew, how are you? Andrew Levi - Avon Capital/Millennium: I'm all right. 100 years for Julien, as for me and Paul and you too.

I guess it seems like 100 years. Andrew Levi - Avon Capital/Millennium: Julien is just a puppy, smart puppy, very smart puppy. I guess, I just wanted to get back to a question that was answered – that was asked earlier...

Yeah. Andrew Levi - Avon Capital/Millennium: And I don't know if you can kind of answer it, but just kind of how we should think about this because you do have two other partners, it's Oglethorpe and MEAG and I've kind of discussed this with some people internally, your company. And I'll be honest with you, I try always to be honest, but I guess that's like kind of my next concern is that they're much smaller companies than you, especially MEAG and so their ability to kind of absorb these incremental costs may become an issue. So I just wanted to get your thoughts on that. And then since I guess I wasn't always realizing that you are working as the agent and I don't know if that's kind of written in the contract or the agreement, partners agreement. But I guess at some point, can they come after you in a legal aspect? Kind of what happened I think happened years ago with Vogtle 1 and Vogtle 2, not with these entities, but just kind of your thoughts on that and how you're protected in the agreement from that actually occurring beyond you guys having a good relationship.

Yes. So Andy thanks, bud, don't forget about Dalton, they're in there, I forget what it is, 1.5% or something like that. So the city of Dalton is part of this also. Look, we have a terrific relationship with these guys. We have had – remember, they're part of Vogtle 1 and Vogtle 2. And so we've just had an ongoing relationship. It works exceedingly well, that's not to say we don't have discussions from time to time about issues, but we always seem to be able to work our way through them. I think their ownership shares are commensurate with their size. And so yeah, they are a different size, but I think they have the wherewithal to be able to follow through on their obligations. They are certainly different. They're not regulated by a public utilities commission like we have, but they have their own ability to manage rates and make sure that they are viable. So I mean here again, it's certainly a fair question. But I think you should assume, as a working assumption that they're going to be fine and that we'll work constructively with each other. Andrew Levi - Avon Capital/Millennium: And then just the legal aspect of it too?

You know what... Andrew Levi - Avon Capital/Millennium: Go ahead.

That's kind of a technical issue. Here's the thing. If you want a briefing on kind of the legal aspects of lawsuits among or between the co-owners, let's do that offline and I'll get a lawyer on the phone and he'll... Andrew Levi - Avon Capital/Millennium: Okay. That's fair. Okay. Thank you.

Yes, sir. Thank you.

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

Well, the only thing I just want to say, I probably should have said this earlier when I was talking about the resiliency of our long-term growth rate of 5%. I think what we've been able to do is demonstrate that we can operate that long-term growth rate at 5% within a similar risk profile. Recall that 95% of our earnings are associated with super-high quality, state-regulated integrated businesses. And even of the 5%, you have things in there or they're under long-term contract, and even with the 5%, gosh, some of that is exceedingly consistent, for example, the Georgia Natural Gas Marketing business. That just doesn't vary from year over year over year, and they don't have much weather risk because they hedge most of it. So the beta associated with our ability to deliver on the 5% on an ongoing manner is really good within the similar risk profile that we've demonstrated for decades. And I'm very proud of that. I know there's a lot of headline risk out there with Southern right now. If you peel the onion, what you see, especially with the ash that the board took with the (01:35:59) dividend, you find a super successful company, one of the icons in our industry and a company that has demonstrated year over year over year. Look at a chart of our dividend, of being able to deliver on behalf of its shareholders. We intend to continue to do that and we look forward to talking about it in the future. Thank you for joining us today and we'll talk to you soon.

Thank you sir. Ladies and gentlemen, this does conclude The Southern Company First Quarter 2017 Earnings Call. You may now disconnect.