美國南方電力 (SO) 2008 Q3 法說會逐字稿

Good afternoon. My name is Dennis and I will be your conference operator today. At this time, I would like to welcome to everyone to the Southern Company third quarter 2008 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS)

I would now like to turn the call over to Mr. David Ratcliffe, President and Chairman and Chief Executive Officer. Please go ahead, sir.

Thank you, Dennis. 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 Paul Bowers, our Chief Financial Officer. Let me remind you that we will make 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 positive quarter and despite a challenging economy and turmoil in the financial markets, our business is performing well. The fact that our business is performing well in a difficult and uncertain period speaks to our strength of our business model and our goal to provide regular, predictable and sustainable performance over the long term.

With Georgia Power's three-year rate plan, along with the formulary base rate mechanisms and clauses in our other jurisdictions, we have a great deal of transparency in cost recovery and in our overall financial profile for the next few years. At this time, we expect to continue the $13.3 billion capital budget for our retail business that we presented you for 2008 through 2010. As you know, nearly one-third of this budget, some $4 billion, is committed for compliance with state and federal environmental laws. Another $4 billion is scheduled to be spent on transmission and distribution assets to maintain reliability and to keep pace with the growth in our region. We will continue to review this budget and adjust it as needed to reflect our current economic and market realities. Despite the turmoil of the past few weeks, we have ample liquidity and adequate access to the capital markets. At this point, I'll turn things over to Paul 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. In the third quarter of 2008, we reported $1.01 a share, which compares to $1.00 a share or $0.01 a share above the third quarter of 2007. Excluding syn fuel items, our earnings for the third quarter were $0.02 a share above our earnings from the third quarter of 2007. Again, this excludes our earnings from synthetic fuel investments in 2007.

Now, let's turn to the major factors that drove our third quarter numbers. This discussion will exclude our synthetic fuel business. Weather reduced our earnings by $0.07 a share in the third quarter of 2008. Weather in the third quarter of 2007 was $0.06 a share above normal while the weather in the third quarter of 2008 was $0.01 a share below normal, thus creating the $0.07 a share negative impact. Increased depreciation and amortization reduced our earnings by $0.04 a share compared to the third quarter of 2007. Usage and economic growth reduced our earnings in the third quarter by $0.02 a share compared to the third quarter of 2007. Decreased usage by industrial and residential customers totaling a negative $0.03 a share was offset by customer growth of $0.01 per share, therefore, the negative impact of $0.02 a share. Finally, an increase in municipal franchise fees reduced our earnings by $0.01 a share and an increase in the number of shares outstanding reduced our earnings by $0.02 a share in the third quarter of 2008, compared with the third quarter of 2007.

Turning now to the positive factors. The impact of positive revenue effects in our traditional business, including changes in retail rates plus additional revenue attributable to variable market response rates added $0.16 a share to our earnings in the third quarter compared with the third quarter of 2007. Improved results at Southern Power added $0.01 per share to our earnings in third quarter of 2008 compared to the third quarter of 2007. Lower expenses at the parent company added $0.01 a share to our earnings in the third quarter of 2008 compared to the same period in 2007. So we had $0.18 of positive drivers and $0.16 of negative items and overall, our quarter came in at $1.01 a share.

Before we turn to guidance for the remainder of 2008 and our estimate for the fourth quarter, I would like to update you on a few items that impact our business. We continue to access the capital markets to secure the short and long term financings that are required by our business. As of September 30, we had available consolidated liquidity of $2.5 billion, of which approximately $800 million is in cash. Our commercial paper programs are performing well with rates that average below 2.5%. The ability to continue issuing commercial paper and to set rates for our tax-exempt daily securities has meant that the company has not drawn on any of its $4.3 billion committed credit facilities. During October, the company converted 134 million of the variable tax-exempt floaters to maturities of 17 to 24 years, which improved our liquidity. Our commercial paper and bank revolvers are sufficient to allow us to delay long-term issuance for a period of time. Year-to-date we have issued approximately $2.4 billion of long-term debt at average rates between 4% and 4.5%. Our current plans are to issue approximately $750 million to $800 million of additional long-term debt for the remainder of the year.

Turning now to our equity requirements, we are continuing to raise approximately $500 million of new equity each year through our existing employee and dividend reinvestment programs. Our current projected capital requirements, including the Vogel nuclear project in Georgia and with the potential for additional projects like the proposed Kemper County IGCC facility in Mississippi, we anticipate additional equity requirements beyond the capacity of the existing programs to maintain our financial integrity. To address these needs, we began work early this year and are continuing to work to establish a continuous equity offering program, also called an equity dribble program. The amount we issue will depend primarily on the level of capital expenditures required for growth, new generation, reliability, environmental compliance in our traditional operating company as well as potential new growth opportunities for Southern Power Company. We anticipate filing this program in the first half of 2009 after reviewing the final capital budgets for 2009 through 2011.

Turning now to the discussion of the economy, we are continuing to see a weakness in economic activity here in the Southeast that follows the national patterns. However, we have not seen, nor do we expect, the total impact to be as severe as in other regions of the country. Sales to industrial customers have declined 3.4% in the third quarter and 1.6% year-to-date as compared with 2007, with the exception the steel industry, which is slowing, but still up by 2.5% over the third quarter of 2007. This sector is also up 4.4% year-to-date. Housing markets in the southeast have been weak with excess inventories which are depressing construction. While the financial and credit issues continue, our stronger than national growth in households should stabilize the housing market in our region more quickly. We will continue to monitor the economic conditions and we'll adjust our plans as appropriate.

Turning now to our guidance for 2008. It is clear that even in challenging environments, we are successfully executing our strategy and that our businesses are performing well despite uncertain economic trends. We expect sales and customer growth trends we've seen through September to carry forward through the end of the year. Given this projection, our fourth quarter estimate is $0.25 per share. Again, our estimate for the fourth quarter is $0.25 per share. The fourth quarter implies an earnings estimate for 2008 of $2.36 per share, which represents performance at the very top of our guidance range. Again, our estimates for -- of $2.36 for 2008 represents performance at the very top of our range. Including the $0.09 charge we took in the second quarter related to leveraged lease transactions, our estimate for 2008 is $2.27 per share. Again, that $2.27 per share estimate includes the charge associated with our leveraged lease transaction that was recorded earlier this year. At this point, I'll turn things back over to David.

Thanks, Paul. I said at the outset our companies are performing well in a very turbulent and challenging environment. It is important to remember that Southern Company has a reputation of above average financial performance in very difficult times. I believe we are well positioned to withstand these difficult days and to maintain our position as a strong and resilient company. We certainly appreciate your investment in our -- in Southern Company and Dennis, at this time we'll take the first questions.

Your first question will come from the line of Dan Eggers with Credit Suisse.

Hey, good afternoon.

Hey, Dan.

David, I was wondering if you could share a little bit more from an economic perspective what you guys are seeing in the region if we dig a little deeper into it. We've heard a lot of bad news out of Florida. Are you guys seeing that creep up more significantly into your territory? While customer growth is still good year-on-year, what should we be thinking about for 2009 given the trends you guys are seeing?

Well, Dan, we don't have a particular crystal ball about this economy, but most of the Florida situation, the really bad stuff, as you know, is concentrated in the southern part of Florida in the Miami area and the very tip of the more resort area down there. We have seen, certainly, some moderation in Gulf, but that appears to be in fact moderating and we're seeing a little positives out of our Gulf service territory. I believe we've seen some stability and some residential growth in Gulf, if I'm not mistaken. I'm looking at Paul to see if we can validate that. But I think what we believe is that we get through the end of the year and get a new administration in place, and we get the benefit of the actual experience with the provisions that the government has put in place to try to help the financial markets that we would expect and hope that by maybe third quarter, fourth quarter next year, we have got legs under the economy and we're back under a growth mode. We clearly have to work through the excess inventory in housing that we have, just like everybody else does. But as we said, I think in our information, we did not have the run-up in housing prices that the rest of the country saw in certain areas, like South Florida. As a result, we haven't seen the decrease in valuation of housing. So, we've said many times that one of the good things about our service territory is that it doesn't have quite the severity of impact in these kinds of times and as a result, we tend to stabilize faster and recover faster than other parts of the country.

Dan, I'll just add to what David just said. Gulf has an excess inventory, so it is slowing their overall growth and that inventory is diminishing their overall sales in the residential sector. But as David mentioned, with this household growth perspective, we should be eating into that vacancy or that inventory that we have that should help us come out of this downturn sooner. That vacancy rate, though is almost double what we've experienced in the past. The normal vacancy rate is around 2%. Right now it is around 4%, 4.5%.

Okay. Generally, the third quarter is when we get an update on kind of moving the CapEx plan year forward another year. Any thoughts on when we're going to see kind of an update to CapEx and '09 guidance, and that sort of conversation?

Dan, as always, we do that on the fourth quarter call. So in January, we'll update everyone on our CapEx budget as well as our guidance for the year. Right now we are in the middle of the forecast and finalizing all those budgets.

I said in my remarks, Dan, that we're committed to the capital expenditures that we've outlined before at this point, but obviously, we're going to try to take into account the economic reality that might impact, particularly on the transmission distribution side, but a good bit of that capital is committed to environmental projects.

I guess one last question, just on the coal supply conversation, (inaudible) that you guys use it as international coal. Are you still seeing deliveries coming as expected and at prices agreed upon?

Yes. From a Columbia standpoint, we have not seen any disruption at all. However, we are still seeing the prices sustain at those higher levels.

I don't like that term prices agreed upon. I would like for them to be a lot lower than they are, but they are moderating some.

Yes. From a standpoint of where we stand with our coal inventories, we're in good shape. So we feel good about our coal basis, but not necessarily the price.

Thank you, guys.

Your next question will come from the line of Steve Fleishman with Catapult.

Hi, Steve.

Hi, guys, can you hear me?

Yes, we can.

Couple of detail questions. First, I think, Paul, you said the rate is up by $0.16 --?

Yes.

-- a quarter, but it looks like in the release it is $0.14.

When you -- $0.16 of -- related to increase rate, our market response rate, as well as improved revenues in some of our embedded wholesale activity.

Okay.

Okay?

Could you just -- so the difference between the two numbers is the wholesale?

Yes, when you look at the overall -- let me give you the numbers. When you look at our revenue effects, there is about $0.15 there, and --

Okay.

-- and some additional revenue coming out of the wholesale sector in an embedded piece of our operating companies. We have a $0.02 negative impact based on usage and economic growth.

Okay, I see. So the $0.02 usage -- that's the difference. That was netted out of the $0.16.

Yes.

That is not the weather impact?

No.

Okay, I got you. And then, could you separate the revenue impact between rate relief and the demand, or just response rates?

Sure. You basically have $0.10 on the rate impacts and $0.05 associated with the [multi] response rates.

Okay. And I think -- okay. Prepare and improvement was just cost-cutting, you mentioned?

That's lower interest costs.

And lower interest costs, too?

Yes. Well, it's primary lower-interest costs, period.

Okay.

Okay.

And you mentioned potentially, if you move forward with Vogel, that you would look at this continuous offering plan? Would that be something that also, to a degree that you were reducing T&D CapEx?

That is the beauty of that dribble plan, Steve. It really gives us an opportunity to time any issuances that we need and the amount of issuance. It matches, if you will, the CapEx spend to maintain our credit quality.

Okay, great. That was it. Thank you.

Okay. Thank you.

Your next question comes from (inaudible) Columbia Management.

Hi, I think you called me.

Yes.

Could you just explain what that market response revenues are? I'm not familiar with that. Is that some sort of demand response?

Sure you're familiar with it. We explained it every time we talk about it. (laughter)

I'm sorry. Then I'm just thick. Could you explain it again?

(laughter) No, it goes by lots of different names, it's demand response rates, (multiple speakers) response rates, realtime pricing. But it is that realtime pricing program that's been in place for 20 years with industrial customers.

Oh, it's for industrial, okay.

And large commercial as well, and it gives an opportunity for customers to buy on marginal basis -- on a marginal basis as they deem economic for their own operations.

So what would drive that? Your weather was mild, so coal plants were running more, so it was cheaper to buy from the utility -- sort of, can you describe sort of the macro conditions that would lead to that being such a big uptick versus last year?

There is about 2,000 customers that are involved in that rate, or applied to that rate, that have voluntarily accepted that rate, and it is a decision on their behalf to buy through on a marginal basis. So when you look at it and look at our pricing on our marginal dispatch, it is higher costs right now, and they're electing to go ahead and buy, and it is economic for them to buy through at that higher price. It is basically a reflection of the current realities of marginal pricing in our marketplace.

Okay. And then just, David, do you have any thoughts on care, I guess the DC Court of Appeals is willing to potentially reconsider its decision.

Les, I really don't. I think we've got to wait to see what happens. It is my understanding that they're sort of doodling around to see who is in favor of reinstituting it and who's in favor of maintaining the vacatur and trying to get some responses from people on a very short-term basis here. I don't know exactly how that will come out.

Thank you.

Thank you.

Your next question will come from the line of Nathan Judge with Atlantic Equities.

I just wanted to follow up on the CapEx plan. You've said that most of the CapEx -- I think most of your CapEx is related to the environmental spend. But you also alluded to the fact that you'll have some ability to review your CapEx. Could you just better quantify what flexibility you have with your CapEx plans and what set of scenarios would precipitate, perhaps, a delay in some of your CapEx spends?

Nathan, when you look at our CapEx spend for our operating companies, we have approximately $13.3 billion that was allocated for 8, 9 and 10, of which $3.9 billion is, as David said earlier, associated with our environmental program. That is compliance CapEx. So there is limited flexibility in terms of our expenditure. The other piece is when you look at our T&D element of cost, there is about $4 billion that we have in the budget for it. There is a growth element in that piece of our budget which we will be reviewing for the future in terms of how much is required to meet the expansion of our system. The other pieces of our budget, our new generation, there is approximately $2.5 billion in new gen for our operating companies. That is associated with, primarily around our McDonough capacity that we have had an RFP on and had approval at the Public Service Commission in Georgia. That is replacement power for PPA and also replacement power associated with a retirement of a coal unit. So there is limited flexibility going forward. We have, as you know, some fossil hydro retrofits that we'll be reviewing. We have some nuclear fuel retrofits -- nuclear fuel and retrofits, as well. And we also have -- for new gen, we about have $1 billion, approximately $1 billion embedded in that new CapEx budget as well.

When it pertains --

Nathan, I'd just say I agree that it really probably is a functioning of timing. It's -- not very much of it is going to be discretionary.

With regard to perhaps the Southern Power investments, and I'm speaking of 2011 and beyond, and perhaps even the IGC/Vogel plant, if we continue to see a difficult environment in the economy, what flexibility do you have with regard to timing of those plants, or are you at a state currently where you need to continue to proceed, otherwise you would incur penalties?

Well, we're further along with the Vogel project obviously, because we made filings with the Georgia Public Service Commission. The hearings begin, I think next week on that and we expect a decision in March of next year. And remember, that is a base load need. Our preliminary look says that even with an economic downturn, we still need base-load capacity in the 16, 17 time frame. So you may be able to slow a little bit, but I suspect that we would want to maintain a pretty good track because that's going to be an aggressive plan, anyway. The IDCC project in Mississippi, at Kemper County, is -- we're on the front end of that project. We really haven't filed with the Mississippi Commission. We'll make that decision between now and the end of the year as that project comes together. So we got a little more flexibility there. Those are the two big capital projects in the retail business.

Nathan, the other piece of it is when you look at those projects, the special base-load projects, they are evaluated through our mix programs that we do for the system. What is the most economic choice of generation. Base-load capacity is needed in that 14 to 16 time frame. Intermediate capacity and peaking capacity is the most flexible capacity that we have, and there were combined cycles and there were some CTs that were required that might be shifted out based upon the economic conditions.

And the cost of -- the estimated cost of, in particular Vogel, given that commodity prices for steel and other essential components of those plants seem to come down, have been coming down, and if they continue to come down, what flexibility do you have? Does that just allow you greater confidence in making your budget, or is there a potential to participate in that pull-back in commodity prices?

I'd have to go back and look at the actual contract terms, Nathan, but my impression is that what we try to do in the contract negotiation was to index the commodity exposure and therefore, if prices come down, we would expect the index to reflect that, and we might be able to share in that. We would expect that to be the case.

Thank you very much.

Thank you, Nate.

The next question will come from the line of Paul Ridzon with Keybanc.

Just for clarification, was the dribble defined Vogel and the IGCC?

Paul, it is a equity issuance that reflects primarily those larger CapEx programs, but not just those CapEx programs. Because it has Vogel, any additional environmental requirements that might be proposed, that's given us the flexibility to track whatever we need to keep the balance sheet --

I think that's the key, Paul, is that the nice thing about that concept is it gives you a lot of flexibility to respond to changes in capital needs regardless of where they come from.

Right, it gives you tremendous flexibility.

That's right.

That's exactly right.

Can you just do a deeper dive on what you're seeing on the industrial side? Which segments are hanging in there, and which are continuing to be impacted most severely?

Sure, Paul. When you look at the weakest industrial segments that we have right now, it's around the textile industry that has been for quite some time, where they have started reducing their loads or sales or energy consumption in the '07 time frame and right now, they are about 14% below last year. The stone, clay and glass group which is tied to the residential housing market is also showing significant weakness and they're about 6% below last year. Lumber, which is tied again to the housing industry, is another weak area. The ones that showed the strongest performance year-over-year is primary metals, which we highlighted in the script. They're up 4.4%. Fabricated metals is also up, and transportation year-over-year is about 1%. But we're seeing signs in the transportation segment that are indicating lower growth going forward. Chemicals are about flat year-over-year. One of the things about Southern Company, and I think this is a strength for us, is that diversity of industrial base where we have a large number of different industrial segments in our service territories. In the past it's been a hedge for us, but with this uncertain economic time, you're seeing weaknesses in most segments.

Okay. Thank you very much.

Sure.

Your next question will come from the line of [Carrie St. Louis] with Fidelity.

Hi, good afternoon.

Hey, Carrie.

I had two questions. First, I wanted to know, are you going to file, as a Tier 1 CP issuer, are you going to file for the government support program?

We are evaluating that right now. We have that on the table and looking at what the costs would be versus what we're actually getting in the marketplace directly.

Okay. Do you know when you have to make a decision by?

I do not. I think it's relatively short, within the next few weeks.

Right. Okay. So you're evaluating that.

Yes.

And then could you remind me, so these tax-exempt floaters, are these all in kind of like daily and weekly mode? Or what type of term do they have?

They're daily and weekly mode.

Okay. So you're just -- so it's just backup for those programs. Okay. That's what I thought. All right. Thank you.

Okay.

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

Good afternoon, could you describe a little more how your continuous equity offering program would work if implemented?

Sure. When you look at this program, it basically is one that as we evaluate it, is a quarterly issuance to track the needs of our business relative to the targets that we have for our A credit rating. It is dribbled out, if you will, similar to a -- our dividend reinvestment program, employee savings program, that just really matches the needs of our company from an equity issuance standpoint to maintain our credit quality. So it is real flexible, it's not a one-time standard issue that you go into the market with.

Thank you. And also, could you let us know what your CapEx is year-to-date?

CapEx year-to-date. Give us a minute and see if we can find that. We'll look for it while we take another question or we'll come back to it if we can.

Thanks very much.

And your next question will come from -- I'm sorry, go ahead.

Yes, on the CapEx year-to-date, we've spent $2.9 billion.

Thank you.

And your next question will come from the line of Rudy Tolentino with Morgan Stanley.

Hi, given the relatively low cost of natural gas prices and the relatively high cost of coal, are you changing the way you're dispatching the system? Are you increasing your gas dispatch versus coal?

We're not changing the way we dispatch. We dispatch everyday on the basis of cheapest to most expensive. So when gas prices are better than coal prices, we would dispatch gas as opposed to coal, and we've seen some of that juxtaposition in the normal dispatching sequence that we've experienced in the last few months.

You have been dispatching your gas plants more just due to low gas prices?

In some cases, yes.

As we formulate our daily dispatch, it is based on economics, so we put in the cost of gas verses coal and that stacks up the system in term of what units go first. As you know, nuclear goes first, and our low-cost PRB units go next and then it evaluates the higher cost coal units verses gas.

Okay. Thank you very much.

And your next question will come from the line of Steve Gambuzza with Longbow Capital.

Good afternoon.

Hi, Steve.

In terms of your target capital structure, is it still 40% debt to cap -- I'm sorry, 40% equity to total capital through the construction cycle?

Gas is right at 41%.

That is where it is today. I guess what I'm asking is for the continuous equity program, should we expect you will make use of it to maintain that level, or as you kind of head into the heart of the nuclear construction cycle, do you expect that you might have to run with a more conservative equity layer to maintain an A credit rating?

It's going to be in that 41% to 45% range, so it's going to give us some flexibility around that just to secure that A credit rating.

Thanks very much.

Okay.

Your next question will come from the line of Mark Segal with Canaccord Adams.

Hi, good afternoon.

Hi, Mark.

Just wondering if you could provide us with an update on the status of Smart Meter deployment and how that project is tracking the plan?

Sure, Mark. We have deployed already right at 900,000 in our system. We spent about $90 million associated with the program and we're going to phase in next year another 1 million customers, roughly, a couple million customers next year into the program, total. And then it phases in all the way through 2011.

So you're going to go forward as planned?

Yes.

Great. Thanks very much.

Your next question will come from the line of Paul Patterson with Glen Rock Associates.

Good morning -- good afternoon. How are you? Just to sort of follow up on Leslie's question. The demand market response was $0.05 for the quarter. Is that correct?

That's correct.

Okay. And year-to-date, what was it?

Around $0.17, right at $0.17.

Okay. And you described -- you described it. I guess I'm a little slow in terms of exactly -- what was it that made it more attractive for you guys and for the customers to opt for this program?

Well, actually I didn't mean to sound flippant about it. I'm sorry. It's been in place for a long time, and it is a hour ahead, day ahead offering to larger customers, both industrial and commercial who have the opportunity to decide whether to buy on the basis of a marginal price, and it's driven by what we believe is the marginal price of electricity at the time. So they can buy through and we even offer price protection products around it. So we try to give them great flexibility in managing their business as a function of electricity prices, and it really is their decision as a function of what's going on in their particular segment of the industrial economy to -- in their marketplace as to whether or not they want to continue to produce or back off because of the price of electricity. So, they make that decision as a function of their reality. What we've seen is with coal prices up, we've seen that marginal price increase some and that means more revenue for us.

Okay. But I guess what I'm trying to figure out is, why is it that they're finding it -- what is it that's driving them to that decision? Do you follow me? In other words, what is it that's making them --

You always have to go to each individual customer. For example, if it happens to be Olin Chemical and they have a tremendous market for chlorine and caustic soda, worldwide, they may decide based on the price of electricity that we're providing versus where else they can produce that product in the world, literally, they would buy it through and produce it with us. So it really is a function of the individual customer's reality. Whether it happens to be a chemical company or a paper mill or some other plastics producer, whatever the case might be for them individually.

Okay, I got you. But I guess what I'm figuring, was there anything in general that was driving it? It seems like there was a particularly good -- I mean year-over-year, it looks like it has been particularly good for you guys, no? I mean --

Well is has, but we have budgeted -- I think year-over-year, we're about where we had expected to be from a budget standpoint.

What led you to expect the higher numbers? If it is a decision on the part of the customer, what was it that they (multiple speakers)_--

We have some history with our customers and we have some sense of what their economics are. So -- I mean, we have to make those kind of projections as part of our forecasting.

Okay. How does that forecasting look going forward into 2009 and what have you? Do you have (multiple speakers) --?

Well, we're reviewing it right now, so I don't have a current answer for you.

Okay. But there is nothing, I guess independently, that we can think about when we're looking at this in terms of how to -- in other words, there's not some rule of thumb, like hey, coal prices being here and, I don't know, gas being here, this is what we should think. You know what I'm saying. Just being hypothetical here, there is nothing we can -- I mean, this is something that you guys know from knowing your customers really well and that's how you guys are able to budget and predict it. Nothing that we can sort of look out there and --

I don't think so. We'll try to give you in our fourth quarter call in January, we'll try to give you a little bit better sense of what our projections are for that kind of experience going forward as a function of forecast.

Thanks a lot guys.

Thank you.

(OPERATOR INSTRUCTIONS) Your next question will come from the line of Ashar Khan with SAC Capital.

Good afternoon. How are you doing?

Hey, Ashar.

I just wanted to get a sense, Paul, if I'm right, you said you're now projecting the same growth rate in the fourth quarter as for the first nine months, and if I look at your charge like total retail sales running a negative 0.4%. So you are expecting retail sales to be I guess flat or slightly down for the whole year this year. Is that correct?

That's correct, Ashar. We're actually looking at fourth quarter at about 1% less.

Okay. If one was to assume a similar growth rate for next year flat, can you make your 6% growth rate based on a flat growth next year?

Ashar, we'll come back out and tell you what we project in January. I don't want to speculate right now.

Okay. But can I ask you what was budgeted when you came out earlier this year for retail sales growth for the year 2008, or is there some tendency you can tell us where it would have been 1%, it could be so many cents, 2%, so many cents.

I don't have a rule of thumb associated with that, I can get that to you and we'll give you a call back on it. For this year, we budgeted 1.7% sales growth.

You had budgeted 1.7%. So if 1.7% had come around, the earnings would have been certainly higher, right?

But remember that when you look at regulatory arenas, there are caps associated with the ranges that the companies have within their jurisdictions. Over certain percentage, if you will, their ROE goes back to the customer. As an example, in Georgia, there is a -- top end of their range is 12.25. Anything above that is applied to the environmental CapEx spend.

Okay. And if I can end up -- I know you're going to provide us in three months, but like Excel this morning mentioned that they don't expect in their area the economy to pick up at all next year or sales to pick up next year. Are you seeing something different in the sense that you would see things pick up next year, just from, as you see things today?

I think, Ashar, I'm simply more optimistic than Dick is. I believe, and we've said this many times, that the southeast is in a better spot. We continue to see pretty good industrial activity that Paul has described earlier. We also have over, I think, 200 different economic development projects that are still on the radar screen between Georgia and Alabama. I believe that the southeast is still the place in the country where people want to come to establish a business or expand a business, so I think, as we've said, we should experience a faster recovery than other parts of the country, but when that begins, what I said earlier was my own gut is that unless something very, very catastrophic happens, and I'm assuming that the work that the government has done to try to help this situation begins to take effect in the first half of the year, I'm optimistic about third quarter, fourth quarter beginning to see this thing turn.

Okay. And Paul, sorry, I forgot one thing. You had mentioned that your revolver and your capacity allows you to delay financing for some period of time. But then you also mentioned that you would be doing some debt financing this year? I was a little bit -- probably I missed what you were trying to say. I was trying to say, are the costs so high that's why you're not planning to come into the market? But you still need to issue debt? Or is it that if the spreads remain where they are today, you won't do anything this year and just use up the revolver? Could you just mention what your financing plans are for the next six months?

Sure Ashar, but you, in essence, nailed it associated with some flexibility around our daily floaters and CP capacity. As we look at rates, and we have some needs for the fourth quarter associated with maturities, that we could convert those into a short-term debt issuance until the rates get better. Or if the rates, as they have been, started to trend down, we'll just go ahead and issue, but it gives us some flexibility.

Okay. Thank you.

Next question will come from the line of Dan Jenkins with the State of Wisconsin.

Good morning -- or good afternoon, I guess.

Hi, Dan.

Hey, Dan.

You just answered my questions on the financing plans, but I was wondering if I could get a little more detail on kind of the sales environment for the residential, commercial and I'm trying to get a sense for the third quarter, how much of those declines in KWH sales were weather related, versus just slowness in the economy? Would those numbers have been negative on a weather normalized basis?

The only one that is not, Dan, is associated with commercial. On a weather normal basis, it would have been a positive 1.1%. Overall, when you look at retail sales as the consolidated group, weather normal, it would be about 1.4%.

Okay. And then another thing I was wondering is you had a sizeable gain in the wholesale revenues. Was there something driving that, or is that something you would expect to continue, like the new contracts go into place, or what's behind the performance there?

Dan, it is primarily related to Miller adding some additional environmental equipment that is allowed in the rate, and it's reflective of that rate going up for those customers that are taking capacity out of the middle units.

Thank you.

You're welcome.

Your next question is a follow up question from Nathan Judge with Atlantic Equities.

I wanted to ask how Southern Power was doing with its contracting business given the change in the credit markets, as well as demand for electricity going forward? Are you seeing more, the same or less interest for Southern Power products?

Well, Nathan, we have seen Southern Power being successful on a few RFPs with Santee Cooper and with some extensions with EMC contracts within the state of Georgia. They are very active in the market in terms of responding to RFPs, but we have seen RFPs in the area of 2013, '14, being postponed for a year or so. So we have seen that in terms of that outward years, but for the short-term, they have been pretty active in that marketplace.

Could you also just quickly discuss the appetite for a renewables portfolio standard now, given some of the changes in the market and some of the consternation by politicians and also as you look forward to the leading political candidates for president, what do you think will be the likely outcome of a dividend tax hike?

Nathan, my appetite for a federally mandated renewable portfolio standard has not changed. I really believe that the best policy is to leave that decision to the states who know most about their ability to achieve any kind of renewable standards. And we see that evolving across the country, and I think we'll ultimately get to that in the southeast. Having said that, it is clear that the democratic-led Congress, particularly on the House side is pretty adamant of the desirability of trying to pass a federal mandate with regard to renewable energy. So I don't think the issue will go away, and because it appears to be something that is fairly easy to do, it is likely to be part of whatever energy legislation is considered by the Congress. So I would expect it to continue to be on the radar screen, so to speak. And what was the other?

Well, just as a follow-up on that, has that moderated any at all given the cost, potential cost, and given the credit crisis/economy economic slowdown?

You mean has the appetite in the Congress moderated?

Yes.

I think anything that has to do with increased costs to consumers, whether it is climate change or renewable portfolio standards is likely to cause them to take a little more time to think about imposing that in this economy.

And just as you view dividend tax increases with knowledge that -- of the two leading candidates.

Well I think they've been very clear. I think Mr. Obama has made it clear that he intends to change the current dividend tax policy and not to do away with it, but to change it pretty significantly. I suspect that Mr. McCain would be more deliberate about any new taxes.

Thank you very much.

Sure.

Your next question is a follow-up from the line of Steve Gambuzza with Longbow Capital.

I just had a question on the spending at Southern Power. I know you included markers for unspecified growth capital at Southern Power in 2009 and 2010 in your most recent CapEx forecast and just given the increased costs of both debt and equity capital, as well as potentially diminished demand in the marketplace, do you feel confident in your ability to deploy that level of CapEx?

Right now, we don't have any reason to change that. As far as what we see coming down the pipeline for Southern Power. We will be getting some additional information out of them for our updated budget, but that is, as you point out, the most flexible piece of our CapEx budget.

Do you feel like your targeted returns for projects have moved up in light of the increasing cost of capital?

It really is -- stems from the -- it does reflect what the increase in cost of capital will be, but it also stems from the cost of new build economics, too. So what is the customer seeing? What are we seeing in terms of building those plants and what hurdle rates are we establishing for those projects.

Thank you very much.

You're welcome.

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

Dennis, thank you for your help and thanks to all of you who participated. Again, we appreciate your confidence and investment in our company. We'll look forward talking with you after the first of the year.

Thank you sir. Ladies and gentlemen, this does conclude the Southern Company third quarter 2008 earnings conference call. You may now disconnect.