美國南方電力 (SO) 2009 Q1 法說會逐字稿

Good afternoon ladies and gentlemen, my name is Alexandria I will be your conference operator today. At this time I would like to welcome everyone to the Southern Company first quarter 2009 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 David Ratcliffe, President, Chairman and Chief Executive Officer. Please go ahead, sir.

Thank you Alexandria. And good afternoon and thank all of you for joining us. I'm pleased to be with you today for our first 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 10K and subsequent SEC filings. In addition we will present non-GAAP financial information on this call. Reconciliations to the applicable GAAP measure are included in the financial information that we released this morning.

As you can see from the materials we released this morning, despite strong economic headwinds and excluding the charge for the settlement of a legal matter, we had a very solid quarter of performance. Before we discuss our earnings for the first quarter, I would like to update you on important business matters that have transpired since our call in January. These two important milestone events relate to the Votgle Nuclear project in Georgia. First the Georgia Public Service Commission certified both the need and the technology for units three and four at Plant Votgle. The certification is important because under Georgia law, all prudently incurred cost, as periodically certified in the regulatory process, are fully recoverable.

Secondly, last month the Georgia State Legislature passed the Nuclear Energy Financing Act. This legislation will allow Georgia Power to collect financing costs as Votgle units three and four are constructed. The timely collection of these expenses is expected to lower the total cost of the units saving both customers and Georgia Power approximately $300 million. In its certification of Votgle three and four, the Georgia Public Service Commission authorized the recovery of financing costs in a matter consistent with the legislation. The Governor signed the legislation last week.

In another important business matter, the litigation between Southern Company and the creditors of Mirant Corporation that began in 2005, known as the MC Asset Recovery, has been settled. The settlement requires that Southern Company pay $202 million to MC Asset Recovery. The case as presented asked for $2 billion in damages plus interest. The settlement includes a release of any other claims against Southern Company in connection with the 2001 spin off of Mirant.

Finally another important event which occurred just last week was the official start of the energy auction on April 23rd. On March 25th, the Federal Energy Regulatory Commission approved the concept of the energy auction as part of our market based rate compliance filing. It has been one of our major goals to find a means to create greater transparency in the wholesale markets in the southeast, and to eliminate misperceptions concerning Southern's ability to exercise generation market power. The energy auction meets both of these requirements. We will continue to work with our customers, and other sellers of wholesale energy in the Southeast, to further enhance this process.

At this point I will now turn the call over to Paul Bowers, our Chief Financial Officer for a discussion of our financial highlights for the first quarter and our earnings guidance for the remainder of 2009.

Thank you, David. As you mentioned we are off to a solid start this year despite the economy. In the first quarter of 2009, we reported $0.16 a share, that's a decrease of $0.31 a share over the first quarter of 2008. This result includes the Mirant settlement charge of $0.26 per share, which David mentioned earlier. Excluding the Mirant settlement charge, our earnings were $0.42 per share in the first quarter of 2009, compared with $0.47 per share in the prior period or a decrease of $0.05 per share.

Let's turn to the major factors that drove our first quarter numbers excluding the Mirant charge; first, the negative factors. A reduction in sales across all customer classes had a negative impact on our earnings of $0.06 a share compared to the first quarter of 2008. I will provide additional information on how the economy is impacting the various customer classes during our discussion of the economy in a few minutes. Increased depreciation and amortization due primarily to increasing environmental transmission, distribution investment, reduced our earnings by $0.03 a share compared to the first quarter of 2008. The impact of higher taxes, primarily from increased franchise fees and a lower manufacturing tax deduction, had a negative impact of $0.02 a share on our earnings for the first quarter compared to the same period in 2008.

Other operating revenues were lower due primarily to lower transmission revenues, and reduced our earnings by $0.01 a share in the first quarter of 2009 compared to the first quarter of 2008. Finally, interest expense on additional investment at our traditional operating companies reduced our earnings by $0.01 a share compared with the first quarter of 2008. So total negative factors excluding the Mirant settlement charge, reduced our earnings by $0.13 per share in the first quarter of 2009 compared with the prior period in 2008.

Now let's turn to the positive factors that drove our earnings for the first quarter of 2009. Retail revenue growth in our traditional business added a net total of $0.06 per share to our earnings in the first quarter compared with the first quarter of 2008. This impact was driven primarily by price changes and revenue related to recovery of environmental expense and other investments at our operating companies. This was partially offset by market response rates for large commercial industrial customers, which reduced our earnings by $0.04 a share in the first quarter of 2009 compared to same period in 2008 due primarily to lower commodity prices.

So with the negative $0.04 per share impact from market response rates, retail revenue growth had a positive $0.06 per share impact on our earnings in the first quarter of 2009 compared to the same period in 2008. Nonfuel O&M added $0.01 per share to our earnings in the first quarter compared with the same period in 2008. This includes charges for a voluntary attrition program at Georgia Power. Without these charges reduced O&M would have had a positive benefit of $0.03 per share to our earnings in the first quarter. The savings from this program in 2010 are expected to be approximately $40 million. Finally lower interest expense at the parent company contributed $0.01 per share to our earnings in the first quarter 2009. In conclusion, we had $0.13 of negative items compared with $0.08 of positive items. So overall our quarter came in at $0.42 per share excluding the Mirant settlement charge.

Before I discuss our earnings estimates for the quarter, I would like to take a few minutes to discuss several items. First, it appears that the decline in the economy is slowing and hopefully we are approaching a bottom end in the recession. However, we are still facing head winds in the industrial customer class which I will discuss in a few minutes. Customer growth which has historically averaged approximately 1.5%, declined to 0.3% in the first quarter of 2009 which equates to 13,711 new customers. We have added 28 new industrial customers which is a positive given the economic environment. Our 2009 plan assumes that total retail sales will decline by approximately 2%.

Sales to our industrial customers declined by 16.9% in the first quarter of 2009 compared with the first quarter of 2008. The most significant reductions from the industrial segment were from primary metals which were down 38% quarter over quarter, the chemical group which were down 22%, and our transportation segment which was down 20% quarter over quarter.

The quarter over quarter declines in these segments are more severe because the manufacturing segment -- or manufacturing sector remained relatively strong during the first three quarters of 2008. When we compare industrial sales data for the fourth quarter of 2008 to the first quarter of 2009, the picture becomes less volatile. In particular, industrial sales from December of 2008 through March of 2009 have basically remained flat.

Our industrial marketing group reported that a major steel producer has temporarily closed many of its plants in the US, except those in Alabama. However, these plants will still be impacted because of high inventory levels. One of our largest chemical customers is planning an extended summer outage to retool and allow for inventories to fall. The automobile manufacturing sector while still operating, has cut shifts and production levels in response to lower sales and high inventories.

Turning to the residential markets. Housing activity continues to be slow with new connects at 50% of activity from historical levels. New residential connects are expected to be about 44,000 in 2009. During the past four months sales of existing homes continued to be slow. While electricity sales to the residential customers declined by 1.3% quarter over quarter. It's worth noting that most of the decline in residential sales is being driven primarily by increased vacancy rates. In the commercial sector, commercial customer growth is negative as smaller commercial customers close their doors. Sales to the commercial customers decreased by 1.3%, in the first quarter of 2009 compared with the first quarter of 2008.

In summary, the rate of decline in economic conditions is beginning to slow. Residential sales are slightly exceeding our forecasts. Commercial sales are currently meeting our forecasts. Industrial sales below our forecast are unlikely to remain below expectations through 2009.

As we go forward the leading indicators that we will continue to monitor are household creation, nonmanufacturing employment, and inventory levels. In addition, the stabilization of unemployment claims, improvement in credit markets, and an upturn in consumer confidence will help determine the depth and duration of this recession.

Even in this economic environment there is positive news. Georgia Power has a total of nearly 140 active economic development projects currently assessing sites in the region. In Alabama, along with 41 active economic development projects, ThyssenKrupp is continuing with plans to open its carbon steel plant in Mobile. They are hiring employees and construction is on schedule. Mercedes-Benz has also announced a $300 million capital investment at its Tuscaloosa facility for future growth.

Gulf Power reports that construction continues on new airport near Panama City, which would be the first new green field international airport in the United States to be constructed in more than a decade. Scheduled to open in May 2010, the airport will be able to accommodate the largest passenger and cargo aircraft and can serve as a key international transport hub for all of Northern Florida and the deep Southeast. These projects and others remind us that the long-term outlook the encouraging for the Southeast economy.

Turning now to the discussion on capital markets and liquidity, our financial integrity and strong credit ratings have enabled us to continue to access the capital markets and to place debt at attractive terms. Year to date we completed $1.3 billion of our total 2009 financial plan of $2.1 billion. Rates averaged under 6% for long-term ten and 30 year issuances. The Company also accesses capital through commercial paper markets with an average amount outstanding of $795 million during the first quarter at an average rate of 0.35%. We also had committed credit agreements in place totaling $4.2 billion at quarter end which we've recently increased to $4.7 billion to enhance liquidity.

My last update item concerns the dividend. As you may have seen last week, we announced a 4.2% annual dividend increase effective with our second quarter dividend payment in June. The dividend is now $0.4375 per share on a quarterly basis and $1.75 per share annually. This marks the 246th consecutive quarter that Southern Company has paid a dividend to its common shareholders. In fact every year for the past 61 years, Southern Company has paid a quarterly dividend equal to or higher than the previous quarter's dividend.

Our decision to raise the dividend this year is a measure of our financial integrity and confidence in the long-term future of our business. Our dividend and our long-term earnings per share growth coupled with a stable A credit rating are key components of our overall value proposition. These financial metrics, our constructive regulatory environment, and top quartile operating performance continue to distinguish Southern Company from many of our peers in the industry.

Turning now to our earnings guidance for 2009. Our first quarter results excluding the Mirant charge were well within our estimates. Although retail sales were slightly lower than we anticipated driven by a sustained lower industrial load we experienced at the very end of 2008, we have been successful in reducing our costs to help mitigate some of this impact. Looking ahead, and considering our ongoing cost reduction efforts, our guidance range of $2.30 to $2.45 remains unchanged. Finally our estimate for the second quarter is $0.55 to $0.60 per share.

At this point I will turn the call back to David for his closing remarks.

Thanks Paul. And while we endeavor to reduce costs, our focus on operational excellence will certainly continue. And we expect to maintain our position as one of the best operators in the industry.

As you are aware, there is legislation being debated in both houses of Congress to address climate change and national renewable energy standard as well as energy efficiency standard and transmission planning. As expected, the House is moving faster than the Senate in addressing environmental and climate change issues. The House Energy and Commerce Committee has begun hearings and a bill could move out of the full committee between Memorial Day and the 4th of July recess. Our concerns in the House bill are stringent targets and time tables on carbon dioxide emissions in the early years and the fact that the bill has no provisions for allocations and cost containment. In addition there is no language in the bill that addresses nuclear power and there are no provisions for the regulation of carbon capturing sequestration.

Meanwhile, in the Senate, the Environment and Public Works Committee and Finance committee have primary jurisdiction over climate change. And while we have had hearings, there is no schedule at this point of marking up a bill. Southern Company is committed to working with the Administration and Congress to help craft legislation that is best for our customers, shareholders and the environment. I have personally spent a lot of time in Washington meeting with members to discuss key aspects of energy and environmental legislation.

Our experience in smart meters, energy efficiency, new nuclear, clean coal technology and transmission issues provides us with a great opportunity to help members and staff fully understand the impact of various climate change proposals. I'm hopeful that when all the facts are discussed and analysis is completed, Congress will pass legislation and allow the industry time to transition to new technology without dramatically impacting our customers.

Finally as Paul indicated in his remarks, our financial success in the near term is explicitly tied to the economy. We have been diligent and straight forward in our approach to economic issues and in running our business. Moving beyond the recession, we believe that our long-term earnings growth rate projection of 6% is supported by the fundamentals of our business. These core components which include a constructive regulatory environment, capital investment to meet customer growth, and economically vibrant region and proven business model give us confidence in the long-term sustainability of our business.

At this point Paul and I are ready to take your questions. So Alexandria, we will now take the first question.

Certainly, sir. (Operator Instructions). We will pause for just a moment to compile the q-and-a roster. Our first question is from Marc de Croisset with Macquarie Capital.

Thank you and good morning everyone. A quick question on the 2009 outlook by subsidiary to the extent you can comment on it. Would it be fair to say that you expect earnings to trend up year-on-year at Alabama and down year on year at Georgia? Is that a trend that we can reasonably extrapolate for 2009?

Mark when you look at Alabama as you know they had an opportunity to get a corrective rate plan in place for this year which equated to $168 million. At Georgia, you're under a three year rate plan, which is a stability if you will for three years, they are having to adjust their business, associated with the economy. The rate impact if you will for Alabama helps them in terms of giving them some upside on revenue, but they are also being impacted by the economy as well. So as we go through quarter by quarter we will be getting a better picture of the overall impact by the end of the year.

Great, thank you. And just a follow-up question if I may, have you evaluated the impact of the stimulus plan on your earnings or capital growth plans?

Mark, we have looked at it, especially around the bonus depreciation, which has given us some head room of $250 million from a financing standpoint. In the individual areas in terms of the capital investment around smart meters that we are deploying right now and the smart grid in general, we are assessing that currently and don't have a good number that I can give you.

Thank you very much.

Our next question is from Greg Gordon with Citigroup.

Thanks. Good afternoon gentlemen.

Hi, Greg.

So when you talk about seeing customer consumption trends that were in line with your expectations on C&I and below so far your expectations on industrial, but industrial is, I'm assuming, your slimmest margin customer base. Are you expecting to see the comparables improve in industrial in Q2? I mean we saw the majority of the pull back in sales in the first quarter in most regions happened in March. I am wondering what you are seeing in April? Because from my perspective, sort of a worse case scenario, would be we start to see reasonably good comps in Q4 of this year, because we had a pretty bad fourth quarter. I'm wondering is the worst case scenario we start to see a recovery in Q4 and could -- do you think, given what you are seeing, that it could happen sooner on the industrial side?

Greg, this is Paul. When you look at the numbers for the industrial sector, I think your assumption in general is right for fourth quarter. And that's what our forecast currently looks like. However, the numbers that we saw from December, January, and February, March, basically had a severe drop in that fourth quarter and they are leveling out.

We are keeping in tune with our customer base and actually having monthly feedback sessions from our marketing group to give us better insight of what customers are doing. In fact what we are seeing is some of these customers are taking this opportunity with the high inventory levels at these facilities to go offline, do some modifications at the facilities, do maintenance, and then come back hopefully in the third, fourth quarter to show some response to the market as it improves.

I think, Greg, at this point, we are comfortable that we have seen a flattening on the industrial manufacturing side. But I don't think anybody knows when it turns back up yet.

Okay. One other question kind of in the weeds. D&A expense was up in the quarter. Was that sort of a pro rata across the board at all the subs? Because I know the cap ex budgets is pretty much high at every subsidiary as you build new infrastructure, or was there one particular subsidiary where you saw the biggest increase in depreciation?

You're right, Greg it's a just reflection of, one, all the environmental cap ex plus activity around the T&D area in some of the subs. But it's across the board.

Okay, thank you.

Our next question is from Dan Eggers with Credit Suisse.

I know every downturn is going to look different than the next one, but how have you seen your customers in the industrial side balance back in past recessions or past deeper recessions? And even if we are seeing down 15% type of volumes now, would you see -- when the economy gets back would you expect that to reverse equally as sharply or do you think that you are seeing permanent attrition in customer base?

Dan, I don't think there is any question that we have seen some permanent loss. For example, Cooper Tire in the Georgia jurisdiction basically has gone out of business. I don't think they start back up. Although I guess they could. Somebody could buy it and start it back up. But I doubt it. So there is no question about that.

I think the wild card here is what do the consuming public do in response to better economic reality? What do they go out and buy? And therefore what will drive this recovery? Because as you all know, this is a global situation where it's not unique to the US or to the Southeast. So it is not at all clear to me, do they go out and buy new cars or do they go out and buy new houses, do they buy retail? What -- we can tell you what's happened in the past, but what we are in now is unprecedented. So it's not clear to me what happens when we begin to come out of this.

Dan, the other aspect we went back and evaluated other recessionary periods since the 1970s, to try to get an assessment of how severe some of this downturn might be. The worst downturn we had in the industrial class was in 2001. That was around an 11.9% reduction in that year. But that's an event driven recessionary period versus this one being a global consumer oriented recession period.

Okay. I guess the other question is on the O&M cost front. You guys were able to find more savings than I was anticipating in the quarter. How much more are you finding are you guys are able, how big of a year on year savings do you expect in O&M? And to clarify the Georgia cost, the $40 million, that was the cost to accelerate retirements, or was that something else?

Let me answer the latter first. On the Georgia Power, the cost for us, for the voluntary attrition program was roughly $29 million that we took a charge in the first quarter. The $40 million is O&M savings. The total savings for us associated with that action is roughly between $55 million and $60 million in 2010.

Okay. Now to your first question, or relative to initiatives around costs -- David last year, put Alan Martin, our President of Southern Company Services in charge of cost containment initiatives, started evaluating opportunities in the business for improved efficiency and cost reductions. When we saw the economic downturn and particularly seeing it in the fourth quarter, we quickened the pace associated with O&M reductions and looking at where we can gain efficiencies. Our objective for this year is to be flat year-over-year on O&M, which will give us approximately $200 million to $300 million of savings.

Okay. And I guess one last one. The market response revenues were obviously down quite a bit with weaker commodities in the first quarter. What expectations do you guys have for full year contribution or change in contribution from that side of the revenue stream in 2009 versus 2008?

Right now, when you look at it, it's roughly a $50 million negative in terms of revenue.

Negative $50 million. Okay. Thank you.

Okay.

Our next question is from Jonathan Arnold with Merrill Lynch.

Good afternoon.

Hello.

Afternoon, Jonathan.

Quick question on the recent dividend increase and our previous comments around payout ratio targeting 65% to 70%. I notice you've raised it by $0.07 in to this year having done $0.07 last year, and it's probably around half of the implied earnings growth rate that you would have if you were growing it 6%. Is the right read that you probably intend to continue growing the dividend at about half of that earnings growth potential and despite this flat year you wanted to hold that line, we are still on this trajectory to get back to 65 to 70 over some period of time? Because it seems from your guidance range your straight up in to the upper part of what quite a bit above that range again here this year.

Right. Jonathan, when you look at payout ratio, that is the long-term projection of where we like to be. Recognizing with the downturn in the revenues and downturn in the economy, we will be a little bit above that between 71% and 73% payout, if you exclude the Mirant activity. That is our long-term projections, get back to that 70 to 65 range.

Thank you.

Our next question is from Paul Ridzon with KeyBanc.

Your guidance includes the $0.02 for the voluntary early out?

Yes.

Will any of that flow in to the Q2?

No.

And then we've heard a lot of I guess different language out of FERC regarding nukes, can you comment on that?

Well I think Chairman Wellinghoff is optimistic about possibility of renewable energy meeting future demands. And from our standpoint you've got as I've mentioned in my remarks we've got certification move forward from the Georgia Public Service Commission on Votgle three and four and we intend to continue to ride down that path. And assuming we achieve the appropriate permits from the NRC and we are just going to move forward with that project.

I think we will all have to look at what the climate legislation requires in its final form. And as we've said many, many times, we don't think there is a singular technology whether it happens to be renewables or nuclear that can achieve what we are aspiring to achieve from a carbon reduction standpoint by 2050. We think we are going to need all of the technologies. So I think Mr. Wellinghoff was a bit optimistic in my opinion about our ability to achieve that level of renewable capacity.

And then just an update on your IGCC plant. I guess the Attorney General, Lieutenant Governor has made a little bit of noise.

The Attorney General filed some procedural motions with the proceeding that is going on in Mississippi. I don't think -- I think we have adequate response to that and we will file it as part of the process. Still feel very favorably, disposed for the project. We have met -- had an opportunity to meet with the DOE staff to discuss the project and the new staff. So if we can get the Mississippi Public Service Commission to move forward we are prepared to go forward with the project.

Paul, this is a great platform for us and the customers in the state of Mississippi for utilization of a indigenous coal source in the state of Mississippi and a great platform to demonstrate clean coal technology for this country. So we hope we are able to move forward.

Sounds good, and just one last question -- with regards to the Senate, any traction on getting nuclear kind of considered a clean source or renewable?

We continue to labor in the vineyard. I'm not optimistic about that. I do hope that Senator Bingaman's proposal for more of a clean energy concept instead of just a renewable mandate will get some traction and perhaps we could find actually a next generation coal with carbon capture and do nuclear. It could be part of the clean energy program as opposed to just a renewables mandate.

Okay. Thank you very much.

Our next question is from Steve Gambuzza with Longbow Capital.

Good afternoon.

Hi Steve.

On the forecast you gave for the year-over-year decline in realtime pricing contribution of $50 million, does that include what happened in the first quarter? Or is that for the balance of the year?

That's for the first quarter.

There was a $50 million discrepancy, or there was $50 million decline in margin during the Q1?

In revenue that's correct.

Okay. Is it all essentially margin or is it -- how much of that falls to margin?

Steve, I will have to get back to you on that, if we can follow up with you, because I don't have that breakdown.

Okay. Could you comment on what the balance, what would be implied in your guidance for the balance of the year with respect to real-time pricing contribution versus last year?

When we had last year's it was a $0.10 impact for us and a benefit year-over-year, so you basically had that as a target for this year, taking it away.

So $0.10 negative for the balance of the year.

Right.

Okay. And then on the -- just want to I understand the load forecast embedded in guidance. It would be for a full year 2009 decline in retail sales of 2%?

That's right. That's our forecast.

Okay. Is that -- just trying to think how I should integrate weather impact into the thinking there. If you were down 6.5% in the first quarter, is it -- will there be a weather benefit that last year being below average that will help contribute to a 2% -- if things are stabilized this level and we are down 6% in the first quarter, I'm just wondering how we are going to get to 2% for the year, absent a sharp rebound in the next two quarters?

We don't try to predict the weather we just try to respond to it.

But I am saying, is it -- was it that last year was a bad weather year and that this is going to be -- you're forecasting normal weather?

That's exactly right. Weather normal is what our forecast is all about.

But absent that, do you require kind of a significant pick up in the economy in the second or third quarter to achieve that or is it relatively consistent with your view of stable -- demand stabilizing on a sequential basis?

Well, when you look at it, Steve, in our forecast we had a projection on an average annual sales decrease of approximately 2%. Quarter to quarter is going to be different, but overall it's 2%, is what we've projected to give the guidance that we gave.

Okay. Thank you very much.

Our next question is from Leslie Rich with Columbia Management.

Hi, good afternoon.

Hi, Leslie.

Wondered if you could talk about your coal supplies. And if as you look at existing contracts that were signed last year at pretty high levels sort of being repriced lower, if there is any sort of benefit for you? Or as you maybe your fuel mix which is more gas, less coal, if there is any overall benefit? And then separately, the new EPA is taking a very different approach, wondered if you had thoughts David on sort of what longer term implications could be in terms of emissions, new source review, overturning existing regulations? Just sort of strategically how are you trying to position for what may be coming down the pike over the next four years?

Let me say Leslie, at the outset in response to your question about coal, we got plenty of it. If you need some, let me know.

You and everybody else.

We are also looking at market cost decline so we hope that our contracts would provide some opportunities for us to recognize some of the downturn in those market prices. Certainly to the extent we have a need to go into the spot market those lower prices will help us. We've actually seen prices come back to what I consider to be a more normal range of $50 for Central App and $9 for Powder River Basin, which it makes sense long-term. So I would hope that we -- as we replace supplies and renegotiate contracts take advantage of some of that.

Your assessment of the EPA approach so far -- I agree with. There seems to be a much more activist approach to deal with some of the Bush Administration rules with regard to coal operated facilities like the NSR, like some of the other rules that they are reviewing. I, at this point, sense a desire for them to move more aggressively to try to push for best available control technology on existing coal and certainly their endangerment finding with regard to CO2 opens up a whole new ball game of regulatory potential with regard to CO2. So I think from our standpoint, we will continue to operate the existing fleet that we have at the same time as we do continuously we will evaluate what any new rules and regulations might require economically to achieve compliance. And where it makes sense we may have to transition to other technology.

But that's all an economic analysis process that we go through every year. So until you get the rules in place, or the modifications to the rules in place, it's pretty hard to change what we are currently doing. We are working desperately to install as you know, the capital technology required to meet existing requirements and we are on track with that; it's operating very well. So we are going to have to wait and see to some degree.

As you look at the environmental capital spending program that you have underway, that's been underway for several years and it's probably got another year or two to go, when you're all said and done, how much of your overall coal generation will be scrubbed?

50%. Leslie, this is Paul. When you look at that dissecting of our large coal plate, 500 megawatts and above, all of those will be basically compliant with Clean Air Act for SOx, NOx and moving towards mercury as well. So that is 11,000 plus mega watts.

Great, thank you.

Our next question is from Annie Tsao with AllianceBernstein.

My first question has been asked. And I have one more question regarding to your industrial sales. I know the quarter down 17%, is there any way you can break it down by month in the quarter? And also December last year?

Annie, we can't right here, but we will get back with you if that's all right.

Okay. Thank you.

Welcome.

Our next question is from Vidula Merke with [ZLP] US.

Good afternoon.

Hello.

Wondering can you review for us now capital markets, activities for the rest of this year and next year and the level of incremental equity that's planned through your current DRIP programs? And at what point in time as we progress further into the new Votgle unit, etc., will incremental equity beyond DRIP potentially be required.

Debt financing standpoint like I mentioned in opening, we have financed $1.3 billion, or refinanced this year. We've issued under our current plan, $151 million of additional equity via our plans. From a debt standpoint we have approximately $815 million remaining for 2009. Of that $425 million is maturities and about $390 million to $400 million is new money.

Now as far as any other discussion around equity, as we have said in the past we plan to issue additional equity as necessary consistent with our investment opportunities, and our capital expenditure requirements and to maintain our financial integrity. We are continuing to evaluate the needs for the future and we will keep you posted associated with any additional new equity.

I mean if you take a look at the current cap ex program until we probably get out to like 2011, 2012, is there anything on the horizon otherwise that would necessitate equity outside of the current dividend reinvestment and other existing programs that are in place?

As I mentioned last year, we are continuing to evaluate our equity requirements. And really I'm restricted to how much we can say about it because of the restrictions from an SEC filing standpoint.

Thank you.

Our next question is from Paul Patterson with Glenrock Associates.

Good afternoon.

Hi, Paul.

Just wanted to follow-up on few things. My understanding on the last call is that you guys had expected $0.10 for the entire year of 2009, less -- I'm sorry the market response being $0.10 less than 2008, for the entire year, and I was confused by one of the previous questions. It sounded like maybe that was $0.10 for the remainder of this year plus the $0.04 that we've already had?

No, Paul. You're right. I clarify that too, it is $0.10 for the whole year. We had $0.04 negative impact if you will, on the market response rates for the first quarter and we had $0.06 remaining.

Okay. That hasn't changed.

No.

And then on the work force reduction at Georgia Power, it was $55 million to $60 million, I think Dan Eggers asked this question for 2010; is the total savings that you guys expect from that, is that correct?

That's correct. No the number is $40 million roughly for O&M and an additional $15 million to $20 million associated with capital expense associated with that labor.

Okay. And then with respect to the $40 million, if -- that's a delta of 2010 versus 2009? Or I mean in other words how does this employee reduction happen? I mean is something that these guys say okay I'm going to leave at the end of this year or do you start seeing those savings I guess in 2009 or is it just happening in 2010?

No. The real benefit is we are paying for these employees to leave. We realize the contribution if you will, in the first quarter. So there is a one year payment for those individuals to leave the business, the voluntary attrition program. And basically the savings that we will achieve during this year will pay for that cost. And then we will start seeing the benefit of those employees leaving in 2010.

But those employees are gone.

Okay. They are gone but the fact that you are paying for them to leave is offsetting the benefit you see in 2009.

That's right.

Okay. But it sounds like there is a bigger benefit in 2010, right? I thought you said it was $29 million to get them to leave.

That's right.

Now you are seeing $40 million O&M benefit?

That's right.

So why is it better I guess?

They're here the first quarter.

Okay, because they are here for the first quarter. I got what you are saying, sorry to be so slow. And then you also mentioned that you might see additional opportunities for this kind of deal at the other companies; is that right?

No. We just said that opportunities for improved efficiencies and continue to stress O&M costs in our business.

Okay. But you're not necessarily planning on anything like this?

No it's up to the individual companies to pursue the actions they need to take to meet their objectives.

Okay. Thanks a lot, guys.

We do have in place a hiring freeze, meaning that we are working hard not to replace anybody who leaves. But that's up to each individual management leader in that particular part of the business.

Thanks.

Thank you, Paul.

Our next question is from [Ryan Moody] with Duquesne Capital.

Hi, good afternoon guys.

Good day.

I was wondering if you could comment on your expectations for the timing and implementation of a federal renewable energy standard. And David I also think you mentioned that it wouldn't be your expectation that nuclear would be included in the baseline for those standards. Would that include new nuclear as well?

Let me back up just a minute and try to clarify that. What I was saying was that what we have been trying to get done in the discussions with policy makers is to have nuclear included in the definition of renewable. And that is what I was speaking to about Senator Bingaman's idea of a clean energy concept, so that was what's I was talking about there. There has been, to your point, also a discussion about taking nuclear out of the total baseline when you calculate how much renewal energy under a 15 or 25% standard would actually have to be produced. So that would lower the amount if you took nuclear out. We would certainly support that.

I think your question with regard to when this gets done, you know that Waxman and Markey made a decision to put all of this together in one bill, which makes the thing more complex and more difficult to move. They believe they can get it done by Memorial Day and perhaps get it out on the floor between Memorial Day and July 4th. That's a very aggressive schedule. I think it would be much easier for them clearly to focus only on a renewable portion and get that done pretty quickly because it's much -- it's been around longer, it's much easier to understand, it just has a lot more understanding and support.

But as long as they put that in the larger bill, and try to pass entire bill I think it's going to be problematic because as you know this is going to be a very costly proposition for the United States to undertake. And some of the more moderate Democrats are beginning to push back around the cost impact on this economy.

And a separate follow-up question as well. I think you also mentioned that you've seen some coal prices rebound here. Could you comment on the dynamic of coal to gas switching within your region specifically? And is there any benefit there for Southern Power? I know there tend to be capacity contracts at those assets.

I don't see any benefit from a Southern Power perspective, except that to the extent gas prices have come down below $4. I suspect that under their contracts they are running more and being called on more to replace coal in those areas where they can do that in a particular dispatch regime.

The other piece of that is, when you look at Southern Power being a capacity contract based company, it is really with a dispatch of gas in the marketplace there is a little bit of upside in margin around the variable component of their contracts.

Great.

Our next question is from Steve Fleishman with Catapult Capital Management.

Hi.

Hi, Steve.

Looks like in the quarter you mentioned it was about a $0.10 benefit of rate relief if you exclude the Georgia market response rates.

Right.

Is that right?

That's right.

Could you give me a sense of that $0.10, how much of that, could you break that out by the subs?

It's roughly $0.05 for GPC, and Alabama Power relative to their environmental clause, $0.03 relative to Alabama's customer charge increase under their corrective rate plan, and $0.02 relative to block rates in the industrial class. When you look at industrials as they use less, they are stepping up if you will on their block rates. As you know the block rates encourage use and as you produce or consume more kilowatt hours the average rate goes down.

Okay. And just -- do you have some sense that you could give us of what the full year benefit is expected to be of this kind of rate relief category? Is $0.10 a quarter a rough number or is it more skewed to the third quarter?

It's more skewed to the third quarter.

Okay. Okay, so it's $0.05 for the environmental recoveries, $0.03 for the Alabama customer?

Right.

Service charge and then $0.02 related to some kind of sharing of the industrial?

Well, it's the block rates. It's a rate affect. Yes.

Okay. Great, thank you very much.

Okay. Steve, thank you.

(Operator Instructions). Our next question is from [Dan Jenkins] with the State of Wisconsin.

Hi, good afternoon.

Hi, Dan.

Dan.

I was curious just what your cap ex was in the first quarter and if you revised cap ex plans given the economic situation for the rest of the year?

We have revised them slightly as a function of cap ex, it's devoted to new customer growth. Obviously as the new customer growth has declined somewhat, we have been able to take a little bit of that capital out of the numbers but that was reflected in the numbers that we put out.

We actually, Dan when we issued our cap ex plan, we reflected approximately $250 million reduction already. We have spent in the first quarter $1.1 billion.

Okay. Then you mentioned you still have $815 million of debt to issue. Is that primarily going to be at the operating companies or is some of that at Southern Power as well or?

Right now, primarily at the operating company it's with a little bit roughly $250 million at Holding, Southern Holdings.

Okay. Then I'm just curious -- you talked a little bit well in Steve's question about this rate relief. Is that -- are those rider recoveries in the Alabama power customer rate charge -- are those going to be year-over-year gains in every quarter or at some point does it match up with what happened last year or how should we kind of think of those going forward? I imagine --does those environmental recoveries [too hot], or are they adjusted as you spend more on environmental costs and so forth?

Well it's year-over-year in terms of reflection of the increase. But they are adjusted on annual basis to give a forward projection of what they expect to spend during that year.

So these should be essentially be an additive affect for each of the quarters going forward?

That's correct, Dan.

On a year-over-year basis. Okay. That's all I had, thank you.

Thank you, Dan.

Our next question is from Danielle Seitz, Dudack Research Group.

Thank you. Good afternoon. I just was wondering, given the Votgle authorization for three and four, are there any costs that you are going to be able to rate base that have been already spent or everything is already accounted for?

We expect roughly expense this year of around $500 million. But until we start -- we are accumulating that until we start construction, the rates will not be affected until roughly 2011.

So the cost of getting licenses and all that, this is included in rates or not?

$50 million of it is included in rates.

Okay.

But all of it has been certified meaning it is certified as recoverable assuming there is no imprudence in any of the spending. We just kick in the rate increases in 2011.

Great. No, I thought there was maybe a catch up of costs that could be rate based at this time.

No, Danielle.

Thanks.

Our next question is a follow-up question from Greg Gordon with Citigroup.

Thanks. Can you comment on what you -- how your view of the strategic landscape is evolved? I think it was probably two quarters ago on the call that you talked about not being opposed to looking at growing the business through acquisition and that you weren't necessarily inhibiting yourself to opportunities within the region. You still despite the fact that the stock is down it's still at a strong relative premium to almost every peer comparable company in the group. So how do you view your currency and your strategic opportunities in this environment?

Greg, pretty much same way I viewed them a couple of quarters ago. I mean nothing's changed, we continue to monitor the landscape.

Okay, thank you.

Sure.

Our final question is from Dan Eggers with Credit Suisse.

Hi, I might be dense on this, but if I look at the $0.02 of industrial block rate increase, and then I look at the $0.06 of down volumes it seems like industrial was kind of a net flat even with a lot worse volumes because of the rate relief, is that a reasonable translation?

Partially that's correct, Dan. I mean if you look at it, there is some offset to the downturn in overall sales. I wouldn't say it's totally a wash.

But it sounds like it's pretty close is that fair?

Yes, that's fair.

Okay, thank you.

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

Just to say thank you again to all of you for joining us, we look forward to the second quarter call.

Thank you sir. Ladies and gentlemen, this concludes the Southern Company first quarter 2009 earnings call. You may now disconnect.