美國南方電力 (SO) 2007 Q1 法說會逐字稿

At this time I would like to welcome everyone to the Southern Company first quarter '07 earnings conference call. All lines have been placed to mute to prevent any background noise. After the speakers' remarks there will be a question and answer session. (OPERATOR INSTRUCTIONS)

At this time, I would like to turn the conference over to David Ratcliffe, President, Chairman and Chief Executive Officer. Sir, please go ahead.

Thank you, Thea. Good afternoon and thank you for joining us. I am very pleased to be with you for our first quarter earnings call. Joining me today is Kim Greene, our Senior Vice President of Finance. I am sure that many of you know Kim and have met with her during investor conferences and road show presentations. Kim's participation today is demonstration of our continuing effort to develop future leaders. Before I continue, let me remind you that we will be making forward-looking statements today in addition to providing historical information. There are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements, including those matters discussed in our Form 10-K and other SEC filings.

As you have seen from the materials we released this morning we're off to a good start in 2007 having posted an excellent first quarter. Our businesses are performing well, population and economic growth in the southeast continue, as does the demand for energy. Meeting the needs and expectations of our customers by providing higher reliability, customer satisfaction and low price drives our business.

As a brief update regarding our price competitiveness, even with some recent increases relating to fuel and storm costs recovery, our prices at the end of 2006 were more than 17% below the national average. Whether it's keeping below the national average, answering customer calls promptly or restoring service in record time following storms, our business exists first and foremost to serve customers. At this point, I will turn things over to Kim for a discussion of our financial highlights for the first quarter and our earnings guidance for the remainder of 2007.

Thank you, David. As you mentioned, we're off to a good start this year. In the first quarter of 2007, we reported $0.45 a share, that's an increase of $0.10 a share from the first quarter of 2006. Excluding our synthetic fuel investments, we earned $0.41 in the first quarter of 2007, an increase of $0.07 a share from the first quarter of last year.

Now, let let's turn to the major factors that drove our first quarter numbers, compared with the first quarter of 2006 excluding synfuels. There was only one major negative variance in the first quarter compared with the same period last year. Higher interest expense at our traditional operating companies, due primarily to our increasing environmental investment, reduced our earnings by $0.02 per share compared with the first quarter of 2006.

Turning now to the positive factors. Increased growth and usage among residential and commercial customers added $0.04 a share to our earnings in the first quarter compared with the first quarter of last year. The economy in the southeast remained solid and customer growth was steady with 70,000 new customers. As an indicator of the strength of the economy, the total unemployment rate is well below the national average. The quality of the new jobs created is reflected by personal income growth of 4% in the first quarter, which is the highest since the fourth quarter of 2004.

We did see some increase in usage per customer this quarter over the first quarter of 2006. We believe this increase may be attributable in part to increased spending on home electronic items as a result of the growth in personal income. Also, we have data indicating a significant increase in the installation of electric heat pumps as a replacement for gas heating. Weather added $0.02 a share to our earnings in the first quarter compared to the same period in 2006.

Weather in the first quarter of this year was on average normal compared to a negative $0.02 per share in the first quarter of 2006. However, there was a great deal of volatility in our weather in the first quarter. For example, in a normal first quarter there would be a 23-degree difference between the high and low temperatures. However, in the first quarter of 2007 there was a 54-degree difference or more than twice the normal variance between the highest and lowest temperatures.

Other income and deductions added $0.01 per share to our earnings in the first quarter compared with the same period last year. This is largely driven by allowance for equity funds used during construction or AFUDC associated primarily with our environmental construction program. On our last earnings call, we said that beginning in the first quarter of 2007 the earnings drivers in the wholesale business embedded in our traditional operating Company would be reported with the other drivers of our traditional operating companies.

Previously, we reported all of our wholesale results under a competitive generation category. For the first quarter of 2007, performance from the wholesale business embedded in our traditional operating companies, what we now call our traditional wholesale business was in line with the first quarter of 2006. In addition to our traditional operating companies, Southern Power added $0.02 a share to our earnings in the first quarter compared to the first quarter of 2006. This increase was due primarily to expanded sales under existing contracts and sales from new resources acquired last year. So we had $0.09 of positive items and overall, our quarter came in at $0.41 a share, excluding synfuels.

Before I discuss our earnings estimate for the second quarter, I would like to cover some important items that have occurred since our last call in January. As you may have seen last week, we announced a 4% annual dividend increase, effective with our second quarter dividend payable in June. The dividend is now $0.402 per share on a quarterly basis and $1.61 per share annually. This increase is consistent with our objective of growing the dividend, while targeting a payout ratio at the lower end of the 70% to 75% range.

This marks the sixth straight year that Southern Company increased the dividend payment to its common shareholders. In fact, every year for the past 59 years Southern Company has paid a quarterly dividend equal to or higher than the previous quarter's dividend. Our dividend and top quartile returns on equity and our traditional operating companies are key components of our overall low risk shareholder value proposition when compared with the overall market. They are the foundation of our financial goals of regular, predictable and sustainable earnings per share growth and are supported by our sound financial policies and stable A credit ratings.

Turning now to a discussion of Southern Power. We are continuing to build out our business platform at this subsidiary. The initiatives we have underway at the present time will add significantly to the earnings stream of Southern Power starting in 2010. As you may have seen earlier this month, Southern Power has entered into two purchased power agreements with Georgia Power totaling 853 megawatts. Southern Power was one of two successful bidders in this competitive process, which was overseen by an independent evaluator.

Under the first agreement, Southern Power will provide Georgia Power with a total of 561 megawatts of combined cycle capacity from Plant Wansley beginning in June 2010 through May 2017. Under the second agreement, Southern Power will provide Georgia Power with 292 megawatts of teaching capacity from Plant Dahlberg from June 2010 through May 2025. Both of the contracts are contingent upon approval from the Georgia Public Service Commission and the Federal Energy Regulatory Commission.

In February of this year, Southern Power entered into a purchase power agreement with Progress Energy Carolina for 150 megawatts from January 2010 through December 2019. The capacity for this contract will be provided by Plant Rowan. In March of this year, the Florida Public Service Commission approved a contract between Southern Power and Gulf Power. Southern Power was one of two successful bidders and will provide Gulf Power with 292 megawatts from June 2009 through May 2014.

The capacity for this PPA will be provided by plant Dahlberg . The contract is awaiting approval by the Federal Energy Regulatory Commission. Additionally, Southern Power continues construction on one -- unit 3 at Plant Franklin. The unit is expected to be completed in late 2008. The capacity from this 621 megawatt unit will serve a PPA with Progress Ventures from 2009 through 2015.

Lastly, we are constructing an additional unit at Plant Oleander in Florida. Unit 5 at this facility is a 160-megawatt combustion turbine with a projected with a projected completion date of December 2007. The capacity from this new unit will be used to serve a PPA that we signed with the Florida Municipal Power Agency. Both the Oleander and Franklin 3 projects are projected to be completed on time and on budget.

All of this activity is consistent with the business platform of Southern Power. And that is to sign long-term contracts with creditworthy counterparties while avoiding fuel risk. As further evidence of this low risk business model, Southern Power has an average contract coverage of approximately 94% through 2015.

Turning now to our guide an for 2007. It is clear that our businesses are performing well. While we exceeded our first quarter estimate by $0.08 a share, about one half of this variance or $0.04 can be attributed to O&M timing. Our current plans are for the O&M to be on budget by the end of the year. Given this, and potential for other variability, particularly during our peak summer months, we're maintaining our current earnings guidance of $2.13 to $2.18 per share, excluding synfuels. Including earnings from synfuel, our estimated earnings per share range in 2007 is $2.18 to $2.25 per share.

Finally, our estimate for the second quarter is $0.51 per share, excluding synfuels. Again, that's $0.51 per share without synfuels. Including synfuels, our estimate for the second quarter is $0.53 per share. At this point, I will turn the call back to David for his closing

Thanks, Kim. As we've discussed on prior earnings calls, Southern Power together with its partners is finalizing plans to build an integrated gasification combined cycle or IGCC near Orlando. On March 28, Southern Power's Board of Directors approved a continuation and a completion of design engineering and construction study of the gasifier portion of the project. The estimated cost for the Southern Power portion of the gasifier have increased to $212 million, due primarily to increases in commodity costs and increased market demand for labor.

The higher costs are in line with current economic conditions and will not jeopardize the construction of this facility. In fact, additional funding of $59 million has already been granted from the Department of Energy. And the Orlando Utility Commission approved the revised cost for its 35% share of the gasifier portion of the project. The commercial operation of this facility, which is scheduled for 2010 will be a major step forward in the deployment of clean coal technology and will represent a significant milestone in our partnership with the Department of Energy, Orlando Utility Commission, and Kellogg Brown and Root.

We believe the unique coal gasification process we have developed with our partners has significant commercial potential, particularly for the use of lignite and other low ranked coals. We're now in the process of analyzing the market for this technology and assessing the options available should we decide to move forward with this business. As you can see from our report this afternoon, our businesses are performing well, and we're off to an excellent start for 2007. At this point, Kim and I will be happy to take any questions you might have. Thea, we'll now take the first question.

(OPERATOR INSTRUCTIONS) The first question is from Jay Yannello with Pali Capital.

Good afternoon, everyone. Kim, your comments on the key pump replacement were very interesting. Can you just dive into that a little more and tell us exactly what you're seeing?

Sure, Jay. We do see in fact, that there are at Georgia Power and Alabama Power nearly 50% increases in sales of heat pumps and electric water heaters. And we're seeing that about half of those are going into new homes. So the choice for an electric supply, either heat pump or electric water heater is higher than it has been in the past. And then also, about half of those were existing homes switching from natural gas to electric.

Okay. And the math is there, I presume, on an average monthly basis or something like that? How much cheaper is it to use electricity versus natural gas, roughly? Do you have any numbers that?

No, that's a good question, Jay, that I can't give you an exact number on. But I will tell you, obviously, a lot of folks who had natural gas last winter and were experiencing the very high costs of natural gas certainly were taking into consideration the cost of the switch over the long-term, and recognizing that that was going to be a good decision for them in the long run. We have a group of folks at our offices who can help customers make that decision and do that cost benefit analysis, so that they can make the best decision on a case by case basis.

Okay. Thank you.

You're welcome.

The next question is from Paul Ridzon with Keybanc.

Jim, you indicated that half of the beat versus your expectations was O&M timing. What do you a attribute the other half to?

Sure, Paul. We actually -- which is timing. That O&M is certainly timing. And there is some other indicators or other drivers that are also timing related as well. Probably $0.03 of the rest of that $0.04 was really around our wholesale businesses, two in Southern Power, one at the traditional wholesale business, particularly Southern Power. Taking into account that we've got a big challenge this year at Southern Power to get to the number for our budget.

That really is timing. You're never quite sure when you're going to be able to recognize that net income. And certainly at this point, we wouldn't see that as permanent increase. Additionally, there was just a very small benefit compared to budget in terms of our interest costs. We certainly hope that will continue over the quarter but not really prepared at this point to guarantee that.

Was the volatility you saw in temperatures driving that wholesale result?

It certainly was largely a factor. It was such an interesting weather quarter for us because to say it was simply normal is to really leave out a big part of the story. That weather volatility certainly had some impact we're sure on usage. And drove opportunity for our wholesale business outside of our territory, certainly, the periods of time when there was very cold weather to the north of us that we were able to provide energy into.

I think we saw that phenomena a couple summers ago when I think you were selling up into Progress that you had very mild weather and they had a lot of high pricing . Is that kind of the same

Paul, that's so interesting that you brought that up. Because I have some great maps that I would love to show you that really show Atlanta, at many weeks, really that doughnut that we talked about with Atlanta that region around middle Georgia being milder. And around us to the north and to the east, colder temperatures. So that's just a pattern that we're seeing now, not just in the summer from time to time but also in the winter. And I can't not congratulate our folks on the generation and transmission side of the business for giving us the opportunity through our excellent performance. At our generation units a very low E-4 this quarter, very low last quarter -- or last year, the same quarter but even better this year. And so everything was just working well to give us that opportunity.

And just back on that heat pump question, is that trend sticky or was that maybe just the result of extremely high natural gas prices last winter? Are you accelerating that trend or decelerating? Do you have any flavor on that?

We haven't worked acceleration into our budget so far. We certainly hope that will continue to be a trend. We're seeing a lot of growth in the southeast as you know. And certainly, our folks are out there talking to people about the benefits of electric end use products and we hope that continues. But certainly, don't have any indication right now that --.

I think the hard part of that is trying to determine what the long-term price of natural gas really is. And as long as it stays up, we would expect a better penetration on heat pumps.

And, David, when do you expect a decision on the strategic process of how to proceed with TRIG?

Well, we're in the process of doing the analysis. I would think that maybe mid-year to the end of the year we would have some decision about how we want to proceed with that business.

Is your decision of how or when?

It's really both. I think first of all, you've got to decide "if". And then the next part that would be how and over what period of time?

Okay. Thank you very much.

Your next question is from Greg Gordan with Citigroup Investment Research.

Thank you. My question in many ways dovetails the line of questioning you've gotten so far. If you look at the underlying demographic growth and the usage growth per customer that you're seeing, is it in line with ahead with or ahead of what you've baked into your near term and long-term financial plans? Because if it is ahead of that, wouldn't we see much more of a magnification of the impact of the third quarter versus the first quarter?

Greg, the customer numbers are really right on line, 1.7% is right where we expect it to be. It is the usage this quarter that's a little more than we might expect. And certainly, we're looking into that and seeing indications of the strong economy is certainly a factor there, as well as the switches that we've seen. And certainly, the fact that, and this is something that David mentioned in the script, the fact that our prices are in fact, as of the end of December, more than 17% below the national average. It is certainly attractive to folks who are beginning to locate their businesses here. We're seeing data centers move into this system and those are commercial customers who actually have industrial looking type demand. And we've seen that usage in that and growth in that commercial segment increase, and we've certainly hope to see that continue.

So I sense reticence, as most of utility managers are loathe to get out in front of their earning guidance just because they had a good first quarter. If these trends were to magnify themselves in your peak season, which is Q3, it looks it me like you're setting up very nicely to be at least at the high-end of the range for the year.

Well, Greg, nobody has ever accused us of being anything but conservative. So I think another statistic I would throw in there in the mix is potentially for us is we saw personal income growth up 4% in this quarter, which may be an indication that again a very strong economy. And maybe there is more discretionary income to buy more devices. I think we're in a mode we're trying to do a lot of analysis here and we'll feel better as we see more demonstration of it.

Thank you.

Your next question is from Dan Eggers with Credit Suisse.

Good afternoon. Not to beat this to death, but on the demand side, how much of your consumption for heating is actually done on electric heat versus gas heat in your territories? I know in Texas, we have a lot of electric heat. Is that potentially, with volatile weather, affecting consumption patterns?

It is a function of where you get the colder weather. If you look at our distribution of gas heating, most of the gas heating would be in the northern part of our territory, with more heat pumps and more electric heating in the southern part of our territory. So, if we get colder temperatures in the southern part of our territory, we get higher usage, obviously because the electric heat. I think we're still on the front end of trying to figure out exactly what this heat pump penetration is going to be and what impact that's going to have on us.

Okay. On synfuels, this is a little off the topic, but earnings seem to be a bit ahead of schedule. In the first quarter it's $0.04. Is there anything we we should read into that?

No. We're in good shape with synfuels, and what you're seeing there in a large part, are differences in our positions this year. We terminated a contract last year, so essentially the two businesses that we had are down to one. And then we took on fuel hedges, which are at the end of the year going to offset our oil price and tax credit exposure. But those are being mark mark-to-market, and there is some gains this quarter that are just a function of that method of accounting.

Okay. Got it. And then the Georgia accounting order, can you remind us again when you're filing that and just kind of what are going to be the big topic issues you're hoping to address this time around?

They will file in either late June or early July and that's a six-month process. We expect a decision by the end of the year, I think by a process definition, the Commission has to decide by the end of the year. The key factors will, as usual, be estimates about cost increases and return levels.

There is no big add-on capital projects we should be thinking about as far as automated metering or anything like that that might potentially come up?

The biggest environmental -- the biggest capital costs will be around environmental expenditures as we move into a very heavy phase of expenditures on environmental expansion.

Thank you, guys.

The next question is [Vikas Vajiti] from Morgan Stanley.

Good afternoon. This is Vikas. Quick question on -- any color you can provide on the Duke and Plant Vogtle expansion, what kind of milestones should we be looking for and when?

Well, let me talk about the Vogtle situation first. As you know, we've got an early site permit from the NRC in our hands. The process that we're stepping through in the state of Georgia, as you know, is to file with this Georgia Public Service Commission for a certification of need and then core correspondingly a certification of what kind of technology. We've just filed the certificate of need process in the Integrated Resource Planning document. We will present testimony in May and then that process will go on and hopefully arrive at an agreed to certification of need. Then we'll go back into that process to determine what technology we will propose to built the nuclear plants as part of that on a self-build option. And I think Kim is looking at the time frame. What's the time frame of approval for the Georgia Public Service Commission?

Right now we would expect that we'd get certification by the end of next year. And I am just going to hit one thing David mentioned that the early site permit has been filed, and we expect to receive that permit early to mid 2009.

Okay. Can you guys share about when you would expect to have costs firmed up or if not firmed up at least indicative numbers for the buildout costs?

Our objective is to try to get that done by the end of the year because it has to be a part of the filing obviously with the Georgia Commission.

Got it. All right. Thank you.

Your next question is from Daniele Seitz with Dahlman.

Hello. I was wondering if you anticipate at this point some increases in cost in material and all of that? And if the -- if you already have some contingency in the CapEx adjustment for '07 and '09?

Daniele, we certainly have included what we can see and determine right now and we have experienced cost increases, like everybody else has, for commodity materials. I don't think anybody has a sense of how much more is in front of us. We've tried, as I said, to include in our estimates what we know.

Okay.

Daniele, just with respect to our environmental program, which of course is a large percentage of that, what you see in '07, '8 and '9, I think you've seen our matrix for projects and we have a lot of certainty around the projects that we're working on during that period of time. And we've executed contracts for material and labor. So there is certainly much more certainty around the numbers in the near term but as we move out beyond hopefully the next decade, we'll be firming up those estimates as we get there.

And as far as the, for example, the IGCC plant, you feel in about a year or so you will have a pretty good idea as to how much this type of technology will pass?

Yes, that would be our hope.

Thank you.

Your next question is from Andrew [Levy with Rincourt].

Just one quick question. Any color on the industrial sales, why they were down?

Good question. We've talked about the textile segment of our industrial group for awhile now. And textile continues to decline and in fact quarter over quarter declined nearly 19%, something between 18% and 19%. So if you take textiles out of the number, industrial was actually up nearly 1%, 0.8%. So still feel good about many segments of the industrial part of our business, and just continue however to get drug down by textiles.

Thank you.

You're welcome.

The next question is from Paul Patterson with Glenrock Associates.

Just wanted to get a little bit more clarity on the IGCC costs now. What is the costs per KW now with the new gasifier numbers and everything? What are we looking at now?

Good question. I'll tell you that our estimate for the Orlando project and again, you've got to remember a lot of things about Orlando, one on one certainly wouldn't certainly wouldn't foresee doing that for the remainder -- or units going forward. That's more inefficient design and a lot of work to be done at Orlando. This of course is the first commercial scale up of that project that we have at Wilsonville that we feel so good about. But our numbers right now for Orlando, on an overnight basis, are looking somewhere like $2,500 a KW. Now, again, that does include the increased cost estimate that we talked about. But now we've got thumb's up from our partners, DOE, Orlando, Of course, we're very excited about this and we're going to move forward. And these cost increases are cost increases that are affecting all construction. And certainly, when we first put out an estimate, that was three or more years ago, and it was in a very nascent stage and we've moved a good deal down the road. And now have very detailed cost estimates on most of the major pieces of equipment and we'll be able to execute going forward with those more recent cost estimates.

Okay. So, if I understand you, the $2,500, that doesn't include the DOE subsidy or does it?

No, that $2,500 in fact does include the amount that DOE is providing for the capital. If you take out that DOE subsidy, the number is somewhere around $1,700 overnight.

Okay.

But DOE is very excited about this. They have a lot of confidence, certainly in Southern's ability to get this through and certainly a lot of interest in IGCC being a viable source in the future.

And then, now that you're talking about the potential for commercial opportunity, et cetera, what is your thought? I know, I realize it might be a little bit early but what is your thought about the price for KW would be now that you sort of have -- now that this is sort of the first commercial one? And when you actually go commercial you will be more streamlined and and more efficient, et cetera. What is the thought that what the number might be if you were, as you said, sort of going commercial as opposed to the service being sort of slightly experimental?

It is a great question, and I wish I could give you a very precise answer. As we move forward, we're really in the midst right now of trying it get our hands around that. But one thing that that I do feel confident saying is we look at all of the technology solutions, all of the opportunities, base loads. Certainly our rank, whether it was three years ago or today, our relative ranking, if you were going to choose IGCC in the past, we believe we can be competitive among those base load technologies. And where ultimately the costs are for nuclear and IGCC come out is, unfortunately at this point, very difficult for us to answer.

Well, you guys were just talking about perhaps going commercial, though. Can you share a little bit more about what potential opportunities you're looking at and when they might show up or how can we think about that other than -- is this just -- could you give us sort of a little bit of a sense as to what potential commercial opportunities you're thinking about? Or how we should think about it as analysts? Or is this just sort of an option we should be thinking about that you guys might be able to do in the future?

I think it is, at this point, very premature. I said earlier, what we're trying to do is to run the business case and make decisions about; Is this a business and what form might it take and how might we participate? I think by the end of the year, we'll be able to answer that much more definitively than we can now.

And then just finally, with Jay's question on the heat pump stuff, is there a rule of thumb in terms of a gas price and an electric price? I realize that obviously, we're talking about a residential product for the most part here. What's the switch rate is? Where does, gas vis-a-vis electricity, be where -- if someone was building a new house or a new operation, what would be the -- where is the switchover point in terms of it being economic?

I don't know the answer to that. But we'll try to get it to you on a follow-up.

Okay. Great. Thanks a lot, guys.

(OPERATOR INSTRUCTIONS) And your next question is from Stan Jenkins with the State of Wisconsin Investment Board.

First, I was wondering if you can clarify a little, you had mentioned that you had about half of the gain was due to O&M timing effects. And I was wondering if you could give me some detail on what those effects are and when you expect them to reverse?

Sure. A lot of the O&M understand, was really around some decisions that we made to delay some generation outages. And in Alabama particularly, we've had dry weather everywhere but -- and that has impacted our hydro generation. And Alabama had a couple outages scheduled for a couple of coal units and decided to delay those, given that they needed to run, given the little bit of the lack of hydro. So essentially, certainly work that needs to be done and expected to turn around, most likely second or fourth quarter. But primarily around decisions to either just postpone outages.

Okay. Has that hydro situation persisted or have you gotten enough rain to alleviate that or is that a problem maybe that might persist throughout the year?

Well, so far, we haven't seen a dramatic turnaround but we'll be hoping for rain, and are certainly set up and are managing that for our peak season.

Okay. And then I had a couple questions on your sales environment. Obviously, the wholesale sales up over 20%. You mentioned a couple of things driving that. How much of that, though, is an ongoing contracts and that new plant and so forth and how much of it was opportunity sales?

We've got Southern Power, and certainly at Southern Power, out of that total $32 million about 1/3 of it was the contract optimization and trading and marketing opportunity. And 2/3 being contract driven by certainly growth in some of our existing contracts and additional contracts.

Okay. And then looking at your page nine of your release, where you show the different tubs, Georgia was quite a bit less in terms of revenue and profit. Revenues were up marginally and profits were actually down versus pretty significant gains at all of the other divisions. I was wondering if you could give me some detail on kind of what the dynamics are behind why Georgia was so much less than the rest of the units?

Sure. At Georgia, certainly relative to Alabama Power and even Mississippi Power, those companies have had base rate increases over the past year, Georgia power has not. Their wholesale revenues went down a little bit. And their costs are up a little bit. The interesting thing, again, this is the dangers of normalization, but on an O&M year-over-year comparison, we were pretty much flat. Georgia actually, while they were down compared to budget, did spend a little more than last year, so that certainly is going to impact their total net income. And at Alabama Power, for example, they spent less than last year, so that was a little bit of an offset there.

Additionally, Alabama and Georgia Power kind of offset each other in weather. Again, at the end of the quarter were pretty much normal. Georgia Power, though, looking at them separately, had a little less of a -- a little downturn actually due to weather. And Alabama had a little benefit due to weather. So I think there were a lot of things driving that difference including base rates and actually usage.

Okay. Then, I had a couple questions around the CapEx budget. Kim, first, if you can kind of give me what the CapEx budget is, refresh me on what it is going to be for '07? And then, on some of the details you show on the page five, there is the new generation at the operating units. Is that more -- is that going to be later or is that in the front end? And somewhere is the transmission CapEx, is there any new transmission or is that kind of more ongoing CapEx related to the transmission?

Okay. First of all with respect to the '07 budget, we have not had any change from the official budget that was approved by our Board earlier this year and was released with our January release. And with respect to transmission, certainly that is a combination of growth -- well, that certainly is largely due to growth and distribution together. Going forward, is really at a level where they've been over the past few years. Our T&D spending has been relatively healthy and we don't see any significant change in that in the near term.

Okay. So that's kind of a normal level, it is not like any new transmission projects above what you normally see?

Right. It does include new projects. But all of that is worked into the plan, and that's what we do every day to continue to meet the needs of our growing customer base.

Okay. And then the last thing I was wondering is do you have any -- can you give any guidance on what your plans are as far as for a new issuance in the capital markets? Do you expect anything in the second quarter or how will that kind of be throughout the year? I know you have some stuff maturing, I think, in the third and fourth quarters.

Sure. Let me just grab my schedule here real quickly. Let's see, our plan this year was to issue about $4.1 billion. We've done about $1.6 of that. We've got about $2.5 remaining. That will be comprised, for the most part, Alabama and Georgia, maybe a couple small issuances for Gulf.

Thank you.

You're welcome. Thanks a lot.

The next question is from Ted Olshanski with Scotia Capital.

Good afternoon. Actually, you just answered one of my questions. But could you tell us what the debt to capital ratio was at the end of the first quarter consolidated?

60%.

60%, and what do you expect it to be at the end of the year?

60%.

60%, okay. And at what point over the next couple of years do you expect that you will number a position where you will be able to actually reduce debt?

In our plan and you see what we've got in the next three years, we're certainly managing our debt and equity levels. And we have a target to maintain a 40% equity ratio and that's what we'll continue to drive towards and maintain.

Okay. Thank you very much.

You're welcome.

The next question is a follow-up question from Paul Ridzon with Keybanc.

You mentioned you hoped to bring to the Commission a cost estimate on a new nuclear plant. When was that timing and how firm will that pricing be? Who wears the risk on overruns?

Well, that's all part of the negotiation process and that's what we got to work through with a supplier and that's part of the negotiations.

Is the dynamic still that you're going to put up capital and your partner, I think it is Westinghouse, needs to have an existence proof out there and so maybe they'll be willing to take some of that risk?

Obviously, I would like for as many people to take part of that risk as we can get. So, we'll be working with the vendor and with the contractors as we try to finalize that.

Okay. Thank you.

The next question is a follow up question from Daniele Seitz with Dahlman.

I just was wondering, following up on just the previous question. Don't you have a deadline to present -- to file with the NRC in order to be one of the first to benefit from the credits and all that? And will -- can you still make that deadline?

Daniele, I don't think we have any problem in meeting the deadlines to be among the first and probably qualify for whatever might be available to us under the federal guidelines. Let me see if I can clarify. I think I made a mistake in an earlier comment. It is a good opportunity for me to correct that. I actually said that we had an early site permit for Plant Vogtle. In fact, what we have done is filed for an early site permit and our filing has been accepted by the NRC. We expect them to approve the early site permit in May of '09. So they're in the process of reviewing the early site permit. And the fact that they accepted it as complete is an indication that they're expediting that process.

Okay. A third question is on the Southern Power. And this has been the contracts that you made on several plans, does that mean that actually the commodity risk on gas will be on the buyer of the power and therefore, will limit your risks -- will limit Southern Company as a whole risk in terms of commodity pricing?

Yes, Daniele , that's exactly right. That's our traditional method of

Okay. And by 2009, '10, how much of the power plants will be remaining uncontracted at Southern Power at point, just roughly?

I've got the statistic, Daniele . We are actually contracted through 2015 at approximately

Okay. Great. Thanks. I was just curious. Thank you very much.

Your final question is from Margaret Jones with Citigroup.

Hello. I have a follow-up fixed income type question. You've certainly said very clearly that you're targeting a 60% debt ratio throughout the current forecast period. Under what circumstances would you consider changing that target?

Margaret, we're happy with our entire business plan and our strategy of being one of the, if not the, lowest risk utilities out there that we think offers the best risk adjusted return. And part of that offering is maintaining what we consider to be a healthy balance sheet, financial integrity, an A credit rating. And all of those components are very central to our strategy and certainly don't see that changing any time in the near term or down the road.

Thank you very much.

You're welcome.

There are no further questions at this time. Mr. Ratcliffe, would you like to have any closing remarks, sir?

Let me just say thanks to everybody again for joining us. I'd reiterate, we're off to a great start in the first quarter. And as you see, the businesses are performing well. We continue to enjoy economic expansion in the southeast and we continue to deliver, we think, outstanding customer service and at very affordable prices. So, thanks to everybody for joining us.

Thank you for participating in today's conference. You may disconnect at this time.