Southern Co (SOMN) 2009 Q4 法說會逐字稿

Good afternoon. My name is Sarah, and I will be your conference operator today. At this time I would like to welcome everyone to the Southern Company fourth 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 Mr. Glen Kundert, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Sarah, and welcome to Southern Company's fourth quarter 2009 earnings call. Joining me this afternoon are David Ratcliffe, Chairman, President and Chief Executive Officer of Southern Company, and Paul Bowers, 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 on our form 10-K, and subsequent filings.

We will be including slides as part of today's conference call. The slides provide details on information that will be discussed in today's call, such as our current three year forecast for capital expenditures. In addition, these slides provide reconciliations for certain non-GAAP financial information that will be discussed on this call. You can access the slides on our investor relations website at www.southernco.com, if you want to follow along during the presentation.

Now at this time, I'll turn the call over to David Ratcliffe, Southern Company's Chairman, President and Chief Executive Officer.

Thanks, Glen, and good afternoon, and thank all of you for joining us. As you can see from the information we released this morning, we had a good quarter. And a solid year of business results. Despite the economic headwinds of 2009, we continued to build out high quality infrastructure and provide high levels of customer service at affordable prices. We also continued to set operational, regulatory and financial milestones, which are the hallmarks of our commitment to our customers and our shareholders.

On the operational side of our business, our fossil and hydro generation organization achieved an industry leading peak season equivalent forced outage rate of 1.44%, against the industry average E4 rate of approximately 7%. During 2009 we completed seven major environmental construction projects, including four scrubber installations, and with an in service cost of 29% below the industry average.

On the transmission and distribution side of our business, 2009 was the best year in our history for reliability performance. We also made significant progress on the installation of automated meters, installing more than 1 million smart meters, bringing the total number deployed to over 1.9 million, against our target of 4.5 million meters by 2012.

In our nuclear business, the early site work for units three and four at plant Vogtle is well under way on support buildings, water pipe installation and concrete batch plant. We have removed more than 3 million cubic yards of dirt to an average depth of 54 feet for the reactor building.

On the regulatory side of of our retail business, we had a constructive year. At Alabama Power, base rates in 2010 will begin to reflect the recovery of cost associated with return of 1200 megawatts of fossil capacity to retail service. This capacity had been previously dedicated to our wholesale business. Retail base rates in 2010 will also begin to reflect the in service status of four large scrubbers. These increases in retail base rates will be more than fully offset by fuel rate decreases, resulting in a net 7.4% decrease in retail rates.

At Georgia Power, we received certification for the Vogtle three and four units. Both the Georgia Legislature and the Public Service Commission authorized the use of construction work in progress in rate base for nuclear construction. In addition, Georgia Power avoided an early rate increase request in 2009 by receiving approval from the Public Service Commission to amortize regulatory liability account. This partially offsets the decline of retail revenues in 2009 and 2010.

Gulf Power Company received regulatory approval for the recovery of a major scrubber project at plant Crist and an 885 megawatt purchase power agreement. Rate impacts at Gulf Power in 2010 will be mitigated by a recently approved fuel rate decrease of 3.5%.

Finally, Mississippi Power received a favorable outcome on the needs request for additional generating capacity. We proposed to meet this need with a Kemper County IGCC facility, and expect a decision by May 1 of this year. If approved by the commission, construction could begin later this year with an in service date targeted for 2014.

Turning now to Southern Power, in October we announced that Southern Power had agreed to acquire Nacogdoches Power, LLC, from American Renewables, the original developer of the project. We are moving forward with construction of the 100 megawatt biomass facility, with completion expected in 2012. The asset has a 20 year PPA with Austin energy, which serves the city of Austin, Texas.

Also at December 2009, Southern Power closed on the acquisition of the West Georgia generating assets from LS Power, in exchange for our DeSoto facility, and $144 million in cash. In addition, Southern Power completed the construction of Stanton B, a 300 megawatt combined cycle plant for the Orlando Utilities Commission, bringing the unit in ahead of schedule.

Finally at Southern Power, construction began last year on the Cleveland County generation plant in North Carolina, a 720 megawatt combustion turbine facility. Purchase power agreements are in place with the public power entities in North Carolina, and commercial operation is expected in early 2012.

On the financial side of our business, we also performed well. First, on the cost containment initiatives throughout the Company, our cost containment initiatives throughout the Company resulted in a $230 million reduction in operation and maintenance expense as compared to 2008. During 2009, we issued $1.3 billion in new equity through our various plans, including the continuous equity offering program or dribble. On the debt side, we issued $3 billion in long-term debt with an average interest rate of 3.6%, and an average maturity of 19 years.

At this point, I'll turn the call over to Paul, who will continue to review our financial performance for 2009, and provide earnings guidance for 2010.

Thank you, David. First I'll review our fourth quarter and full year 2009 results. Then I'll discuss our capital budget, our financial results and requirements, our economic outlook, and conclude with guidance for the full year and the first quarter of 2010.

In the fourth quarter of 2009, we reported $0.31 per share, that's an increase of $0.07 per share from the fourth quarter of 2008. Excluding adjustments related to our leveraged leases in 2008, we earned $0.31 per share in the fourth quarter of 2009, for an average increase of $0.05 per share compared to the fourth quarter of 2008. For the full year, we reported $2.07 per share, a decrease of $0.19 per share over the prior year. Excluding adjustments related to our leveraged leases in 2008, and their Mirant settlement in 2009, we earned $2.32 per share in 2009, or a decrease of $0.05 per share over our results for 2008.

Now, let's turn to the major factors that drove our numbers for the full year compared with 2008, excluding leveraged leases adjustment in 2008 and the Mirant settlement in 2009. First, I'll cover the negative factors. Here's the breakdown.

The reduction in retail sales had a negative impact of $0.19 per share on our earnings in 2009 compared to the full year in 2008. Lower usage and sales was particularly evident in the industrial segment, which I will cover in more detail in a few minutes. Higher interest expense in 2009 reduced our earnings by $0.05 a share compared to the prior year. Weather reduced our earnings by $0.02 per share in 2009 compared with 2008. Weather in 2009 was a negative $0.03 per share compared to normal, and weather in 2008 was a negative $0.01 per share for a total of a minus $0.02 per share.

Taxes other than income taxes reduced our earnings $0.02 per share in 2009 compared to 2008. Increased depreciation and amortization, due primarily to increased environmental, transmission and distribution investments, reduced our earnings by $0.05 per share in 2009 compared with 2008. Finally, an increase in the number of shares outstanding reduced our earnings by $0.06 per share in 2009 compared to the prior year.

Now let's turn to the positive factors that drove our earnings in 2009. Lower non-fuel O&M expenses added $0.15 per share to our earnings in 2009 compared to the prior year. We were able to reduce O&M spending in our traditional operating companies by $187 million compared to 2008, and as David said, $230 million in the overall business. Going forward, we expect to see a permanent O&M reduction of $100 million, which will affect the rate of growth in our O&M over time.

Other revenue effects added $0.11 per share in 2009 over 2008, primarily due to increased monthly service charges, and revenues associated with the recovery of investment in environmental equipment, partially offset by lower market response rates to large commercial Industrial customers, which had a negative impact of $0.25 per share. So the net effect was a positive $0.11 per share. Other income and deductions, mainly AFUDC, contributed $0.04 per share to our earnings in 2009 compared to 2008. The Parent Company and other added $0.03 a share to our earnings in 2009 compared to 2008.

Finally, Southern Power added $0.01 per share to our earnings in 2009 compared to the prior year. This increase was due primarily to new contracts, energy margins, and construction performance on the Stanton B project.

So in conclusion, we had $0.39 per share of negative earnings drivers, and $0.34 per share of positive earnings drivers compared to 2008. Overall, excluding leveraged lease adjustments in 2008, and the Mirant settlement in 2009, our year came in at $2.32 per share, compared to $2.37 per share, or a decrease of $0.05 per share.

Turning now to our capital budget. Our capital expenditures for the three year period of 2010, 2011 and 2012, are expected to be $16.4 billion. In this budget we have included $14.5 billion for our traditional operating companies.

The major categories in this budget are, $2.1 billion for the construction of units three and four at plant Vogtle, $800 million for the completion of the three McDonough combined cycle units in Georgia, $1.8 billion for the construction of the Kemper County IGCC project in Mississippi, $4.2 billion for maintaining and expanding our transmission and distribution network, including smart grid investments, $2.4 billion for environmental controls, which includes $1.4 billion for seven scrubber installations.

As you can see, we've included $1.9 billion of capital at Southern Power. However, of this amount, some $1.2 billion is targeted for potential acquisitions. So this should be considered discretionary capital.

So the overall capital budget for 2010 through 2012 is $16.4 billion, reflecting the requirements needed to meet the long-term growth of the region, plus environmental and reliability requirements.

Our external financing needs continue to be driven primarily by our capital expenditures. We expect to issue a mix of fixed income securities and equity that support our A credit rating. As David mentioned earlier, we issued $1.3 billion of new equity in 2009. As we evaluate our overall 2010 cash flow forecast, including potential benefits such as bonus depreciation which could arise from the stimulus legislation, there is a possibility that we will be able to meet our equity needs solely through our traditional employee and Southern investment plans.

These plans have historically provided $400 million to $500 million of equity per year. However, we will keep our continuous equity offering program in place in order to provide flexibility in how we meet our needs in 2010 and beyond.

On the debt side we plan to issue approximately $6.9 billion in long-term debt over the three year period. With $3.7 billion in new money, and $3.2 billion in maturities.

Turning now to a discussion of the economy. We'll begin with our customer sales data, which will all be reported as weather-adjusted. Total sales decreased by 4.5% in 2009 compared to the full year in 2008. Industrial sales were down 11.7% in 2009 compared with 2008. We had an increase in industrial sales in the third quarter due largely to the Cash for Clunkers program. In the fourth quarter, sales declined by 6.8% as compared to the third quarter of 2009.

Commercial sales declined 1.2% in 2009 compared to the prior year. As expected, sales in the commercial segment continued to weaken in the fourth quarter, declining by 1% compared to the fourth quarter of 2008. Residential sales in 2009 remained basically flat in relation to 2008, with a slight decrease in sales of 0.7%.

Southern Company benefits from a strong customer mix with a good balance between residential, commercial and industrial sectors. On the industrial side, nearly two thirds of our sales are derived from six major categories. Non-manufacturing, which is our largest segment, is driven by energy used from pipelines, coal mining and natural gas processing facilities.

On the commercial side, office buildings and retail outlets account for nearly 40% of the sales. Traditionally, the southeastern economy has been driven by vibrant and expanding industrial base that has been supported by relatively low cost of business, an excellent transportation network and a modern infrastructure. In turn, a growing economy has encouraged strong migration to the region, which has helped drive residential and commercial activity. The great recession, as it has been called, has interrupted these trends but we do not believe it has permanently altered the competitive advantages of the region.

For 2010, we are forecasting an increase in total retail sales of 1.8%, which reflects the continuing recovery in the economy. We are forecasting a 2.6% increase in industrial sales in 2010 compared to last year. This increase should outpace US industrial activity, reflecting newer, more efficient manufacturing facilities in the southeast, as well as an increase in export activity.

Residential sales are expected to increase by 2.5% in 2010 over 2009, as we continue to work off excess housing inventory and see more inward migration to the region. The commercial sector will continue to be sluggish. But we expect to see a slight increase in 2010.

In 2009, we focused on providing you with as much transparency on the economy as possible. We wanted you to know what our economic data and our customers were telling us. Earlier this month, we reconvened our panel of economists and industry representatives to get their latest perspective on the economic outlook for 2010. The observations of the panel can be summarized with four major conclusions.

The economy seems to have stabilized over the past four to five months. Sales of existing homes have increased, and some industrial sectors such as primary metals and chemicals are seeing higher rates of capacity utilization. Economic activity in 2010 will be muted, with a GDP growth rate between 2% and 3%. Unemployment will continue to remain high, as businesses are reluctant to hire new workers, and consumers are hesitant to spend.

As a result, there was little enthusiasm on the part of the panel for robust growth in the next six months. But more optimism over the next 12 to 18 months. A sustained economic recovery will require the growth of the private sector jobs to support consumer spending and industrial production. At least 3% GDP growth will be needed to increase employment.

Worldwide, economic growth and the low value of the dollar are creating export opportunities for manufacturers, which means the southeast is still better positioned than most other regions of the country. So in conclusion, as we've been saying, a slow recovery slope resembling a Nike swoosh is still the best way to describe this economic recovery.

Turning now to our earnings guidance for 2010. I should note that despite the economic challenges we faced in 2009, we delivered on the guidance range of $2.30 to $2.45 per share. Last January, we expanded the range of our guidance due to the uncertainty of the depth and severity of the recession. Today, while we believe there is less uncertainty over the economy than there was at this time last year, it's important to remember that we are still in the early stages of recovering from this major recession.

In addition, we are in the final year of a three year rate plan at our largest subsidiary, Georgia Power. So for 2010, our guidance range is $2.30 to $2.36 per share. And our earnings estimate for the first quarter of 2010 is $0.42 per share.

Turning now to our financial goals. To achieve our objective of providing shareholders a superior risk adjusted return over the long term, our financial plan assumes top quartile ROE performance, which in turn supports a strong stable dividend and industry-leading financial integrity.

Our goal is to grow the dividend in a regular, predictable and sustainable manner, consistent with a long-term target payout ratio of approximately 65% to 70%. Since 2005, we've grown our dividend annually by 4%. Finally, in the long-term, we remain focused on growing earnings per share at an average of 6%.

At this point, I'll turn the call back over to David for his closing remarks.

Thank you, Paul. As you've seen, despite 2009's economic challenges, it was a year of significant operational, regulatory and financial achievement. Furthermore, we budgeted some $14.5 billion over the next three years to continue investment in our traditional business, consistent with our vision of a cleaner fleet of existing facilities. More than 4000 megawatts of new generation with a lower carbon footprint, and a smarter, more efficient electric grid. This commitment reflects our strong and unwavering belief about the long-term future growth and development of our region.

Finally, looking outside of our traditional business, you may have seen the announcement yesterday that we are partnering with a visionary business leader and well known environmentalist, Ted Turner, to pursue the development of renewable energy projects in North America. Southern Company and Turner Renewable Energy, a company owned by Ted Turner, have signed a memorandum of understanding and formed an alliance for the development of renewable energy projects in the United States. The initial focus will be on large scale solar photovoltaic projects.

As you may know, Ted Turner is the largest individual land owner in the United States, and owns approximately 2 million acres of land. The Southern Turner alliance will bring together the project development, financial and operating shrinks of Southern Company, with the land resources and constructive environmental leadership of Ted Turner. We believe the partnership unites two visionary parties in a goal to develop a new generation of energy projects.

At this point, Paul and I are ready to take your questions, so Sarah, we'll take the first question.

(Operator Instructions). And your first question comes from the line of Daniel Eggers with Credit Suisse.

Good afternoon.

Hi, Dan.

Hi, Dan.

On the long-term 6% EPS growth rate, obviously the first half of this year is feeling slowed. Do you think 6% is the right growth rate off of the new 2010 guidance, or do you think wherever we settle out for 2011, that's where you're going to see that 6% growth rate.

Off of 2010 going forward.

Okay, so this will be the new baseline and we'll grow from here?

That's exactly right.

Okay. As it relates to Gulf, you have no need or plans to file a rate case in Florida given the, dare we say, challenging regulatory environment?

I think, Dan, our objective would be to stay out of that environment as long as we can.

Okay. Any lessons to be learned from what we saw in Florida as far as it applies to regulatory proceedings for you guys in the same region, particularly with Georgia this year.

Dan, I think the situation in Florida is particularly complex, and driven more by the political dynamics than it is the real needs of those companies and the regulatory realities. I mean, I think our folks -- one of the things that we've done in the jurisdictions where we've been more active from a regulatory standpoint is a lot of work on the front end to try to create transparency and understanding by commissioners and staff members of the realities of our business. And I think the situation in Florida with the restrictions on the ability to communicate with commissioners and staff make that extraordinarily more difficult. So I think we have a better situation in the other jurisdictions than we do in Florida.

Thank you. Appreciate it.

Your next question comes from the line of Jonathan Arnold with Deutsche Bank.

Good afternoon.

Hi, Jonathan.

Hi, Jonathan.

I was wondering, we noticed the depreciation charge in the quarter ticked up from the third quarter, and we're just wondering, can you shed any light on how much of the regulatory liability amortization in Georgia you may have taken in Q4 or for the year -- and for the year as a whole. And how that calibrates versus, I think there was a 9.75% ROE floor.

Sure. Jonathan, this is Paul. As you know, the reversal allowed for $108 million to be realized in 2009, with the, if you will, a 9.75 retail return target. Georgia Power utilized $36 million of the $108 million in 2009.

If I could, on a similar topic, as you've calibrated your guidance, what are you assuming in terms of utilization of same mechanism in 2010, and how does that sit with the 10.15% ROE.

As we look and contemplate this year, we assumed that the Company would utilize all $216 million to offset operating expenses of the Company because of the downturn in revenues. And as I mentioned in the opening comments, when you look at Georgia Power, you have the last of the three year rate plan, and what we contemplated in 2009 is to try to void a filing of a rate case during this tough economic environment. We were able to strike the deal with the Public Service Commission in terms of looking at ways to mitigate that need. This reversal allows for that $216 million in 2010, and in that it provided a, if you will, a target of 10.15% ROE on the retail side of the business. Now, we're assuming that Georgia Power can come close to getting that 10.15% and that's what we're targeting for them.

Is it reasonable to assume, as you didn't use it all in 2009, that you did earn a 9.75% ROE, and that you're more or less guiding to a 10.15% ROE in 2010.

It's correct to assume that in 2009, because we had the benefit of revenue in the fourth quarter. From a retail standpoint, I can't say it's going to be exactly because returning to some more normal O&M expenditures for Georgia Power, and I would tell you we will try to get to the 10.15%. We have scenarios of them earning around 10% in the retail environment.

Even with the $216 million?

Right.

Okay. Thanks very much, Paul.

You're welcome, Jonathan.

Your next question comes from the line of Leslie Rich with Columbia Management.

Good afternoon. Could you give a little color on the wholesale sales number for the fourth quarter? It was down almost 19%, just sort of what the primary drivers were there. And then also, what you're seeing in terms of fuel mix, are you still running your gas plants more than your coal or has that sort of -- that fuel mix changed?

Leslie, on the wholesale market, primarily the revenues have been driven by a lower fuel price, so you're seeing that show up. Also, the opportunity sales in the marketplace with the decline in the economy just are not there, so that also has an effect.

From a standpoint of our dispatch, gas prices did move up in the fourth quarter, so we started seeing coal generation being dispatched ahead of gas, and as we project going forward, that dynamic will change on a day-to-day basis, based on the forward prices of both coal and gas. But gas is a little higher, almost a dollar higher than last year.

I think the other thing, Leslie, is we got off to a great start with cold weather in the first two weeks of January, and any time you get that kind of demand, I think you may have read where we set a record winter peak that was actually higher than our peak last summer, not a record peak totally, but it was higher than the peak we had last summer. So we got off to a really good start from a load standpoint. That always helps the dispatch because we run everything we've got.

Thank you.

Your next question comes from the line of Steve Fleishman with Banc of America Merrill Lynch.

Yes, hi. Couple questions. First, with 2009 and 2010 now being kind of flattish to down earnings years, I think your payout ratio's now above your target payout range, so should we expect that you might slow the level of dividend growth? Is there a chance you halt the dividend growth? How are you thinking about dividend growth and the payout?

You should expect us to answer that like we always do, later in the year, Steve.

Okay.

Steve, let's do the simple math. When you think about it, the payout ratio for this year excluding MCAR, our Mirant settlement, was roughly 75%. And you can go through the scenarios of zero payout, 2% payout, 4%, but it doesn't change that payout ratio that much by going 4% versus 0%. So again, it's purview of our Board, and our Board making consideration of that in April. But again, we have to look at the long-term nature of our business, and our prospective of what we think growth will be in the long term.

Okay. And then secondly, just from the standpoint of thinking about equity issuance and what you might need or not need going forward, can you give us a sense where the balance sheet equity ratio ended for the Company at the end of 2009, and what you're targeting to keep the A rating?

We ended 2009 at 41.5%. From a target standpoint, we're focused on maintaining that A credit quality and that financial integrity. So thinking of that equity as part of that, like I said in the opening statement, we are focused on maintaining that A credit rating and we think we can meet our needs through our internal programs, but we have to wait and see what other cash flow opportunities might present themselves in 2010.

Okay. But I guess I was -- instead of just looking at one year, I was thinking more in terms of a -- what kind of balance sheet target you might need to keep the A rating with the nuclear build. Is it -- do you want to stay at 41.5%? Are you targeting 45%, like mid-40s?

Between 42% and 43%.

42% to 43%. Okay. Thanks.

Your next question comes from the line of with Ali Agha with SunTrust Robinson.

Thank you. Good afternoon. Looking at the fourth quarter results, the effective tax rate looked unusually low at 20.5%. Could you just remind us why that was so low, and what should we assume for full year 2010?

Ali, when you look at the tax rate for 2009, overall for the year, it was 34.4%.

Right.

Or effective tax rate, if you will, excluding the Mirant settlement, was about 31.7%. So when you think about a quarter comparison, it's not unusual for us to see lower effective tax rates in any given quarter. While our income is seasonal, and you see annual tax deduction that you see for the whole year, so that creates that aberration if you will from a quarter to quarter standpoint.

One of the drivers for the fourth quarter was, from a book standpoint, is the AFUDC equity, from a CWIP standpoint we increased the CWIP balance by almost $1 billion. Long-term, our tax rates should run around 34%.

Okay. And also, Paul, for the guidance that you've given for 2010, can you just also remind us what is the average share count that you've assumed for the per share guidance?

We can give you the ending share count, but we're not going to give you the share count for 2010.

The ending share count for 2009, that you have in the release?

That's right.

Okay. But you're not talking about the 2010 share count?

No. Because that will adjust based on the capital spend of the year and the cash flow requirements of the business.

Right. But asked another way, I guess, I mean, should we just assume as you said that the normal course of equity issuance from your internal programs is what you're currently expecting will be the case in 2010?

That's exactly right.

Okay, thank you.

Your next question comes from the line of Michael Lapides with Goldman Sachs.

Hi, guys. Real quick, when I just think about the regulated subsidiaries and with the rate relief granted in Alabama, it seems like Alabama would likely to be up pretty decent year-over-year. Can you talk about whether I'm mistaken in that, and also which of the subsidiaries could face more challenging times in 2010 versus 2009?

Michael, obviously you read Alabama right. They had a very good year. They were able to go into the year with a rate increase, as you know. But they're working hard to maintain their current regulatory environment, which means to try to stay out of there. There will be some -- I'm sure there will be some clause opportunities that occur periodically, but we don't expect any unusual regulatory activity in Alabama.

Mississippi, as you know, the biggest thing in Mississippi is the Kemper County decision. I mentioned that we expect by May 1, the hearings begin next month in Mississippi on that. Obviously, the Georgia rate case, as you know, Georgia has a fuel case that's on file now. As we said earlier, we don't expect any activity in Florida with Gulf Power Company.

But I may have missed something. I thought Alabama's had already gotten a pretty sizable rate relief, for 2010, for both the formula rate plan and environmental cost recovery, so that should help 2010 over 2009. And if your guidance was roughly flat year-over-year, which of the ones therefore face kind of more challenging 2010 versus 2009?

Well, clearly, Georgia is the biggest challenge we have. We don't expect activity in Florida, and said what's on the radar screen in Mississippi.

From Alabama Power standpoint, Michael, you really look at them staying within their range. As David mentioned in the opening comments, Alabama has moved 1200 megawatts of wholesale capacity into retail, which has a downward pressure from a retail contribution standpoint, but also that keeps them within their range, so that's a benefit. Overall, the customers in Alabama are seeing a decrease in overall rates by almost 7.5%.

Driven by fuel cost decreases.

Got it. Okay. Thank you, guys.

Your next question comes from the line of with Vedula Murti with CDP US.

Good afternoon. You mentioned that in addition to the programs that you have an expectation of some cash associated with the federal stimulus, and that that -- and that the receipt of that would then obviate the need for incremental equity beyond the current plans. Can you tell us what type of number you're currently planning or working on for that assumption?

From a bonus depreciation right now, we have roughly about $200 million, $250 million of benefit from that. There are some other provisions that are being proposed that can incrementally increase that, and we don't have a final number on that but there is some opportunities there. Given what we were able to do in 2009, from an equity standpoint, looking at 2010, it just reduced our overall equity requirements.

So right now you're simply working with the 250 and there's no assumption of incremental from there?

Not yet, no.

Okay. Thank you very much.

Your next question comes from the line of Paul Patterson with Glenrock Associates.

Hi, guys. Can you hear me?

Yes, Paul. How are you?

All right. Just -- I'm sorry I missed this. Demand response expectation for 2010, what was that again?

We didn't give it.

Okay.

As you heard on the call, earlier on the opening comments, when you look at 2009 versus 2008, we had a -- basically a negative 25% per share impact from our RTP or real-time pricing or market response rate. When you look at 2010, we're basically looking at a flat year for it, with a potential of $0.01 upside on that rate.

How much was the total amount that was realized in 2009? I know it's $0.25 delta but what's the baseline, I guess, to think about going into 2010?

Roughly when you look at 2009, and this is all in, base rates, including the customer baseline, is roughly $550 million.

Okay. So even with the industrial pickup that you guys see happening, I guess because of the fuel arbitrage and what have you, we just don't see much of a change there, is that the right way to thing about it?

There's a number of effects on that rate. One is of course the fuel aspect of it. But as you go through the year and Georgia increases their fuel component on their fuel clause, that spread if you will between marginal prices and average fuel prices create a squeeze on the margins that RTP can produce. So you are looking at the spread element associated with the contribution to the Company.

Okay. Then on the population growth, well not population growth, I'm sorry, GDP growth of 3% you said is necessary to have positive employment growth. That seems like quite a high growth rate that you need to have to have an economic -- if I understood that correctly, I can't see the slides right now but I think that's what I gathered from reading them, and could you just go over that a little bit?

Sure, Paul. It's an interesting point. As I mentioned, we had our economic panel a couple weeks ago, and we had one of the chief economists out of Atlanta Fed and we had some economists from some of the banks around the region. One of the points that they made is when you look at a 2% GDP growth, you remain constant at a 10% unemployment rate. When you went to 3% GDP growth, you started moving toward a 9% unemployment rate, and if you went to 4% GDP growth, you started really having an impact on unemployment rates, and it drops below 8%. And that's the driver if you will in terms of creating economic opportunity for citizens to get jobs.

Is that because the workforce is growing a lot? Sounds like that seems like quite a strong growth rate that you need to get a decrease in unemployment.

Well, the other point that they made is, in the interim, until we get sustained economic activity, that most of the factories are going to just increase the hours worked, not the number of jobs created.

I got you.

So that's what's going on is, particularly one of the companies from the steel manufacturing standpoint say we're going to drive up hours worked and then once we see a sustained economic growth and demand of our product, then we'll add the jobs. So in the short term, that's what's going to happen.

Basically this is what you would need to see in the short term, but as time goes on, if you were to have a lower growth, theoretically your unemployment rate would begin to tick down over time, I would think, correct?

That's correct.

Even if it wasn't --, okay. Finally, Ted Turner, other than being a big land owner, what exactly is the -- what does he actually bring to the table I guess, and what do you expect to come out of this? I mean, how should we think of this JV so-to-speak?

Well, there are three things that, in my judgment, Ted brings. One is, he has, as I said, a great reputation of being an environmentally conscious businessman, and willing to invest money. He certainly has money to invest, number two. And third, as we said, he has the largest private land holdings in the United States, and they're in excellent places for renewable energy in the form of wind and solar, unlike what we have in the southeast. So, the fact that he is a neighbor and a friend from a business standpoint, made that an easy conversation for us to engage in.

I think you also are probably aware, I think we said in the press release, that they had some experience with first solar as one of the leading suppliers in the world of thin film solar photovoltaic technology. So all of that comes together to provide a fairly unique partnership from their standpoint.

Okay. And then in terms of what his contribution will be to you guys. When do you think it would be something that would be noticeable on a rather large share base and what have you. When do you think we should see something come out of that, I guess, from a shareholder perspective.

When you look at some of the projects we have evaluated, really not going to make that much of a difference in terms of our overall growth. It's going to be over the long term when we get into larger projects that you'll start seeing some contribution.

Let me make another point associated with what David said. As you look at the different technologies in renewable, solar fits better for us in terms of deployable in this region, it has performance guarantees from the manufacturers that guarantee the output, versus wind where it's more volumetric and you're taking a lot of risk in terms of any type of contract you get on the offtake. So this really does set us up well going forward from a solar exploration standpoint.

Okay. Great. Thanks a lot.

(Operator Instructions). Your next question comes from the line of Glenn Bechtold with Raymond James.

Good afternoon. I missed your first quarter 2010 guidance. What was the the number?

$0.42.

$0.42. Okay. And how much of that will come from industrial? You said it's going to be a challenging time with the economy and jobs. How much of that $0.42 comes from industrial sales?

Glenn, we didn't break it out that way. We look at our traditional operating companies. What we did say though, for 2010, that we were expecting growth in our industrial sales sector for the year of 2.6% year-over-year.

Compared to the minus 11.7% negative from last year?

Right.

So basically a minus -- if my math is correct, minus 9.1%.

If you look at -- if you go off of 2008, you still have, on lower sales volumes in the industrial sector versus a 2008 baseline.

I see. Okay. Secondly, how do you see the demand in the private sector for this quarter. You said you had a good start with having a cold winter the first two weeks but going forward -- .

I think we said overall we're planning for about a 2.8% total growth.

1.8%.

1.8%.

1.8% overall sales growth. When you look at, Glenn, the question about general demand out there, weather has an effect on that. But when you look at normal weather over the year, you have modest growth at 1.8%. You have some sectors performing better than others, industrial a little bit better than residential, residential will grow about 2.5%. Now, go back to your point about off what baseline. Residential is showing growth over 2008, which was a positive year.

I see. And last question would be in terms of possible acquisitions, trying to provide a little bit of color in terms of possibly getting a little bit more in natural gas?

Don't have any plans.

Okay. I'll take that as a maybe. Thank you.

Thanks, Glenn.

Your next question comes from the line of Angie Storozynski with Macquarie Capital.

Thank you. I have two questions. One, about your cost containment efforts. It sounded like a portion of your costs was simply delayed in time, and simply they will be incurred in 2010, and is that embedded in your guidance? And secondly, your assumptions for growth, especially for retail, 1.8% and then looking at the weather adjusted sales, they were down only about 0.7%, and while I can understand the industrial pickup driven by exports, why would we think that migration should resume into Georgia or into the southeast?

Angie, go to the cost containment piece.

Start with cost containment first. We began the year, as we talked about in earlier calls, with a pretty aggressive effort to try to minimize O&M costs. Remember, that we had a hiring freeze. We also decided not to grant any base salary increases. We did pretty significant work in our supply chain management area and in other areas.

You're right in that some of the effort was simply to postpone expenses, so that ultimately you have to do maintenance or you have to do vegetation management. And if you look at our numbers that we've put together this year for O&M, as Paul said, we're returning to more normal levels of O&M. For example, we're moving back to normal salary increases, and we're also back to normal O&M levels on our fleet and on our transmission distribution system.

So we can postpone things for a while. We will continue to maintain vigilance around the opportunities for productivity and efficiency in delaying or trying to avoid travel and meeting expenses and things like that. So we want to be aggressive about cost containment. But the fact of the matter is that O&M levels have to go back up to more normal levels.

Now, Angie, going to the other parts of your questions around migration and growth, when you look at the industrial sector we can point to some specific expansions and/or new facilities. Kia is now up and running. You have expansions at Chevron. You have a steel manufacturing facility that will come online in 2010 in Alabama. So you have those activities, Honda's announced they're bringing the accord production into the facility in Alabama. Mercedes is going to have the new C class line come into Alabama. You have plants that have made some modernization investments that were offline during 2009, now are coming back online in 2010. So there's job creation.

But migration really never stopped. It's at a level that it was coming in. Our household creations outpaced the US by almost 30%. That highlights what we've seen on the excesses in the residential market in terms of inventories. We had had a high of 4.5% inventory volumes. Now we're down about 3.5%, so that household creation and inward migration is taking care of some of those excesses in the marketplace. So that's why we say residential should start seeing positive growth in 2010.

Is there a chance you could for instance, give us some sort of sensitivity, what if for instance this growth is not -- for all of the retail sales it's 1.8%, right. So what if it's 1%? What kind of an impact does it have on your guidance?

That's why we gave you the range on the guidance of $2.30 to $2.36 with a midpoint of $2.33. The down side would be exactly that. What if the sales don't materialize.

Okay. So the down side assumes flat sales?

The down side assumes negative sales that we don't achieve the 1.8%.

Okay. Thank you. Thanks.

Your final question comes from the line of Michael Lapides with Goldman Sachs.

Hey, guys, just clarification on O&M. If I think about O&M from 2009 to 2010. How should I think about either the dollar million or the percentage increase year-over-year consolidated or corporate-wide?

We look at -- the best way to look at it from an 2008, 2009 and 2010 perspective, you have a growth rate of about 2.7%.

Okay. Meaning from 2008 to 2009 and then 2009 to 2010, like on average it's 2.7%? Because 2009 is down from 2008, right?

That's right. That's the best way to look at it.

Michael, also I need to tell you, roll tight.

Thank you very much. Same to you.

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

Sarah, thanks for all of you for joining us this afternoon. We'll look forward to the first quarter earnings opportunity later in the year. Thank you.

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