美國南方電力 (SO) 2007 Q3 法說會逐字稿

Good afternoon. My name is Jennifer, and I will be your conference operator today. At this time, I would like to welcome everyone to the Southern Company third quarter 2007 earnings conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) Thank you.

I would now like to turn the call over to David Ratcliffe, Chairman, President, and Chief Executive Officer of Southern Company. Mr. Ratcliffe?

Thank you, Jennifer. Good afternoon and thank you for joining us.

I'm pleased to be with you for our third quarter earnings call. Joining me today is Tom Fanning, our Chief Financial Officer.

Let me remind you that we will make forward-looking statements. Hello? Not everybody's on mute. If you're not on mute, would you put your phone on mute.

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 discussed in our Form 10-K and subsequent SEC filings.

As you can see from the materials we released this morning, we had a good quarter and our businesses are performing well. Before Tom discusses our financial highlights for the quarter, I'd like to begin today by recognizing the outstanding performance of our generation transmission and customer service employees.

During the unprecedented heat wave we experienced in August and the ongoing drought, during an 18-day period from August 6th through August 23rd, the Southeast experienced average high temperatures in excess of 100 degrees. During that heat wave we had 14 consecutive business days where our peek demand was higher than our 2006 peak, with a total of 13 hours above 40,000 megawatts, and 76 hours above our 2006 peak hour record.

We set a new peak on August 22nd of 40,870 megawatts, some 7.4% higher than the previous year's peak set on August 10, 2006. Despite the prolonged stress that was placed on our system, as well as hydro production that was some 65% below normal, our customers did not experience a single major disruption or outage.

While utility customers in other parts of the country experienced brown-outs or calls for voluntary load reduction, service to our customers continued uninterrupted during some of the most challenging operational conditions we've experienced. Our ability to provide reliable service during adverse conditions is a testament to not only our highly skilled and experienced personnel, but also to the inherent benefits of our integrated system.

Four operating companies working with coordinated planning, clear lines of communication, and a strong logistical support. Our customers benefit from the operational advantages of an integrated utility in all types of adverse weather conditions, from heat waves and droughts to major storms and hurricanes.

At this point, I'll turn things over to Tom Fanning for a discussion of our financial highlights for the third quarter and our earnings guidance.

Thank you, David.

Our third quarter results were consistent with our business plan to provide regular, predictable, and sustainable performance over the long-term. We earned $1 a share in the third quarter of this year. This compares to $0.99 a share in the third quarter of 2006.

Excluding our synthetic fuel investments, we earned $0.99 a share in the third quarter of this year compared to $0.99 a share in the third quarter of '06.

For the first nine months of this year, we earned $2.03 per share compared to $1.86 per share in the same period last year. Excluding our synfuel investments, our earnings for the first nine months of this year are $1.96 per share. That's an increase of $0.10 a share over the earnings we reported for the first nine months of 2006, excluding synfuel.

Here's the breakdown of our earnings for the third quarter compared with the same period last year. First, the negative factors. Nonfuel O&M primarily related to year-over-year scheduling differences and increased costs from maintenance projects at several of our fossil and nuclear plants had a negative impact of $0.05 a share on our earnings in the third quarter.

Depreciation and amortization, as well as interest expense and taxes other than income taxes, primarily revenue taxes, reduced our earnings by $0.03 a share.

The additional depreciation and interest expense is due primarily to an increase in capital expenditures to support our environmental program and to invest in our transmission and distribution system in order to meet the needs of our growing Southeastern economy. Increased expenses primarily at the parent company and in our leasing business decreased our earnings by $0.02 a share.

Finally, an increase in the number of shares outstanding, due to additional equity issued through our employee savings plan and dividend reinvestment plan, reduced our earnings by $0.02 a share.

Now turning to the positive factors. Top line revenue growth for our traditional business, including changes in market-based rates and rate adjustments in Alabama, added $0.07 a share to our earnings in third quarter of 2007 compared with the same period in 2006.

Weather contributed $0.02 a share to our earnings in the third quarter of 2007 compared to the same period in 2006. Weather in the third quarter of 2007 was actually $0.06 above normal, however, weather in the third quarter of 2006 was $0.04 above normal.

We had other contributions to earnings from our traditional business that added $0.02 a share in the third quarter of 007 compared to the same period in 2006. These contributors included increased transmission revenues and allowance for equity funds used during construction, or AFUDC.

Finally, our Southern Power unit added $0.01 a share to our earnings in the third quarter this year compared to the prior year. This increase is due primarily to new contracts, increased revenue from existing contracts, and optimization activities. So, we had $0.12 of positive items, and overall our quarter came in at $0.99 a share, excluding synfuels, $0.05 a share above our estimate.

Now, before I discuss our earnings estimate for the fourth quarter, I'd like to provide a brief update on our operational performance during the summer peak load period. As David mentioned, we faced an extremely challenging period during the third quarter with the extreme heat during the month of August, however, even before that August heat wave, the Southeast was experiencing a severe drought, what some experts have called a 100-year event.

Over 30% of the Southeast is now deemed to be in exceptional drought condition including 27% of Georgia and 59% of Alabama. During a year of normal rainfall, we produce between 3 and 4% of our electricity from hydroelectric facilities, however, the drought conditions reduced the hydro portion of our production to approximately 1%, requiring to us run our gas-fired units longer to help make up the difference.

While the continuing drought has had a major impact on the performance of our hydro units, our fossil and nuclear facilities performed extremely well during this critical period. Our fossil fleet had an equivalent forced outage rate of 1.6% during the peak season compared with an industry average of nearly 6.5%.

Our nuclear units also performed very well, with an equivalent forced outage rate of 0.94% during the peak season. In fact, the capacity factor of our nuclear fleet in the third quarter was 99.3%.

Finally, as David said earlier, our transmission and distribution assets also performed extremely well during the summer peak period. For the first time we exceeded 48,000 megawatts of load on our transmission network, surpassing our forecast by over 8%, or 3,000 megawatts. We were able to meet this demand with no emergency event and no major interruptions to retail customers or wholesale transactions.

One of the major reasons for this excellent performance is our commitment to maintain an efficient, reliable network. Over the past decade, we have spent 80% more intensively on transmission than the industry average which translates into a network that performs exceedingly well. And our year-to-date performance indicates that 2007 could be another excellent year for transmission reliability.

Turning now to our guidance for 2007, it's clear we are executing our strategy and that our businesses are performing according to plan. In formulating our estimate for the fourth quarter, we are expecting additional O&M spending during this period.

Part of the reason for this increased spending is the shifting of outages from spring to fall, as well as an assumption of normal weather and a normal level of off-system sales. As a result, our fourth quarter estimate is $0.22 per share, excluding synfuels. Again, our estimate for the fourth quarter is $0.22 per share, excluding synfuels.

Including synfuels, our estimate for the fourth quarter is $0.23 per share. This fourth quarter implies an earnings estimate for 2007 of $2.18 per share, which represents performance at the very top of our guidance range.

Again, this estimate of $2.18 per share for 2007 excludes any synfuel earnings. Including synfuels, our estimate for the full-year is $2.26 per share.

At this point, I'll turn things back over to David.

As you can see from our report this afternoon, we're on track to meet our operational and financial goals for 2007.

Our next major event this year will be the outcome of the Georgia Power retail rate case, which we expect to occur on or about December 20th. Following the conclusion of the rate case we plan to conduct a conference call with you to discuss the outcome.

At this point, Tom and I will be happy to answer any questions that you might have, so, Jennifer, we'll now take the first question.

(OPERATOR INSTRUCTIONS) Your first question comes from Greg Gordon with Citigroup.

Thanks. Good afternoon, gentlemen.

Hey, Greg.

Two questions.

First, relative to the water conditions, it sounds like so far you've done an exceptional job managing the dispatch of the fleet. What are the next steps under a scenario where we continue to have deteriorating water conditions for the Company?

Is there a point at which you have to reduce capacity factors at your baseload nuclear and coal plants because you have to conserve water? Explain to us what the steps are from here if we continue to see a degradation in the drought conditions and how that affects dispatch and your ability to serve your customers.

Greg, what we have tried to do is to make it clear to the Governors in these three states exactly what the current operating requirements are for the two primary facilities on this river system. There are numerous facilities and all of the facilities are important to our operation. So to the extent the drought continues and flows are reduced further, we would simply to have look at each and every situation as it occurs.

What we've tried to do, as I said, is to make it clear to the Governors what the current operating requirements are. The decision about future flows is obviously one that is being debated in a lot of different forum. The Corps of Engineers will have to make a determination.

The state of Georgia, the Governor of the state of Georgia has asked for emergency relief. All of that is the topic of a great deal of debate and discussion. We will simply to have see what the decisions are about ongoing flows. As those flows are reduced we will simply to have see how we need to change our operations and what we can do.

It's pretty difficult to say what units would be affected until we see exactly how the flows are reduced. Hopefully, we'll get back into a normal rainfall period between now and next spring that would allow us not to have to do extraordinary things.

You said there were two major facilities. Which two facilities are those?

Well, the two that have been most discussed have been a plant in Gulf Power Company's territory called Plant [Shoalts], which we need to operate for transmission reliability purposes. The other major facility on the Chattahoochee River in Alabama is plant Farley, which is a baseload nuclear plant.

But there are, as I said, numerous other facilities. For example, Georgia Power Company has at least three major fossil plants on the Chattahoochee River closer to Atlanta, and then there's a whole series of hydro facilities along that river basin.

And I would just add that, recall, we just passed through our peak season, and even during our peak season, during those days where we had the highest level of temperature variance and in spite of the drought, we still add reserve margin around 8%.

Now that includes some off-system purchases, but still, we performed very well, no interruptions, didn't call any interruptible load. So we performed very well this summer, and so really, you know, we feel like we're in good shape up until next summer sometime, the next peak season.

Thanks.

And then the second question was, we've got the advisory staff, sorry, not the advisory, you got the staff position out of the adversary staff in the (inaudible) case. What are the next series of milestones that lead up to the settlement period window? When is the settlement period window? And lacking a settlement, when would we expect a final decision?

Yes, you know, I just, as we've mentioned before, that's a -- this is part of the normal process as it has been in place, these accounting orders have really been in place since 1995. So this is just another part of the normal process that everybody should expect.

In terms of the forward schedule, we should see hearings, staff and intervenor hearings between November 5th and 8th. The Company will file rebuttal testimony around the middle of November, around the 16th. Rebuttal hearings at the end of November through early December, and we expect to have the order approved by no later than, say, December 20.

I think the legal requirement is end of year, if I remember correctly, since we filed first of July, but the Christmas holidays are likely to get us a decision in that third week in December.

This is the calendar that's been set.

And you wouldn't expect if there were -- at this point, we should just think about that calendar as being fairly straightforward? Could be other settlement proposal before then?

Yes, Greg, you know, as in all these other past discussions, there's always the possibility, but the calendar is as I described. It's always a possibility to settle early, but I think also we should view as in past results, that it's actually a helpful process to go through these discussions with all concerned parties and achieve a mutually agreeable result for the benefit of our customers. That's the way it's worked in the past, and, you know, so we'll see how it goes.

Thank you, gentlemen.

Sure. Thank you.

Your next question comes from Jonathan Arnold with Merrill Lynch.

Good afternoon.

Hey, Jonathan. How are you?

Good. Thanks.

One thing you mentioned that the weather in the third quarter had been, I think, $0.06 above normal. Where do we stand on weather through the nine months versus normal?

Oh, sure, piece of cake. For 2007 it's $0.09 above normal, year-to-date.

Okay.

And has, I guess it's early days fourth quarter, but would October kind of track warmer than normal for you like it has for us up here?

So far, it's been slightly warmer than normal in October. But remember, October is a month of fairly low load anyway.

Okay.

And then I had one other thing, which was just relating to the recent cancellation of the IGCC project in Tampa, a general sense of Florida getting much less favorable towards coal in general and some of the Governor's comments. Is there any reason to be concerned about your project where you've already broken ground that that could somehow not move forward, and could you just give us an update on how things stand there?

I think we're certainly well aware of what the Governor has proposed in the state of Florida in terms of his executive orders, and there is a lot of analysis going on by, certainly, us, our Gulf Power subsidiary, Southern Power, our customers in the state of Florida, as well as all the other investor owneds and co-ops in the state of Florida to try to understand what those requirements will portend for future generation and how they might be actually implemented.

We're doing analysis. We're trying to make sure that we provide information to all of the decision makers and the policy makers. At this time, as you know, we had the groundbreaking, we're moving forward on the project. We have no other reason but to continue that project.

Okay. And are there any permitting issues? Are there any that could be revisited, or is that a wait and see kind of process, David?

We're in good shape from a permitting account standpoint, but I suspect that there will always be, from time to time, as you design these things and actually begin to construct a need for modifications to permits. You shouldn't presume that you have carte blanche authority without being reviewed. And I think in that light it is important that all of the parties continue to evaluate the current reality and try to make the best decisions they can.

Thank you.

Thank you.

Your next question comes from the line of Andrew Levi with Brent Corp. Actually, I'm all set, guys. Thank you very much. Have a great Thanksgiving.

Thank you. You, too.

Your next question comes from the line of Scott Engstrom with Blenheim Capital Management.

Good morning. Tom, just a question for you.

I think on the fourth quarter last year was $0.25, and I think less than a penny of synfuel. Is that correct?

Yes, I think that's right.

So anything going on year-over-year leading to kind of guiding for a down quarter? Is there outages? Are there issues like that?

Really, what we're looking for in the fourth quarter is a couple of things. Number one is, I mentioned that we shifted some, you may remember we had pretty strong sales in the first part of the year. We shifted some outages from the spring to the fall and so we're going to see a pickup in some of the outages. That's really related to the O&M that I mentioned and the maintenance issues that I mentioned, okay?

The second thing you may remember from the very end of last year, we made -- there was a transmission difficulty outside of our system which caused us to make a great deal of off-system sales in December. We assumed that there will be a normal level of off-system sales. And as well, we always project forward on the basis of normal weather. So those are kind of the reasons why we're projecting forward at 22 versus last year's 25.

Okay. And then just a question overall.

Thinking about the way you guys manage business, I know when you have a good year like this $0.09 of weather, at least I think I do, you kind of manage expenses relative to revenues. I think your guidance at $2.13 to $2.18 was based on normal weather.

So if you took your $2.18 less $0.09 of weather, you'd kind of be outside the range. But is it fair to say that maybe you pulled some expenses in this year as well that you might pick up on next year, or how should I think about that?

I would say that the spending levels that we're talking about this year are within our normal planning range. We did move expenses around within the year from spring to fall in terms of outages, but other than that, this was within our normal planning criteria.

Okay. Is it fair to think of, you know, your initial guidance of the $2.13 to $2.18 being based on normal weather?

Yes.

Okay. And then if we took the $0.09 out, are there factors, then, that are leading you to kind of come in below that?

No. We always provide a plan that has a range of nonfuel O&M in the plan. And so all we're doing is just kind of following through on the plan.

I mean, to the extent there is the opportunity to take advantage of some outages, especially following a pretty strong summer run of our facilities, then it's prudent to do so.

Right. Okay. Great. Thanks, guys.

Thank you.

Your next question comes from Adam Cohen with CreditSights.

Yes. Good afternoon.

Wonder if you could comment on industrial demand for the quarter and any trends you're seeing there?

Industrial sales were down a bit, but, you know, it's been kind of a continuing trend that we have seen now for some time. What we're particularly seeing is that when you consider there's 19 different [sixth-code] industries that we follow, standard industrial classification codes, 18 of the 19 have been and continue to do well.

The only one that has been a drag, and really this has been an industry that we've always talked about rebasing, but really since 9/11 we have seen a withdrawal from the Southeast of a good bit of activity related to textile manufacturing. And we've talked in the past about how that has been particularly clear in the low end of the textiles industry, particularly apparel manufacturing, yarn manufacturing, those types of things.

And we would go on to say that the higher end of textiles, particularly polymer-related textiles and carpet manufacturing, polymer-related associated with automobile manufacture, the carpet related to housing has been quite strong.

The only thing, I guess, I would update from past commentary would be that the Southeast typically has a more robust economy than what you see elsewhere in the United States, particularly underpinned by a kind of macro economic migration of people from the Midwest and the Northeast into our area. That continues, and we continue to benefit from that kind of organic growth.

What we have seen is our housing industry slow down a bit to approaching more national levels and as a result, because of a bit of a housing slowdown here, you have seen a bit of a slowdown correspondingly in the carpet side of textiles. So that's kind of that update.

I would say beyond that, there are some very good bright spots. I think we've talked about, but it probably bears repeating. We talked in the past about the new Kia plant in Georgia. The automotive sector has always been a bright spot, at least in recent history, with Honda, Hyundai, and Mercedes-Benz plants in Alabama.

We announced last call the Toussaint-Krupp steel mill being built near Mobile, Alabama, which right now we believe may be when it's finished our largest single site customer, so that's particularly significant to us. And then in Mississippi what we've seen announced this quarter is an expansion of our current largest single-site customer. That's the Chevron refinery near Pascagoula, Mississippi. So we've seen a lot of bright spots.

There's one other interesting positive development in the manufacturing sector that we see developing that's kind of interesting and it goes to this. With the recent economic changes that we've seen during this third quarter, and the resultant drop in the value of the dollar currency relative to, especially things like the euro, we have seen the opportunity for exports from the United States to be enhanced.

And, in fact, when we look over the economics, the exporting industries in the Southeast are probably poised to benefit from this more than other places in the United States in a relative sense. So we see that in the automotive sector, in the steel sector, chemicals and paper. So that, we think, is a reason to be bullish going forward.

Terrific. Thank you very much for that color.

You bet. Thank you.

(OPERATOR INSTRUCTIONS) Your next question is from Danielle Seitz with Dahlman Rose.

Thank you.

I just was wondering when is the next major capacity addition that you anticipate given the relatively small reserves you have?

Well, those small reserves I mentioned, let me repeat, were during the very --

Unusual, unusual.

Yes, it was during those few days where we set the new peaks that we mentioned. Okay?

Right, right.

In a normal season, our reserve margin is just fine, in the 15% range or a little bit better. Now, going forward, we completed July 22nd, approved by the Commission, Georgia's regular integrated resource planning process.

There were essential four tranches of new resources available to meet the demand that we mutually agreed upon between the Commission and the Company. The first resource I must mention is the fact that we're promoting even stronger now in our territories energy efficiency and so we expect to see some tick-up, if you will, from that.

Secondly, the next nearest term capacity additions involve the McDonough facility. If you remember, Atlanta is a city that has a highway around it, I-285. Inside the northern portion of I-285 is a relatively older coal facility, plant McDonough, has about 500 megawatts there.

What we have agreed to with the Commission as a result of the IRP, the integrated resource planning process completed in July, is to replace that capacity with three 840-megawatt combined cycle gas units. Those should be complete in about the 2010 time frame.

Okay. Thank you.

Your next question comes from Paul Ridzon with KeyBanc.

Good afternoon. How are you?

Hello, Paul.

How about those Red Sox, Tom?

Unbelievable, baby. If it was a fight, they would've stopped it.

Just on the adversary staff, noticed they're 100 basis points above where they were last time, which seemed pretty positive. Was there anything in reading that order that kind of stuck in your craw at all?

You know, rather than comment on any specific part of the process or any specific item within that part, I would rather just say that, you know, their submittal of testimony is a normal part of the process that everyone works together to achieve a constructive result for our customers. I think I'll just leave it there.

Just on the drought and the hydro output, that doesn't have an impact on retail margins, but kind of just lost opportunity as the stat gets pushed higher for wholesale margins? Is that the right way of looking at it?

You've got it exactly right. It essential becomes a fuel issue.

Okay. Thank you.

Yes, sir. Thank you.

Your next question comes from Rudy Tolentino with Morgan Stanley.

Just to follow-up on with Danielle's question, I guess you talked about the four tranches. You mentioned two out of the four. I was just kind of wondering if you could mention the just completed and especially with regards to opportunities with plant Fogel going forward?

I'd be delighted. So I mentioned the first part is essential conservation taking hold. We estimate that to be about 70 megawatts per year going forward. I'd mention the three 840-megawatt units.

Okay. The third tranche, if you will, will largely be comprised of somewhere between 1,000 and 1300 megawatts of a bid probably that will be comprised of some combination, any and all of CTs and CCs, probably in the 2012, 2013 time frame.

And then the fourth tranche would be the proposed addition to our nuclear facility that currently exists near Augusta, Georgia. It's the Vogel units, 1 and 2. Georgia is a 46% owner along with other co-owners. Oglethorpe, [Miag], and the city of Dalton.

We are proposing to build two new 1,000-megawatt units. So 2,000 gross. It is proposed that we would be a pro rata owner of those 2,000 megawatts. So kind of net to Georgia would be about 1,000 megawatts there.

Remember, there is a process for the Commission to evaluate other competing alternatives. The Commission has been very interested in reducing our exposure to volatile fuel sources, and so they have requested alternatives to be brought forward in the form of baseload capacity and capacity which has low fuel volatility.

We expect to receive any alternative proposals in February. We will use our own Vogel estimate as the benchmark and the Commission will make a decision later that year as to whether to go forward.

So you're looking to make a decision sometime next year?

Yes.

Okay. Thank you very much.

Sure. Thank you.

Your next question comes from Phyllis Gray with Dwight Asset Management.

Good afternoon.

Good afternoon.

Could you remind us what regulatory treatment you receive for your energy efficiency programs?

We essentially get to recover the cost of those energy efficiency programs and then there is a small component on which, and it's a very small component, on which the Company can earn the difference between the cost of those programs and the avoided energy and capacity. But it's a very small portion, like 15% of the present value.

Is that portion in rate base or how is that treated?

It's treated in -- it's treated as an offset to a revenue requirement in the calculation.

I see. Thank you.

Sure. Thank you.

Your next question comes from Dan Jenkins with Wisconsin Investment Board.

Hi. Good afternoon.

Hello, Dan. How are you?

Very good. First, I just want to follow-up.

You know, when you were talking about the industrial sales you mentioned the new Kia plant and the new steel mill which might be fairly large customers. Do you have a time frame for when that demand might come online?

Yes, sure. Actually, I think the Toussaint-Krupp plant is 2010. I think Kia is kind of late in the decade, also, 2009 or so.

Okay. It won't impact next year at all.

Oh, no. No, no, no.

Okay.

Well, you know what, though, Dan, it won't impact except that. With both of these plants, you see some economic activity with construction workers being drawn to the area, a pick up in population, first, second, third tier suppliers, vendors, that kind of thing. So you see some activity, but certainly it won't be to the degree once the plants are operational.

Okay.

I was wondering if you could update us kind of on where you're at what the construction projects, the Franklin, Oleander and Stanton?

Well, let's see. Hang on, hang on, hang on.

Franklin 3 is due to be completed 2008. Oleander, likewise, is around 8. What was the other one? Franklin 3, Oleander, and Stanton.

Stanton.

Okay. Well, Stanton is the IGCC. That's kind of a 2010-11 time frame.

And your projections haven't changed? They're still on budget and on time and so forth?

Thankfully, everybody's under budget and on time.

Okay.

And one thing I was wondering just kind of philosophically, you've always had one of your goals in here, or one of your expectations is this 2% annual growth in territorial demand.

Right.

Given kind of the environmental and you mentioned demand side management and so forth, and you're seeing some programs in places like North Carolina and whatever where they're giving more focus on that.

Do you see that? Are you seeing any of that in any of your states, or do you see changing the focus from, you know, a focus on demand growth to maybe more managing the demand?

Yes, I think, Dan, that there will be an increased emphasis on more efficiency and more demand side management, to your point. We've seen a little bit of that in the Georgia IRP process and we would expect that to increase.

Okay.

And then finally, I was just wondering, looking at your Page 5 where you have the forecast for Cap Ex expenditures, I was wondering if you could give me an update on the year-to-date '07 Cap Ex expenditures versus the longer -- the three-year forecast there?

You know, how about this? One of the interesting things that Cap Ex translates to is growth in rate base. When I think about property plant, the PPE account, property, plant, I think we've increased year-over-year $2 billion from third quarter '06 to third quarter '07. In terms of year-to-date Cap Ex, I would just say that we're on budget and it is about $2.5 billion year-to-date Cap Ex.

Okay.

You know, we continue to see the consistent trends we've talked about. That is, if you want to look at the majority of that, it's tied up in transmission and distribution required to support the growth that we see, and kind of going back to your other question, you know, this kind of organic growth, the people coming into the Southeast continues to show itself.

So I think that's always going to be there. So I think, you know, anything we see on energy conservation is going to have as an underpinning this organic growth.

And, of course, the second issue relates to environmental spending. And, you know, it's clear the environmental Cap Ex is, you know, required by law, it's good for the citizens in our states, and it certainly protects and enhances this super efficient, super economic generating fleet we have.

In fact, largely it's our generating fleet is what gives us the reason why we're 17.6% as of the end of 2006 anyway, below the national average. So I think all those things make sense for us and we'll continue in that vein.

Okay.

Last thing I was wondering, you mentioned higher parent expenses and I was wondering if you could talk about what was driving that, and if that's something that you expect to continue or is it kind of a one-time thing or what's going on there?

There were kind of two things. One just had to do with property insurance. We've seen property insurance increase a bit.

And the second thing had to do with an accounting adjustment that we put into place that had to do with the passage of FSP 13-2 that related to our silo investment, and that was about a penny, also. So it was kind of a penny on the insurance and about a penny on the accounting adjustment related to the silo leases we have.

Okay.

So would it be reasonable to expect the property insurance to probably continue but is that accounting adjustment a one-time impact or not?

Yes, we don't know on insurance. I would say we made the adjustment on the silo, and you're right that one, I just can't say that about insurance.

Okay. Thank you.

Thank you.

And I show your last question is a follow-up from Paul Ridzon with KeyBanc.

David, I was wondering if you had any update on Washington activity and renewable standards and how successful you've been in voicing your opinion there?

Paul, I think we've been very successful in voicing our opinion. Whether it has any impact remains to be seen.

As you know, I mean, it continues to be the subject of a lot of controversy and a lot of conversation with the Speaker and the Majority Leader trying to decide how to move the Bill forward without a conference, and a lot of discussions behind the scenes about compromises and I think there are three major points in the Bill, the cafe standards, the RPS standards, and the tax increases.

I don't know who caves first in those. We've made it clear that our opposition to the RPS standard is based on the increased cost it will be to our customers, and that's what's driving us. It's not an opposition to renewable energy by any stretch. I think people are beginning to understand that.

A good editorial in The Wall Street Journal about the resulting tax that would actually occur on our customer base in the Southeast if it actually passes as it exists. So I'm confident that as we have informed that debate people are beginning to understand why it doesn't makes sense.

That doesn't mean that the Bill won't get passed because there's a tremendous desire to pass something that they could call an Energy Bill, as you know. But I really can't handicap it much beyond that.

Thanks for the update.

There are no further questions. Mr. Ratcliffe, any closing remarks?

No, Jennifer, thanks again to everybody for being with us today. We appreciate it. Look forward to seeing you after the first of the year. Everybody have good holidays.

Ladies and gentlemen, this concludes the Southern Company third quarter 2007 earnings call. You may now disconnect.