美國南方電力 (SO) 2011 Q4 法說會逐字稿

Southern Company's fourth-quarter earnings call will feature slides that will be available at the beginning of the call and on our Investor Relations website. You can access the slides at investor.southerncompany.com. Please be logged on and ready to follow the slides at the start of the call.

Good afternoon, my name is Carrie and I will be your conference operator today. At this time, I would like to welcome everyone to the Southern Company fourth-quarter 2011 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. Dan Tucker, Vice President of Investor Relations and Financial Planning. Please go ahead, sir.

Thank you, Carrie. Welcome to Southern Company's fourth-quarter 2011 earnings call. Joining me this afternoon are Tom Fanning, Chairman, President, and Chief Executive Officer of Southern Company; and Art Beattie, Chief Financial Officer.

Let me remind you 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 filings. We'll also be including slides as part of today's conference call. These slides provide details on the information that will be discussed on this call. You can access the slides on our Investor Relations website at www.southerncompany.com, if you want to follow along during the presentation. Now, at this time, I'll turn the call over to Tom Fanning, Southern Company's Chairman, President, and Chief Executive Officer.

Good afternoon and thank you for joining us. As you can see from the materials we released this morning, we had a solid year overall in 2011. I'm especially pleased that in a business environment filled with challenges and uncertainties, our systems still performed in an exemplary fashion, delivering exceptional value to customers throughout our territories. I'm also proud to report that on January 5, we celebrated our 100th anniversary as a holding Company. You may be aware that on that day, Art Beattie rang the opening bell at the New York Stock Exchange. We were tapped by the New York Stock Exchange as a charter member of their new Century Club and we held a celebration in Atlanta that featured our four most recently retired CEOs; Ed Addison, Bill Dahlberg, Allen Franklin, and David Radcliffe.

Few businesses can claim to have been around for 100 years but Southern Company is now one of them and even as we honor our past, we're already building for the future, harnessing the energy and innovative spirit of our more than 26,000 employees to begin our next 100 years. Against that backdrop, I'd like to take a moment to update you on where we stand with our five strategic business priorities. First, remaining committed to our business model. We continue of to provide superior customer value in the form of industry-leading reliability, low prices, and exceptional customer service. The 2011 Peak Season Equivalent Forced Outage Rate for our fossil/hydro generation was 1.3%, the second-best in our Company's history. And it compares to an historical industry average of around 7%. We also continued a long-term trend of improved performance for our transmission and distribution assets. And our employees performed heroically in restoring service to customers throughout 2011, during a series of catastrophic storms that included ice storms and tornadoes.

Meanwhile, the price of our product remains well below the national average and our customer satisfaction is among the best in the nation. These results and others are indicative of our strong commitment to customer value, and are also a major reason Southern Company was named Power Company of the Year in December at the Platts Global Energy Awards.

Second, achieving success with our major construction projects. Plant Vogtle Units 3 and 4 and Plant Ratcliffe in Kemper County, Mississippi are progressing well. All targets related to cost and schedule remain achievable. Receipt of the combined construction and operating license or COL for Units 3 and 4 at Plant Vogtle is imminent. In the meantime, nearly 2,000 workers are moving ahead with work on the site under the parameters of the original limited work authorization. Once the COL has been obtained we will begin placing rebar in the Unit 3 nuclear island to prepare for the pouring of the first concrete for the containment structure. By year-end 2012 we expect to increase the number of workers at the Vogtle site to 2,650, ultimately reaching a peak of approximately 5,000 workers in 2014.

The Vogtle project will ultimately impact some 25,000 jobs across the country, offering a much-needed boost to our nation's ongoing economic recovery efforts. At plant Ratcliffe we continue to make progress as we prepare to introduce 21st century coal technology to the United States. As of December 2011, we have already confirmed two-thirds of the project cost and expect to have confirmed nearly 90% by the end of 2012. We have 1,100 workers on-site today and expect to have around 2,000 at the project's peak.

Third, arguing for a sensible national energy policy. We continue to promote the concept of a common sense national energy policy that leverages all the arrows in the quiver, nuclear, 21st century coal, natural gas, renewable, and energy efficiency and develop technology solutions, not rhetoric, through proprietary research and development. On the regulatory front we are currently reviewing and assessing the EPA's final 1,100 page order for utility MACT, now referred to as mercury and air toxic standards or MATS. Our focus remains on finding the solution that's in the best interest of our customers. We are also involving other key constituencies in this review including the communities we serve as well as our state, public service commissions and permitting agencies. We will discuss the MATS rule in greater detail later in this call.

Fourth, promoting smart energy. We are focusing R&D efforts on promoting clean, efficient, and economic electro technologies to grow our share of energy sales. This year we expect to achieve major progress adding to our smart grid infrastructure as we near completion of the addition of more than 4.6 million smart meters for customers throughout our territory. This initiative will lead to better data gathering, faster restoration times, and improved power quality. And provide one more illustration of our commitment to enhancing the value we provide to customers.

Fifth, developing our people. I think it's interesting to note that our results in 2011 were achieved with about a 25% of our officers in new positions. In addition to leveraging our own outstanding bench strength, we also brought in a few key leaders from outside the Company. And we completed more than 400 transfers of employees between our various subsidiaries. Further proof of our commitment to keep developing our workforce. The result of this is a more diverse, more experienced, and better functioning leadership team.

Elsewhere, we continue to make strides in our efforts to build our reputation as an employer of choice. Since our last earnings call, we've been ranked by GI Jobs magazine as the number one military friendly employer among all US utilities and the second highest among all US industry. We were also recognized as one of the best places to work in America by Business Insider magazine. In summary, as our business continues to grow and evolve, we will pursue the successful achievement of these five priorities, all for the benefit of the customers and the communities we serve. At this point, I'll turn to Art for a discussion of our financial highlights for the fourth quarter and the full year, as well as our guidance for 2012 and a summary of our financial outlook for the future.

Thanks, Tom. First, I will review the fourth-quarter and full-year 2011 results, then I will discuss our sales data, economic outlook and sales forecast, followed by our capital budget and 2012 financing plan. I will conclude with our earnings guidance. As Tom said, our performance for the fourth quarter of 2011 was solid as was our performance for the full year. In the fourth quarter of 2011, we reported earnings of $0.30 per share, compared with $0.18 a share in the fourth quarter of 2010, an increase of $0.12 a share. For the full year 2011, we reported earnings of $2.57 a share, compared with $2.37 a share for the full year 2010, an increase of $0.20 a share.

Let's turn now to the major factors that drove our numbers for the full year 2011 compared with the full year 2010. First, the positive factors. Increased industrial demand added $0.02 a share for the full year 2011, compared to the full year 2010. Retail revenue effects in our traditional business added a total of $0.60 a share to our earnings for 2011 compared with 2010. Most of this increase was the result of regulatory actions at Georgia Power that became effective in 2011. Other operating revenues, primarily increased transmission revenues, added $0.02 a share to our earnings in 2011 compared with 2010.

Changes in our non-fuel O&M spending for our traditional operating companies increased our earnings by $0.06 a share in 2011 compared with 2010. This effect is due primarily to reductions in O&M spending in 2011 as compared to increased spending in 2010, resulting from better than expected weather-related revenues in 2010. A reduction in interest expense for our traditional operating companies increased our earnings by $0.02 a share during 2011 compared with the full year of 2010. The addition of new long-term contracts and higher energy margins at Southern Power, driven largely by the low price of natural gas, increased our earnings by $0.04 a share in 2011 compared with 2010. Finally, lower parent and other expenses increased our earnings by $0.01 a share in 2011 compared with 2010.

Now let's turn to the negative factors that drove our earnings for the full year 2011. Weather effects reduced our earnings by $0.21 a share during 2011 compared with 2010. Weather was actually positive for the year, coming in at $0.09 above normal, but was negative when compared with the same period in 2010 which came in at $0.30 above normal. Lower wholesale revenues at our traditional operating companies reduced our earnings by $0.05 a share in 2011 compared with 2010. This decline in revenues is primarily due to the expiration in May of 2010 of a long-term capacity contract. Increased depreciation and amortization reduced our earnings by $0.15 a share during 2011 compared with 2010. Most of this was due to the expiration at the end of 2010 of the Georgia Power cost of removal accounting order and also to increased environmental transmission and distribution investments. Other income and deductions reduced earnings by $0.05 a share in 2011 compared with 2010, the most significant contributor being a transition from AFUDC to cash recovery for Plant Vogtle cost construction financing cost.

Income taxes in our traditional business reduced earnings by $0.01 a share in 2011 compared with 2010. While taxes other than income taxes reduced our earnings by $0.02 a share in 2011 compared to 2010. Finally, an increase in the number of shares outstanding reduced our earnings by $0.08 a share in 2011 compared with 2010. In conclusion, we had $0.77 of positive items compared with $0.57 of negative items, or a positive change of $0.20 per share over the full year 2010. So overall, our performance for the year came in at $2.57 per share.

Before I discuss our earnings guidance for 2012, I'd like to update you on our 2011 sales and the outlook for 2012, as well as our capital budget and financing plans. We'll begin with a look at our 2011 retail sales. In 2011, weather-normal retail sales grew 1% compared with 2010. Meanwhile, GDP growth for 2011 was 1.8%. Sales growth was driven by the continued recovery of industrial sales which grew 3.2% in 2011 compared with 2010. Industrial growth continued to be led by primary metals and fabricated metal sectors which grew by 15% and 11% respectively, in 2011, compared to 2010. These sectors were driven by demand for flat steel in the auto industry and steel pipe associated with oil and gas exploration and delivery.

Petroleum refining and pipelines increased usage by 13% and 8% respectively in 2011, following expansions in production capacity. Other steady performers in 2011 included the transportation sector, up 4%, and chemicals, up 1%. As we have reported all year long, construction related sectors, particularly related to housing, continued to experience weakness. Analysis suggests that a great deal of the positive industrial performance can be traced to increases in export activity. The value of exports from the region is 25% higher today than in 2007, and market diversity has increased, with exports to Europe dropping by almost a third and market share to Asia and Central and South America expanding. Residential and Commercial sales continued to be flat in 2011, due to weak job growth.

Now let's move on to the economic outlook for 2012. Earlier this month we reconvened our economic round table group which is composed of regional economists and major industrial and commercial customers served by our operating companies. The observations of the group, which are consistent with our own view, can be summarized as follows. The national economy is expected to grow in 2012 but growth will be weak and sensitive to shocks. GDP growth is expected to be between 2% and 3%. The industrial sector will continue to lead the recovery with exports playing a major role. The European economy will be a risk factor that could slow global economic growth. Employment is expected to grow but not enough to significantly reduce unemployment.

Job growth and increased availability of credit are keys to improving the housing market, which is a linchpin to the improvement of residential and commercial sales growth. And political and regulatory uncertainty is contributing to the lack of clarity about the pace of the recovery of the economy. Translating this into implications for sales, we project that based on a GDP growth assumption of 2.6% in 2012, retail sales growth will be 1.3%. Industrial activity is expected to continue to lead our sales growth at 1.6%, as export volumes remain strong and domestic demand increases. Manufacturing productivity is expected to continue to increase, aided by the ability of our region's outstanding port facilities to reach out to new markets and create new opportunities for growth.

Weak job creation is expected to continue, tempering residential and commercial sales growth. Residential sales are expected to grow at 1.3% in 2012, while commercial sales growth is expected to be 1.1%. The good news is that once the economic fog clears, stronger growth in the Southeast economy should return, given the strong long-term growth fundamentals of the region. Economic development activity remains steady with more than 250 prospects considering locating within our territory, representing more than 40,000 potential jobs. The auto industry remains a strong player in the recovery. In 2012, Kia will expand its manufacturing capacity, adding 1,000 jobs and a variety of auto related companies will likewise add jobs this year. Meanwhile, Mercedes-Benz has already begun work on its previously announced expansion which is scheduled to be completed in 2014. All of this indicates a continuing preference to locate in the Southeast, which reflects our region's low cost of living and of doing business, abundant labor, and favorable clue climate. We remain confident in our region's ability to continue its ongoing recovery.

Now I'd like to move to a discussion of our capital expenditure forecast for the next three years. Similar to last year, our forecast is composed of two major elements. Our base forecast and potential compliance investments, which represents the uncertainty associated with MATS as well as anticipated new coal ash and water rules. Our base forecast for 2012 through 2014 totals $14 billion. This reflects new generation for our traditional operating companies of $4 billion, including $2.2 billion for Plant Vogtle Units 3 and 4, and $1.5 billion for Plant Ratcliffe in Kemper County, Mississippi. Other major components of this base forecast include maintenance capital of $4.3 billion and $1.8 billion for transmission and redistribution growth investments.

A crucial factor in the potential compliance investment portion of our capital forecast is the impact of the EPA's new MATS rule. As Tom indicated earlier, we are reviewing the final rule issued in December but a number of uncertainties remain. I would like to summarize those briefly. In the process of going from proposal to final rule, the Edison Electric Institute recommended 11 modifications to the EPA. One of these was related to the compliance time line, while the others were more technical in nature. The final rule, which we expect to be published by mid-February, did not grant much additional relief on the compliance time line. There were some technical adjustments, particularly to the particulate matter standard and the plant wide averaging which may provide some additional flexibility. There were other changes as well, including emission limits during start-up and shutdown that were offered.

Much more analysis is needed before we know whether these changes afford us additional flexibility. As Tom indicated earlier, we are engaged in discussions with community officials and state regulators to incorporate their input into our compliance plans. We are fortunate to have strong community leadership and knowledgeable, constructive public service commissions and staffs in our territory. The participation of those entities will have an influence on our compliance plan and schedule decisions and we cannot finalize our plan until those discussions are complete.

Based on our initial assessment, the compliance plan for Southern's 20,000 megawatt's of coal-fired capacity could include the following. New emissions reduction equipment, primarily bag houses, on up to 12,000 megawatt's of our flagship coal-fired capacity. Potential retirements of up to 4,000 megawatt's, and fuel switching on up to 3,200 megawatt's of coal and oil-fired capacity to other fuels such as natural gas. Our plans also include significant infrastructure improvements including natural gas and electric transmission upgrades to ensure adequate reliability on our system. Based on that, our potential compliance investments for 2012 through '14 are projected at a total of up to $4.4 billion. Of that up to $1.6 billion represents potential compliance investments or other proposed rules around ash and water.

Overall, our three-year capital forecast for 2012 through 2014 is for a total of up to $18.4 billion. The major trend reflected in this forecast is that the potential compliance spending is ramping up as some of our base projects are winding down. The three-year breakdown also reflects that our potential compliance spending of up to $400 million in the first year is not a major component for 2012. We will continue to update you on our capital forecast as new details emerge.

Now let's turn to a summary of our financing plan for the same three-year period. Long-term debt issuances are expected to be up to $10.4 billion over the next three years. In addition, DOE loan guarantees for Vogtle 3 and 4 and for Plant Ratcliffe in Kemper County could represent up to $4.3 billion or about 40% of the total. Our three-year financing plan assumes common equity issuances of up to $1.9 billion. We stopped issuing new shares through most of our equity plans in early 2011. Since then, we have only utilized stock option exercises to provide new equity. We ended 2011 with an equity ratio of 44%, and our current plan assumes modest common equity issuances over the next two years. We anticipate turning our other equity plans back on later in this three-year horizon as potential environmental compliance spending increases. Overall, our financing plan continues to support our industry-leading financial integrity, while maintaining our well-managed debt portfolio and a common equity ratio of approximately 44%.

To begin our earnings guidance discussion, I'd like the to take you back to what we shared with you during our fourth-quarter earnings call a year ago and at our Analyst Day shortly thereafter. At that time, we provided long-term EPS guidance that was based on our 2010 earnings guidance range of $2.30 to $2.36 per share. We profiled a trajectory that grew the bottom of the range by 5% every year and the top of the range by 7% every year. As we -- and as we said, our 2011 guidance was slightly higher than our long-term trajectory, largely due to the significant year-over-year improvement in earnings we saw coming out of the recession and some of the constructive -- and some of our constructive regulatory results.

We are providing a 2012 earnings guidance range of $2.58 to $2.70 per share. This guidance reflects current uncertainties and normal variability. We believe our 5% to 7% long-term growth trajectory which is anchored to 2010 guidance is still appropriate, and our 2012 annual earnings per share guidance is positioned largely in the top half of that range. That said, we recognize that continuing to anchor long-term growth to 2010 guidance may be impractical over time. Therefore, we will now characterize our long-term earnings per share growth trajectory as being 4% to 7%, as indexed against the 2012 earnings guidance range. As you can see from the slide, this is essentially equivalent to our original long-term trajectory. In fact, it narrows expectations in the near term to the higher end of the range we provided in 2010.

In summary, our earnings guidance for 2012 is $2.58 to $2.70 per share, and our longer-term growth trajectory is 4% to 7% off of that range. As always, the variability in long-term range is based on several factors including uncertainty in our compliance investments, an uncertain pace of economic recovery, and other considerations. We remain confident in our ability to pursue our goal of growing earnings and dividends in a sustainable manner. Lastly, our estimate for the first quarter of 2012 is $0.45 per share. At this point, I'll turn the call over to Tom for his closing remarks.

Thanks, Art. In closing, let me reiterate that our business model, priorities, and financial objectives remain in place for 2012. We are well positioned to continue providing exceptional customer value which should translate into exceptional shareholder value in the form of reasonable EPS growth with an attractive dividend yield at one of the lowest risk profiles in the industry. Despite the uncertainties that remain we are confident in our ability to navigate the challenges of 2012 in much the same way that we have navigated the challenges of 2011, by staying true to our fundamentals and delivering on our commitments to customers, employees, communities, and shareholders. At this point, we are ready to take your questions. So operator, we'll now take the first question.

(Operator Instructions). Daniel Eggers, Credit Suisse.

Just kind of how now that we have MATS in place and you put some numbers out there for what the environmental CapEx could be, are those numbers cumulative to what you would have to spend over the entire compliance period or is that just the three-year period and there would be additional spending in '15, '16 to get to full compliance as you see it right now?

Just three years.

So it should be that three-year period, there would be more money in that Q beyond that.

Absolutely.

When do you guys expect to kind of get through the process with your regulators to formalize that CapEx plan?

Well, I think we need to get clarity on the proposed rule and from time to time we move from proposed rule to final rule to published rule, I think haven't we seen across state that from final rule to published rule things can change. So we still wait with a lot of interest to see what the published rule will be. And like I said, we're going to have to go through with the states and just -- and all the people we mention to kind of fully assess -- because remember, this is not some academic exercise. What happens here when you start talking about changing out plants and retiring or moth-balling some or converting some, you're impacting tax base of local communities, you're impacting unemployment in largely rural areas, you're impacting real income of people out there.

These are not bloodless decisions. These are things we take very seriously when we think about how we engage with customers on a day-to-day basis. Look, the time frame varies from state to state. You know that we deal in Georgia and Alabama and Mississippi and Northern Florida, so each state will have its own process and own timeline to go through. It's hard to say in kind of a general statement what that might be.

Okay. I guess with the 4% to 7% growth rate, is that taking into -- would 7% reflect if you had to do the full amount of spending or would that -- or how does I guess this environmental CapEx fit into that band?

That's generally correct. The more CapEx we spend the higher our AUR up in the range. There's other factors too. But that's a reasonable way to think about it.

That slide is vanished from my screen but it seemed to go to the right further than a couple years. Is this kind of a decade-long growth rate? Is that how you guys are thinking about it now?

No, three years.

Three years. Okay. All right. I'll let somebody else go. Thank you, guys.

Hopefully it's back up.

Brian Chin, Citi Group.

Sorry if I missed this earlier in your prepared comments but that base environmental number, would that -- does that already include some element of CSAPR in it or if the CSAPR rules get finalized at some point in the next 18 months do you expect --

Okay. The base CapEx includes projects that most of which are currently ongoing. I believe the Daniel Scrubber might be in that particular project but when you talk about CSAPR, most of the -- we'll address most of the CSAPR issues through the MATS compliance, so you won't have a whole lot of extra stuff on top of what we're doing from MATS to comply with CSAPR.

Let me just add in a different way too, it's a very important point we raise right here. It's one thing to say your CapEx budget's going to be influenced by MATS or by CSAPR. What you really have to do is and what we've been consistent about arguing about here is that the whole litany of cascading regulations coming out of EPA will have some bearing on what our CapEx and ultimately our generation and transmission expansion plans ultimately will look like. So we can make estimates on that. We can make estimates on CSAPR. But ultimately it's the whole consequent of what's happened with ash and 316-B and a variety of other things. The other thing that I think we should point out here too, CSPAR the cross state rule has never been all that important on its own for Southern. In other words, we would handle that mostly through our dispatch and it would show up in energy as opposed to capital.

Very, very helpful. Just one other follow-up question. Notice that the retail sales growth outlook for 2011 was I think 2%, now it looks like the outlook's closer to 1.3%. Just wanting a little bit of extra color on what's causing that deceleration.

Well, we're looking at a lot of uncertainty out there, Brian. One of the economists in our economic round table group kind of described it as fog on the road and there's not a whole lot of clarity out there and when there's fog on the road, people either drive a lot slower or they don't drive at all. And so with that uncertainty and the range of GDP estimates you have out there, I think that's kind of describing the outlook we have. So it's cautious in our regard. There's still risks out there. But the data, economic data we've seen here of late is on the positive side.

We've seen unemployment tick down in December, particularly in the Southeast. About a 0.5% round numbers in the Southeast. So it looks like jobs are starting to be created. We do a survey of companies that are going to either -- there's kind of three states in nature, increase hiring, keep hiring constant, or decrease hiring. Some time ago it was a third, a third, a third among those three and the Atlanta Fed now projects that it's about 45% round numbers, 45% that will increase hiring, 45% that will keep it constant, and then 10% that will decrease hiring. So we're starting to see signals. The things we've talked about are all coming to fruition. Everything we've suggested in the past about economic development is in fact happening. As we start to see expansions at Chevron, or at Austal, or at Mercedes, or at Kia, or at Gulfstream, those things are happening and they will generate jobs as they come to fruition.

Very helpful. Thank you.

Paul Ridzon, KeyBanc Capital.

Just a quick question on drivers of 1Q earnings guidance. What are the drivers of 1Q earnings guidance?

I thought you had a specific question.

No, no, no.

Okay. Actually, a lot of it was driven by the same revenue effects that we described for the annual period. About $0.16 there. Weather was an offset at $0.08. Nonfuel O&M was a $0.05 positive. Depreciation and amortization was negative $0.04. I believe this is outlined on the slide at the top end of the earnings slide. Did you want Q1 of '12 or did you want Q1 of Q4?

I'm sorry, I wanted Q1 of '12.

Oh, okay.

Sorry. Misunderstood. Well you've got some rate effects that go into effect that were outlined in the same rate settlement of Georgia last year. The weather effect from last year, we had some positive weather in the first quarter of last year, so as a year-over-year basis you would expect some mitigation there. Our estimate of growth last year was stronger for sales growth in residential commercial. It's a little bit weaker this year. So are you trying to get to our 45% -- $0.45 earnings estimate for the first quarter?

Yes, just trying to reconcile $0.50 to $0.45.

We had a lot of weather in last year first quarter. I think that's the biggest driver.

You have that offhand?

We can probably get it.

Hold on.

Opening that big black book?

Oh, yes, are kidding me. That's $0.02.

Thank you very much.

Yes sir, sorry.

You know and everybody knows we do our estimates on weather-normal basis, so any comparison will just be --

Yes, right.

Okay. Super. Thank you.

Greg Gordon, ISI Group.

So I guess I've got to ask because as I look at the tale of the tape and think about the economic assumptions that you've baked into your forecast. Since '08, '09, you've generally aired to the conservative side, pretty much running out the string since we came out of the recession in terms of the ultimate level of economic activity, sales growth, et cetera that you've experienced. Is there a scenario that drives you -- what scenario would drive you to the high-end or above the high-end of your earnings guidance range or is there one that's even within the tails of your analysis?

Oh, sure. I mean the question of is there a tail in our estimates that would drive us one way or another, that's absolutely right. You've got to figure out how likely that is. I guess that's the key. But obviously when you think about it, if you look at -- help me out with the numbers here. 1% change in sales is worth about $100 million -- I'm looking here real quick, $120 million in revenue, something like that. And so if we project 1.3%, so if we get to up to 2.3%, you're up that much. Right? If essentially sales are flat, you're down that low.

What we've been able to do is just kind of manage our system to adjust to the normal variables. That's how we've been able to be very consistent over time. For example, weather. For example, changes in the economy. For example, what's going to happen with commodities. One of the stories I think that's interesting in our industry over the past year has been what's going on with natural gas, Southern Power obviously has benefited from that. What's going to happen with oil prices in the Straits of Hormuz? What's going to happen therefore to the weight of oil in the economy? What's going to happen with Europe? What's going to happen with our ability to generate real job growth and sustain the growth of the economy in light of this fog that Art metaphorically spoke for?

Hopefully kind of this notion of tail risk is kind of that plus or minus a 1%, $120 million. What's our ability to manage our Business to a accommodate those changes. Greg, over the years we've been pretty good at both managing our Business to fit within the variables that we normally face, and provided the best operations arguably in the industry for the benefit of our customers.

I see that. I listen very closely to what you guys say about economic activity because you appear to be very diligent and plugged into your customers and that shows up in lots of ways. But I guess I look at the earnings forecast and I contextualize it based on what you've actually earned relative to the guidance ranges for '10, '11 and now for '12. $237 million in '10, $257 million, now the guidance range. So as investors look at the actuals, we're looking at a 0.4% growth at the low-end, a 5% on the high end off of what you've actually earned last year. And I understand that you contextualize it in terms some of your anchor aspirations off of '10 I think it's just giving people some pause that maybe there's something going on in terms of economic activity not being as robust.

I think if you just look at weather compared to normal, the past two years, remember we're weather-normal, that's the way we estimate. You had big weather two years ago, positive weather last year.

I think another thing, Greg, if you look at weather-normal sales growth in residential and commercial, we've had basically flat growth for two years now. So our estimates about economic growth continuing there are still kind of tentative. We're still waiting for that to catch and start moving northward. So we've estimated increase in sales again this year, not quite as robust as we did last year but we were able to offset that loss with what Tom just mentioned, some positive weather.

And if you go back and I'm interested in your comment about the context of earnings growth, that's why we show these charts that say we started with 2010, $230 million, $236 million and we grow at 7% and 5% and we explained why we thought we would be higher in '11, sure enough we were and we explained why we think we're in the top half roughly in '12. One of the benefits of the way we run our Business is that we provide a Business I think that provides for regular, predictable, and sustainable growth in earnings per share. That's been our history and I hope it will continue to be our history. There is nothing -- there's no lack of transparency in the -- I think our assumptions of the economy.

Great. Well, thanks, guys.

Ali Agha, SunTrust.

Tom, I wanted to come back to your comments on the MATS rule that's come out. If I'm hearing you correctly, is the implication that the rules are now final, I know you said final once it's published, there could be something there. But unlike CSAPR should we not assume any legal challenges? Should we assume that you're going to plan around this? Can you just give us a little more insight on your strategy on this?

Sure. Strategy remains the same really for any of these issues that are in front of us and that is to represent the interest of our customers, to provide the cleanest, most reliable, most economically sensible product available and so, therefore, we will engage constructively in any front that represents the interest of our customers, whether that's a regulatory issue, a legislative issue, or litigation if necessary.

So I mean, is there a scenario in which you could see some kind of delays or legal challenges to this MATS rule?

Sure, there always is. The question is, is there a scenario, the answer is yes. You have to assess kind of the facts of the situation at hand and what the issues are.

Okay. My other question was given the CapEx that you've laid out for us and whether you layered in the extra environmental CapEx on top of that, can you remind us what kind of annualized rate base growth over the three-year period that supports?

Yes, Ali, this is Art. Roughly about 7%, but remember that that's a lumpy growth as plants go into service so you'll see fits and starts there. But on average, about 7% we'll run.

Yes, 7% to 8%, yes.

That's an annual number; right?

Correct.

Okay. Does that include the extra environmental CapEx in there as well?

Probably, that would be on top of that, but that's further out. Remember, those projects won't go into service until after the 2014 timeline we've outlined for you.

Remember, that's the difference, the difference between what clears in the rate base and what's spending before that.

On that note, last question, Tom, I mean, you look at your CapEx budget and if you layer on top of that the environmental CapEx that's going to go in at some level, does that have implications to that earnings growth rate you've laid out for us or does that still keep you in that 4% to 7% range, even factoring in that extra environmental CapEx?

It's what we said before, I think. The more CapEx you will see, the higher in the range we will be.

But in the range.

Yes.

Yes.

Okay. Thank you.

Mark Barnett, Morningstar.

Quick question on the retirement forecast. I know this is something out in 2011 but does that include -- I can't recall if that included any impact from the ash and water rules. I know you give the kind of CapEx sensitivity there but is that a number that might move higher if there's a more aggressive case regulation?

Certainly it could. We believe that for example, ash, coal ash should not be classified as a hazardous waste. To the extent it was that certainly would change our thinking on what our portfolio looks like.

Okay, but you don't really have kind of a number around what that might look like?

What we've said about ash and 316-B I think is that we're looking at about of the three year CapEx, about $1.6 billion. And I think our assumption there is that it is --

It's nonhazardous.

Nonhazardous.

Okay.

A hazardous designation would change the game of energy supply in America and in a really dramatic way.

Okay. So when I look at that $1.6 billion number then that's almost all coming from the coal ash and not necessarily the water or I'm sorry that's both. Okay.

That's both.

It's both. Okay. Thanks for the clarity on that.

Andy Levi, Caris.

Just a couple questions. As far as slight reduction in the growth rate, that's primarily kind of uncertainty around sales, is that --?

It's really tied to the economy.

Yes, I wouldn't denote it as a reduction in the earnings growth rate. If you look at the slide it actually still outlines the same cone of growth that we expected before so the 4% at the bottom, you might justify it based on some combination of scenarios that work against you but it's still no different than what we outlined a year ago.

If we were to use 2010 as a base, it's still 5% to 7%. All we're doing is, the guidance we're giving you is in the top half roughly of the range that we've laid out here for two years.

Okay. And then again, that growth rate's off of 2011, not off of 2010?

No, it's off of 2012.

Oh, 2012. Excuse me.

Yes.

Okay. Very important. Okay. And then just as you're thinking, the Fed came out today, said they're going to keep interest rates low through 2014, versus 2013. In your assumptions, what were you assuming as far as this future financing and kind of where interest rates would be in '13 and '14 as an example?

Yes, Andy, I don't have the specifics on what we're assuming. We take generally the input off of what we get from the economic advisors to us. They may be a little higher than what the Fed kind of forecasted out today, but we can call you back and get you that number.

Okay. Yes, I was just thinking maybe there would be some type of benefit for you considering you guys do a lot of financing.

Well, we do.

And last thing, just any update on when we're actually going to get this COL, I mean, obviously the process is basically done but anything you can share with us?

I said it was imminent. It's any day now. I know we're all impatient on getting the COL but you've got to remember, this whole process undertaken by the NRC has been really thorough. It's been thoughtful. It's had the participation of all the different constituents that have an interest in whether or not nuclear is built in America. This thing all works to all our benefit. So getting it right and having everybody satisfied, dotting every I and crossing every T at the end of the day is a good thing because we've got lots of years ahead of us and lots of money to spend. So we all are impatient to get it but I think it's actually a good thing at the end of the day.

I agree. I just was more curious. Okay, guys, thank you very much. As always, you guys are doing a great job.

Angie Storozynski, Maguire.

So I just wanted to go back to the discussion about the low growth assumptions and the potential conservatism that is built into those numbers. I'm looking at your actual weather-normalized data for 2011 and your sales grew about 1% versus 2.2% that you expected, looking at the March presentation, and also you are assuming quite a significant pickup year-over-year for commercial and residential sales. Can you actually -- I don't quite understand what could drive this. I mean, you have maybe limited visibility on the economy as we all do but what will be the drivers for commercial and residential growth?

Angie, this is Art. What we're assuming there is as we mentioned in our script, I believe that job growth would begin. It wouldn't be a lot to alleviate the unemployment situation but enough to stimulate growth in both our residential and our commercial areas. Tom alluded to an Atlanta Fed survey where CEOs of companies around the Southeast are now indicating that more of them are in a hiring position than they were six months ago. These are all indicators that we have that that will lead to more job growth, more household growth, create increases in customers on both residential and commercial side.

But isn't your residential demand more driven by migration into your states than really growth in usage?

Well, there's a lot -- lots of factors there. Migration is still continuing but it has slightly dropped since the recession. So we continue to look at those and try to evaluate what it really means for us as we move forward.

Angie, I mean, that's a good point. Look, industrial activity creates jobs. Jobs create opportunities for people to move in. It unlocks the housing sector. And that creates more activity in stone, clay, glass, and building materials and a variety of other things so it primes the pump to restart the engine. Our belief is that we'll just start seeing the jobs and in fact this whole process will start to regenerate. The key I guess is housing at the end of the day. That's something that we look for very closely in all our statistics.

Great. And then when I look at your fourth-quarter results, there is at least a chunk of the earnings came from lower O&M. And it's already -- we've been a couple of years into managing expenses. Should we assume that if sales were to disappoint you, you have enough of other costs that you could trim to meet your expectations, earnings expectations?

Yes, Angie, in 2010 you remember we had a lot of weather-related revenue and we spent a lot of that money in the fourth quarter of 2010 doing extra maintenance. We actually pulled some outages out of 2011, into 2010, and so when you do a year-over-year comparison O&M went down. But that ability to do that, to fix the roof when the sun's out, actually puts us in great shape to be more flexible on O&M as we move forward into 2012.

And I think if you look at our longer term trend, don't go year-to-year, if you went back three years, four years, I think our number's around 2.8%.

Correct.

Compound annual growth in O&M. So it's a decent number.

Okay. Thank you very much.

Jim von Riesemann, UBS.

Couple simple questions. The first one is on financing, if you don't mind. So back in December Congress was considering this extension of the bonus depreciation to 100% in 2012 and then into 2013 and they are largely expected or they're expected to take it up again in February, right. So if it's passed, what are the sensitivities with respect to your equity needs going forward?

All right. Good question. I think the assumptions we have for bonus depreciation assuming the 50% level are $450 million to $600 million. And if we were to get the extra bump, we would pick up somewhere around $300 million to $400 million more and that's just kind of rough numbers.

Incrementally into 2013 what does that look like?

Don't have anything on '13 but it would be more and our ability to actually use it. So the effect on equity would certainly reduce the effects but we would have to manage that as we move through time.

Okay. Second question, used your phrase, fog on the road. You talked a lot about sales. Can you talk a little bit about what your customer growth expectations are?

Yes, Jim. We actually had flat customer growth last year which is, again, reflective of our results in the residential and commercial side. We're expecting about 14,000 customer growth in 2012 and that again reflects the assumptions we're making on job growth within those particular areas.

And let's kind of dimension that. In the good old days back when I was CFO, we had something like growth of like 50,000 customers a year. Our number this year, we're projecting like 15,000 round numbers and customers were flat last year, even some people had slightly negative. Remember, we had these enormous tornadoes go through Alabama, for example, that devastated a lot of (inaudible). And so we had some effect. You've got to kind of look through those numbers to see what was the tornado effect.

Okay.

Anyway, so 15,000 is kind of what we're expecting out of a normal number of 50,000 but we certainly haven't been there in a couple years.

All right. Thanks so much. Have a great day.

Jonathan Arnold, Deutsche Bank.

Couple of things. One was I think some of the commentary around some ability to manage a slower recovery kind of seems to have been focused on 2012. What kind of sales number do you need to in the '13, '14 to kind of keep you in that growth curve if you like and how long do you have, how far beyond '12 could you keep sort of moving the expense needle to keep you in that channel?

That's an interesting question. I suppose -- normally what you have seen with Southern is variability. Remember, we went through all these other factors. It's not just economic growth, it's weather and a variety of other things, right. If you saw sustained low economic growth, likely that would have some impact on the stress on your system and a variety of other things. In other words you're not running your plants as hard. You're not having the stress on the wires part of the business, et cetera. So there is some correlation if you will between a slowing economy and a slowing O&M spend rate, number one. Number two, the folks that run our Business, that make, move and sell electricity do a terrific job in thinking about the optionality of best bang for the buck with every dollar they spend on their base level of expenditure and then they have very clear ideas as revenues start to appear with the variability of weather, where they spend it and where we get the best bang for the buck. The truth in that shows up in our operating statistics, our industry-leading E4, our now more than 10 year trajectory of great performance in our transmission and distribution business. My sense is, Jonathan, through the period I think we can handle within the range that we've given you a sustained very low growth economy. Where wouldn't we, if that's your question.

Can I just frame the question a little differently, like how much of the 4% if you like is coming out of capital spend and environmental and how much is coming from just organic growth in the business? Could that frame it a little better?

I don't know. So how much of the low end of the range -- the low end of the range will be hit if you have bad economic growth, milder weather, and low CapEx. That's kind of how you get there. To the extent CapEx picks up, to the extent you have better weather, you're going to be in a different spot.

Low economic growth you'd define as?

Like zero.

Okay. That's clear. Can I ask on one other topic?

Sure.

Could you give us a sense of whether your contracted position on coal looks sort of any different going into 2012 than, say, it did going into 2011 and a sense that these kind of very low gas prices, sort of how much incremental kind of shift on the system we could see from coal to gas and partly due to contract and price?

Yes, look, we've been very kind of transparent in the past. We've got some really interesting stuff to talk about here. In the fourth quarter -- let me back up. Four years ago, or way back when I was doing CFO or COO even, we were about 70% of our energy from coal and about, I don't know, 16% from nuclear, about 12% gas and the balance from hydro. In the fourth quarter, this was really surprising to me, maybe not surprising considering how cheap gas is now, our energy production was 40% coal, 39% gas. I used to say we would reach a 40/40 split sometime after 2015. Sure enough, we hit it in the fourth quarter of '11.

Now, moving forward, given where gas prices are, we will continue to see much more gas production. So it will become more important. In terms of how we're managing our fuel stocks, we have already going back into '11 started thinking about in light of what may come down the road with MACT. MACT, a variety of other issues associated with new regulations out of EPA, started putting more optionality into contracts, shortening up the term of those contracts, and thinking about how to be flexible in transportation arrangements. So all of that is being taken into account. Kind of what I used to say four years ago would have been that if you looked at our weighted average coal supply, you were kind of in the 3.5 to 4 year range. Remember it was 100% committed in the year, and then it would go to 80% and 60% and 40% and all that. Imagine that being shrunken a bit so it's shorter in its duration and it is probably more flexible in any given year. So what may be 100% today may be 60% tomorrow, may be 40%, may be 20%. So we've already started working all that through the system. Is that okay?

Tom, do you think you could go north of 40% gas in Q1 here? Sounds like you're sort of on the threshold.

Yes, we're on the threshold. Time will tell.

Okay. Thank you.

Michael Lapides, Goldman Sachs.

Two quick questions for you. One, Art, have you ever framed what your EPS sensitivity is to every 1% change in retail load? That's the first one. And the second one is do you think you're at the early stages when it comes to residential and small commercial usage in terms of a structural change in kind of the megawatt hour demand versus GDP correlations?

I got the last one. You get the first one.

You got the easy one. The first questions was sensitivity to 1% change in sales? Was that it?

In EPS.

Yes, that is. If sales was 1% higher or lower than forecast.

I gave him revenue before.

Right. It depends on how it's spread, Michael. If you do across all classes, it's about $98 million in revenue and if you assume that you don't mitigate it in some way in your spending side, then it would be about $0.075.

Got it. Okay.

Okay?

Thank you. And on the other item?

So on the other item, that was the relationship between GDP growth and electric sales, right.

Yes, especially for res and small commercial.

I love this stuff. We argue with each other all the time what's going on here. And we have used in the past a relationship -- it has really borne its math. It carries its water as a theory. That you should look at electricity sales as about 60% of GDP growth. Now, what we've done here in our projections is use a number like 50%, not 60%, so we in our normal conservative nature backed off a little bit but there's a very interesting development in our numbers. As we were peeling the onion, getting ready for this call, there is an interesting trend. If you look at usage, usage is flat among our customers, particularly in residential and commercial.

And there is always this interesting question about what's the penetration of energy efficiency and yet usage was flat. One of the things that we're debating right now is this idea that the economy is actually getting more electrified, if you will. That as the economy grows more and more of the energy share is going to be electricity driven technology. I think you can see that with these beautiful plasma screen TVs and iPhones and iPads and all the other stuff we have. So that's kind of interesting.

So what you may see is maybe some energy efficiency, certainly as you replace an air conditioner you've got a more efficient air conditioner so I think you're seeing share of electricity as a part of GDP growth grow and some effect on either active or passive energy efficiency. So the relationship appears to be constant. But the components within the relationship appear to be changing. Fascinating stuff.

Got it. Okay. I appreciate that. I'll follow up offline, guys. Thank you.

Nathan Judge, Atlantic Equity.

Just on a general kind of macro question here, as we look across the United States and there's been a lot more gas, natural gas coming to market than some had expected, at least I had a year ago, and it seems to be continually -- the price for it is continually falling. Just thinking about how that relates to your CapEx forecast and options as it relates to what you do as far as EPA related retrofits and how close are we for you, instead of using a baghouse, you perhaps convert some more old plants into nat gas plants.

Piece of cake. Let's kind of dive through that a bit. So of the 12,000 megawatts, those are our flagship units; Bowen, Scherer, Miller, some of Wansley, some of Barry, et cetera. Those will vary. The maximum amount of baghouses I think we're considering right now is 17. As we suggested, there could be a variable nature of that. We may require less which gives us the spread that we tried to indicate to you and please let me reinforce with the community out there, we are trying to give you the best estimate we can. There's still a significant amount of uncertainty there, okay. Number one.

Number two, when you think about the expansion plans going forward, remember that one of the advantages we have being in an integrated regulated market as opposed to the so-called organized markets or merchant markets is that we are able to account for expansion planning as a portfolio and we are able to iterate around optimal solutions between the types of generation and transmission solutions and they are iterative. So when I think about what's in front of us here, remember that some of our portfolio decisions have already been cast. That is, 1,000 megawatts or so from Plant Vogtle Units 3 and 4, Mcdonna, 2,500 megawatts or a little bit more. Georgia Power's out for a solicitation. Largely it's going to be gas I think of around 1,500 megawatts, that's coming a little bit later. We have Kemper County in Mississippi which is going to have an environmental signature better than or equivalent to natural gas, 582 megawatts. Remember sometime ago we moved Plant Miller, one of the greatest coal plants in America in terms of its efficiency and cost profile to our customers into -- moved it away from wholesale into retail so Alabama is pretty well-spoken for. So those decisions have already been made. So what you're talking about is really decisions around the margin. In other words, shutting down, moth-balling, whatever the right word is, 4,000 megawatts. That kind of appears to be a dominant solution right now. We'll see. And then of the 3,200 we talk about, in more specificity, what we have said is likely candidates for that are older, smaller coal units that currently don't have SERs or scrubbers, that will be converted into rather high-heat rate units like 10,000 to 11,000 heat rate gas-fired units. Would we do more of that? No, that's about the right level, I think. And there's not a lot of future bandwidths for variability in how we add to the system going forward. There's going to be some around the edges but I wouldn't expect big changes. As I suggested to you, we're already committed on a portfolio that we think meets all the needs of our customers in a clean, effective, low-cost way.

That's very thorough. Thank you. Just as it then pertains onto the nuclear plant, could you provide some type of timeline or some type of idea what risks there are, I'm not suggesting that it will be, but let's say in six months time or a year time or whatever it may be, investors should start looking at the NRC's lack of giving this COL out as being concerning?

My opinion, the delay, whatever of the COL, the reason we haven't gotten, it's imminent, it's any day, whatever you believe about that, that shouldn't be concerning at all. In the bigger scope of things, like I said before, I think I applaud the process we've gone through. Do I wish it's gone quicker? Sure. But I think given the scope, given the time frame, I think you're kind of quibbling around the edges here. I think it's more important to get it right and have all the parties involved be completely satisfied and that's where we are.

Recall too that the process that we follow in building Vogtle 3 and 4 is a commercial relationship between us and the consortium that is Toshiba, Westinghouse, Shaw. Recall too that we have a very transparent relationship with our commission, independent evaluator, the staff, the PSC itself and recall too that from the time the plant was originally certified, we have delivered to the customers of Georgia Power Company over $1 billion of incremental value. And recall that it takes kind of four forms. One is the fact that we had a variable contract and we fixed portions of that contract and you can look in our disclosure because otherwise it's protected under a commercial agreement. Secondly, that we got loan guarantees. Third, that we got CWIP that will endure to the benefit of our customers by about $300 million. And fourth, CWIP, oh, production tax credit. That's the other one. And I even think we're reasonably conservative there. Because remember the production tax credit amount was dependent on how many nuclear projects we're going to get built. Well, it's us and SCANA, looks like. I think our estimate there is conservative. When we say that we've delivered over $1 billion of value and you do recall that that is part of the testimony in the August proceedings in front of the Georgia Public Service Commission, I think we're in great shape. I think the Vogtle project Units 3 and 4 is going to deliver tremendous value and I think that is shared by the people in the state of Georgia.

If I could just redirect that question. Could you just give us a milestone and perhaps magnitude of -- I appreciate that -- unfortunately, some of the investors including myself don't have clarity into the processes as some do and I just wanted to see if there was a milestone that we could look to. I just take it in consideration what you said I think in your Analyst Day about being year end and we're just past that now.

Yes, but I mean, okay, look, it's a 10-year project and the delay has been about a month. Remember the DCD was real important. We got a 5-0 vote on the design. I wouldn't attach a lot of angst to the delay of the COL. We still have -- we've been able to work through the LWAB. I mean the LWAA and we still have 1,000 people or more on-site. They're doing productive work. We've been able to work within those structures in order to be efficient and effective.

Recall too, we talked about -- when we say that all thresholds are achievable, that is relation to cost and schedule. We have flexibility going forward. How we decide to execute that flexibility in some respects is a commercial matter between us and the consortium and us and our regulators. So I wouldn't personally feel angst about where we are right now. I actually think that the project is going great.

Great. If I may --

Was that responsive? Can I hit anything else specific? We'll have milestones. You mentioned milestones. One of the things that will be interesting as we go forward will be the development of what they call ITAACS. That's an acronym for something. I never remember what that stands for. But what those are are tests that will be developed around the systems of each of the units as we go forward. There will be hundreds of them. It's almost like as you're building a house you want to test the AC system, you want to test the kitchen, you want to test the -- and so there will be several of those going forward. And one of the challenges that we have said to ourselves in our -- we meet regularly on this project. Is to be able to talk about developing those thresholds, to talk about clumps maybe of systems as we go through them to let you know how progress is occurring. I think it's a very fair question. We need to kind of give you better clarity going forward. We'll work on that.

I really appreciate that. Thank you very much. I just have one last question. Informational question. Could you remind us how the Georgia riders work for the environmental spend specifically as it relates to this potential up to 2 -- or I guess $4.4 billion in Georgia, is there -- more specifically could there be regulatory lag there?

They're covered within the three year rate hearings that are normally -- that Georgia Power's been going through for the last four, five processes. They'll defer them if they're not covered in the last rate case until the next rate case. So if they're under construction, or if they've been approved for construction, then they'll collect AFUDC and that will be the normal accounting process.

Okay. So if I do understand, if there is a fair amount -- There isn't equip though because they will have basically come in between interim rate cases? Is that --

Having been CFO of Georgia, you make an estimate, a forward estimate of the three-year period, essentially and then you essentially count your rate base going forward every three years and it's an accounting order. The commission has shown and the staff has shown a great deal of constructive thought as to how to recognize that over time and we've been reasonably flexible over time so there's a contemplation as to what it might be. To the extent there's a variance there will be an AFUDC accrual, there will be a deferral at rate and it will be captured in the next three-year accounting order. Recall too that we have never lost $1 of expenditure associated with environmental.

Absolutely. Thank you so much.

Leslie Rich, JPMorgan.

I just have a quick question on fuel. So you're running your gas plants more, you're running your coal plants less. That's got to over time since it flows through to customer result in some rate decreases and I'm just wondering sort of that's a nice tailwind in terms of benefits to customers. Is that going to be happening -- has it been happening in '11 and do we see a big adjustment there in 2012?

Leslie, this is Art. If you look at the balance of unrecovered fuel around the system, I guess Georgia's got the biggest balance at $130 million or so, $137 million underrecovered and to the degree they benefit from increased gas burn, that balance will be mitigated sooner than they expected. But no word yet on when that fuel rate will change for customers. Mississippi actually their commission approved a fuel rate reduction in this month, a few weeks ago that will begin in April, I believe, about $22 million. Alabama's underrecovered about $31 million so I wouldn't expect anything immediately there. And Gulf is actually overrecovered about $10 million. So it just depends on the Company and when the -- what the balance is and when the commission will take action on it.

It's so fascinating. John Row and I got into this at one time. Southern Company benefits by low energy prices. It's good for our customers. It's good for us. We pass through the benefits of the lowest lambda that we can offer. And so to the extent gas prices remain low that is great for us and great for our customers.

And then does it have incremental positive benefits for Southern Power? Are those units to the extent that they're not fully hedged, can they run more?

Yes, you bet. I'll give you -- I'm sure Art I will tag-team here. Southern Power did better than we expected significantly in 2011 as a result of that. Their energy margins were substantially higher. And we have designed that Company to be gas-fired in the Southeast and so as there are issues relating to retirement of assets in the Southeast and gas becomes a dominant solution, the ability for Southern Power to sustain its performance on energy margins and grow more, they have a lot of expandability on their sites. We think it plays right into their strike zone.

Leslie, if you look at capacity factor of Southern Power's combined cycle units they were up 10% year-over-year. And if you look at the capacity factor in the fourth quarter, I believe some of them were up in the 70 -- mid-70% range.

So in 2010 for the year we were 47% capacity factor. In '11 it was 57%. If you just want to look at trends in the fourth quarter it was 65.%

Great. Thank you very much.

John Ali, Decade Capital.

Just a couple quick follow-up questions. Jonathan Arnold was talking about getting to the bottom-end of your growth rate and you said you would have to have lower CapEx. Is that just base CapEx?

It would be lower everything. However it is, you don't want to ever get in the business of tracing dollars. If we were substantially lower than what we're projecting, so we're projecting $18.4 billion over three years, I don't know what that number would have to be to fall out. We described mild weather. We described no growth in the economy. We described less CapEx. That's kind of how you get there.

Okay. Great. Looks like base CapEx applies around 7% rate-based growth.

Yes.

Okay. And Southern Power, are they experiencing any pressures from lower commodities or CSAPR delay in '12?

Southern Power benefits from lower commodities. Remember the way we structure their contracts we have this very kind of well-developed notion here that risk matters as much as return in creating value and so when we thought about at the inception of Southern Power we set upon a set of contracts that served us very well over time. That is for any contract they enter into it really has two segments. One segment deals with return on brick and mortar investment and which is known over time through the length of the contract. The other deals with largely energy and largely that's a fuel pass-through to the customers. When you think about the economic model of their contract business it looks very much like an integrated regulated utility. Okay? They do have the ability to earn some margins above what we project in the base case, should we sustain this low-commodity environment. That's what happened in '11.

Got you. Okay. I'm just a little bit I guess not confused but curious why the bottom end of the CAGR dropped in all these things point to at least sticking to what it was in --

I hope we didn't confuse people. If you did -- the original projection we gave you on 5% to 7% was based off of 2010, and in fact we are exactly there. We haven't deviated a bit. When you look now at '12, so just from '10 to '11 to '12, if you use '12 as a new base instead of '10, we are projecting guidance in the top half of that range. So the math of staying within that range, so if we're in the top half of the range, the top remains 7%. You want to go to the bottom side of the range, 5% goes to 4% because we're in the top half. It is exactly where we've been. It just uses a different base.

Okay. So we shouldn't be reading into this, that there's any more incremental risk.

Not at all. In fact I would argue there's incremental benefit. If you go to the slide in the package you have a wonderful picture of what I'm talking about. Let me just say it a different way. The math is we are exactly where we said we would be way back in 2010, except that because we're starting in the top half of that cone of uncertainty, we may be in the near term better off.

Got you. All right. Great. Thanks a lot, guys, appreciate it.

Paul Patterson, Glenrock Associates.

Just a clarification here. You mentioned there could be a change between the published and the final rule.

Sure.

Could you just elaborate a little bit more on that.

See cross state.

Just cross state.

That's the example.

Okay. That was the example. I was thinking in the math thing what the --

From the time you get a proposed rule to a final rule --

Right.

You think you kind of know where you are. But from the final rule to the printed rule to the published rule there could be some minor tweaks. We saw that in cross state. So I can't sit here and tell you today that what has been put forth as the final rule until it is finally published is going to be in fact the same.

Okay. I got you. But you say minor changes, I mean I know that minor changes can mean big things. How should we think of that? In other words, I mean, are you thinking -- I guess I'm just wondering is there any potential chance that this could change a lot?

If you ask energy future holdings where Texas became part of the printed rule under cross state it was major to them. It wasn't major to us. It just depends on what the tweaks might be.

Okay. But no clarity on that?

No. No idea what might change between now and the published rule.

I thought there might be something.

Paul, one more thing if I could just add to people. There is still uncertainty in the final rule. For example, in the startup and shutdown there's all kinds of language in there, standard work practices and a variety of number of things. Really understanding what that means will have some bearing on compliance so there still needs to be clarity even though we have a final rule.

Okay. And then just to clarify some things here. You guys said you had no customer growth, flat customer growth last year, is that right? No increase in customers at all?

Correct, it was marginally negative I think.

This is residential?

Write that off to storms and stuff.

Okay. So in other words you had storms that knocked people out I guess. Is that what you mean?

Yes. If you recall, the tornadoes that went through Tuscaloosa that was a big deal. I think one of the dynamics in housing that we're looking for, you know, a normal unsold housing inventory in our area would be around 2.3%, 2.4%. We're kind of 3.5% right now in the Southeast. So what we've got to do is make sure that we eat into that inventory over time.

Okay. In terms of what occupied houses? Is that what you mean?

Yes.

We're not like -- you're not concerned about a housing price rebound? We're not talking anything --

No, no, no.

Okay. I just want to make sure. When you say 15,000, 14,000, 15,000 customers, I would assume this is pretty much residential customers. Is that what we're talking about here?

Oh, yes.

Okay. And what is that as a percentage of just of a growth rate, what would that equate to?

So if usage is flat it's going to be like -- I'm looking around the table. 1% maybe.

Okay so 1% customer growth.

Let us get back to you on that. Let us get back to you on that.

I mean, what I'm sort of trying to figure out here is basically if I understand you guys, you guys are basically looking at 2.5% growth rate in your service territory. In the Southeast in general and that's equating to 1.3% retail sales growth rate. Is that roughly how we should think about that?

Say that again.

You've got 1.3% growth. You mentioned that you were using an algorithm that basically came up to 50% GDP growth equals -- right. So I'm saying so you're basically using 2.5% little more than that for what you're expecting will happen in GDP, is that right?

That is exactly right.

Correct.

Okay. And okay.

The growth in customers is 0.4%.

Okay. Customer growth is 0.4% that you guys expect.

Yes.

Really what you're expecting is a rebound in usage and that's being driven by people feeling better about the economy? Is that how we should think about that? Leaving industrial customers out.

Yes, people moving out of apartments into homes. So usage goes way up. But that's really just a factor of more homes getting occupied.

Okay. Okay. Well, listen, all my other questions have been answered. Thank you very much.

Gordon Howald, Doyle Trading Consultants.

This has been kind of touched upon but I'm going to ask it maybe a little different way or looking for a different answer. I recognize all the uncertainties surrounding what the final regulatory EPA rules will be and what natural gas and power prices will ultimately be, but could you provide some color on the EPA related CapEx, what could the financial impact be on customer builds for that incremental $4.4 billion number that you put out there on a percentage basis, less than 15%, greater than 15%, any color on that?

Yes, we've been pretty consistent with this. I'm sorry I'm going to be a little vague just because we don't know yet. Depends on what state you're in and all that. What we have said is that after all of these expenditures clear to in service, you're talking about 10% to 20% across the United States depending on where you live.

Right. That's fair. And could you give me a little color on what the base environmental spending is over the next three years?

Yes, we'll get you that in a sec. And when I gave you that 10% to 20%, remember I go back to something I said earlier. It's always hard to point at one rule. You really have to look at the consequence of all rules and the change in your generation and transmission expansion plans and the whole bit. All that has to be taken into account.

Absolutely.

Okay. Art?

The base environmental is on the slide I believe and it's about $1.5 billion over the next three years. But it would include the completion of projects that are under construction now. I believe a lot of those are in Georgia. And some in Mississippi as well.

So essentially spending that you would have done irregardless of, or you would have done even without EPA proposed regulations such as CSAPR which has object obviously been stayed. It's things you would have done anyway.

Correct.

Thank you. I appreciate all the color, thanks guys.

Ashar Khan, Visium.

Can I ask a slight different question. Can you just tell us what the rate base growth is from '12 to '14?

Well, it's 7% to 8%.

7% to 8%.

Per year, but it's lumpy.

It's lumpy.

So in the two years from '12 to '14, it grows by if I can just say like 15%, is that correct, from '12 to '14.

If you just do 7% to 8% per year and it's a little lumpy. In numbers you're right.

Okay. And that includes the environmental or that doesn't include the environmental, that number?

It does not. The environmental will be incremental to that.

Okay, so the environmental if I'm right, if you include them, the higher end, then how much does it become?

So there's -- I don't know. It would clear after in service. So a lot of the environmental will clear in service after '14, so we'll be having AFUDC and a variety of other things but in terms of rate case growth which is a different question that will clear when it goes into service. So a lot of that would be after '14.

Okay. But you would get the AFUDC positive impact, right.

Yes, yes.

Then Tom, then I guess because we are cash flow deficient, so I guess we can use a rule that we're losing like 2% or 3% of that growth in earnings because of being a cash flow negative Company, is that correct? Is that the way we should kind of like think through this thing going forward?

I wouldn't think about it that way. As a practical matter, when you look at Southern Company, you go operating cash less dividends, you look at CapEx, we kind of look cash flow negative but that's because we're growing. We're getting AFU -- we're getting CWIP on Vogtle, we're getting CWIP on Kemper County, Plant Radcliffe. Either it's been contemplated in a forward mechanism so that would be Georgia, or in Alabama and in Mississippi we have annual mechanisms which capture this stuff and those are forward-looking. So it depends on what jurisdiction you're talking about but they generally self-regulate. In other words, to the extent you spend more in Alabama, the next series of RSE would pick it up.

What I'm trying to get from is that if you take the average growth rate, there's a discrepancy between rate based growth and the EPS growth, what would you attribute that to? Some of you're saying is regulatory lag? Is that what you're saying? I'm trying to get a more precise way -- what are the reasons between the 2% to 3% difference between the two?

As you grow assets you're going to grow some O&M and you're also going to have shares involved. Right? More shares supporting it. That drags down. The relationship between adding assets to rate base is always a function of how much more O&M do you have. You have more depreciation as a result of more assets and you have more shares supporting the mix of capital supporting every dollar of investment. So you can't just say that a 9% rate base growth equates to 9% EPS.

Okay. So basically it's a function of -- it's really that we are as the rate base is growing, ROEs on that rate base actually earned ROEs are declining over that period of time?

No, no, no, it's not earned ROEs. It's the revenue requirement calculation on any investment. That really is constant. So if you take -- go ahead.

The forward-looking rate base address a lot of that. As it goes into rate base it's picked up by the rate mechanisms and it's earned upon.

We're not missing anything anywhere. In fact, if you think about it, if you contemplate Georgia's structure as a three-year forward look when it's put into place so it renews itself every three years, to the extent you miss your projection it's deferred and you earn AFUDC on it. Alabama is forward-looking and adjusts annually. [Pez] is forward-looking and adjusts annually. I guess the only other one you would think about is Gulf. Gulf's in the middle of a rate case.

No, I understand that. I'm just thinking through it. Tom, I guess EIX says they can grow earnings equal to rate base. I guess they don't do any equity, haven't done equity for 14 years, 10 years, I don't know how long. ConEd can't do it because they have to do equity. So I'm thinking as Southern is getting bigger and bigger and the CapEx needs are becoming bigger and bigger, I guess the ability to be able to grow earnings equal to rate base is now becoming more difficult because of the larger CapEx that is kind of like coming in because we have to issue equity to kind of finance it. I'm just trying to think through the paradigm.

Ashar, it hasn't changed. This has been the relationship at Southern. Go back and look at our rate base growth over time. We'll be glad to take you offline and go through the numbers. Our rate base growth has always exceeded our earnings per share growth for a variety of reasons that we talked about, depreciation, shares, a variety of other things. We'll be glad to take you through that. There's nothing changing in Southern. This is a constant relationship.

Okay. Thank you so much.

Paul Ridzon, KeyBanc.

Could you have alternatively recast your growth rate by keeping it on a 2010 base but saying 6% to 7% off of that base? Would that have been the same?

Yes, what we would have said is 5% to 7%. You're reflecting the fact that we're in the top half of that range. Conceivably you could go there but we're conservative, we like to have enough spread to accommodate a challenged economy, worries about Europe, a variety of other things. Yes, you're catching the point. If you start with '10 we are at 5% to 7% and we're in the top half. That's where you come up with 6% to 7.% All we're trying to do is just use a more recent base.

We've just recharacterized the same growth.

The math is the same. We're not guiding down on growth.

You caught people by surprise the way you cast it.

Okay.

Thank you very much.

At this time there are no further questions. Are there any closing remarks?

No, we just want to thank everybody. I know this was a long call but we always respect the fact that you guys are interested enough to call in and listen to our story and we thank you for your interest. And hopefully you found the time valuable. I know we did. Thanks very much.

Thank you sir. Ladies and gentlemen, this does conclude the Southern Company fourth-quarter 2011 earnings call. You may now disconnect.