Southern Co (SOMN) 2010 Q1 法說會逐字稿

Good afternoon. My name is Rachel and I will be your conference operator today. At this time I would like to welcome everyone to the Southern Company first quarter 2010 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, Rachel. Welcome to Southern Company's first quarter 2010 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 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 in today's call. 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. Our excellent first quarter results were significantly influenced by weather and the slow, but steady economic recovery here in the Southeast. On January 11, we set a new winter system peak demand of 37,224 megawatts. The average temperature across our service territory that day was 18 degrees. This winter peak surpassed our 2009 summer peak of 36,505-megawatts. As you know, our peak period on the southern system normally occurs in the summer.

I'm pleased to note that our generation and transmission system performed extremely well during this period, for our 4.4 million customers. Since our last earnings call in January, we have had some significant new developments related to our two new nuclear units under construction at Plant Vogtle. In February, the Department of Energy announced that Georgia Power has been offered a conditional commitment for loan guarantees for the construction of units three and four at Plant Vogtle. Both the Georgia Public Service Commission and the Georgia Legislature have been very supportive of our plans to build the nation's first new nuclear plant in more than three decades. We believe that the administration's support for the nuclear energy is vital in helping meet our nation's future energy requirements. Under the construction -- under the current DOE schedule, we have until mid-May to accept the non-binding conditional commitment. Discussions are under way to secure a one-month extension to the schedule, which will give us additional time for further due diligence.

The loans are expected to cover approximately $3.4 billion, or 70% of Georgia's -- Georgia Power's eligible projected costs for Plant Vogtle. It's important to note that the execution of the loan guarantees and actual borrowings will not occur before the Nuclear Regulatory Commission issues the combined construction and operating license for the project. Although specific numbers cannot be determined yet, we expect the loans will save us approximately $15 million to $20 million per year. The loans will benefit our customers and the Company through interest savings, as well as providing approximately $3.4 billion of committed debt financing. At this point, I'll now turn the call over to Paul Bowers, our Chief financial Officer, for a discussion of our financial highlights for the first quarter and our earnings guidance for the remainder of 2010.

Thank you, David. As you mentioned, we're off to a good start this year. In the first quarter of 2010, we reported $0.60 a share compared with $0.16 a share in the first quarter of 2009, or an increase of $0.44 a share. The 2009 results includes the American Litigation settlement charge of $0.26 per share. Excluding the 2009 merit charge, our earnings were $0.60 per share in the first quarter of 2010 compared with $0.42 per share in the first quarter of 2009, or an increase of $0.18 per share.

Let's turn now to the major factors that drove our first quarter numbers compared with the first quarter of 2009. First, the negative factors. Non-fuel O&M reduced our earnings by $0.03 a share in the first quarter of 2010 compared with the first quarter of 2009. Increased maintenance costs for our fossil hydro fleet for five of our flagship units underwent scheduled maintenance in the first quarter of 2010 compared with one unit in the first quarter of 2009. Total planned outage days in the first quarter of 2010 were 94, compared to 11 outage days in 2009 for these large units. At Southern Power, the exploration of contracts for two combined cycle units in Georgia reduced our earnings by $0.02 per share compared with the first quarter of 2009. One of these units will be under contract beginning in June 2010, while the other unit will be sold into the spot and forced energy markets. It's important to note, however, that 84% of Southern Power's generation is currently under long-term contract. Finally, the increase in the number of shares outstanding reduced our earnings by $0.03 a share in the first quarter of 2010 compared with the first quarter of 2009.

Now, let's turn to the positive factors that drove our earnings for the first quarter of 2010. Colder than normal winter weather in the first quarter added $0.10 per share to our earnings for the period compared with the first quarter of 2009. The first quarter of this year was the third coldest in more than a hundred years for the Southeast United States. The average temperature was 5.4 degrees lower than the 15-year average, resulting in a 10.3% increase in total energy sales, as compared with the first quarter of 2009. Increased usage and better than expected economic activity, primarily in the industrial sector, added $0.03 a share to our earnings in the first quarter compared to the same period in 2009. Other revenue effects in our traditional business added a total of $0.04 a share to our earnings in the first quarter compared with the first quarter of 2009. This impact was driven primarily by revenue changes related to the recovery of environmental expenses and other investments at our operating companies.

Depreciation and amortization added $0.04 per share to our earnings in the first quarter of 2010 compared with the prior period. This increase was driven primarily by amortization of excess costs of removal obligations at Georgia Power, approved by the Georgia Public Service Commission last year. Increased wholesale sales and transmission revenues in our traditional business added $0.03 a share to our earnings in the first quarter of 2010 compared with the same period in 2009. Recognition of certain state of Georgia tax credits added $0.02 a share to our earnings in the first quarter of 2010 compared with the same period in 2009. In conclusion, we had $0.08 of negative items compared with $0.26 of positive items, or a positive change of $0.18 per share over the first quarter of 2009, excluding the 2009 merit settlement charge. Overall, our quarter came in at $0.60 per share.

Before I discuss our earnings estimate for the second quarter, I would like to update you on the economy, our dividend policy and regulatory issues. The improving economy saw industrial sales increase by 6.7% in the first quarter of 2010 compared with the first quarter of 2009. Quarter over quarter, the most significant increases were in primary metals, up 35.5%, transportation up 13.6%, and chemicals up 9.5%, as compared to the first quarter of 2009. The increased consumption by the primary metals sector reflects an improved demand for rolled steel by the transportation sector and steel piping for gas and oil exploration. In addition, the new ThyssenKrupp steel facility in Alabama has begun receiving steel slabs from Germany for processing.

All of the major automobile manufacturers in our service area are reporting stronger demand for their products. Year-over-year production at Honda has doubled. Hyundai has increased production by 65%. And Mercedes has increased output at its facility by one third. The Kia plant in West Georgia is now in full operation, whereas in the first quarter of 2009, it was still preparing to start up production.

Adjusting for weather, residential sales increased by 1.6% in the first quarter of 2010 compared with the same period in 2009. Building permits are up by 4.5% in the first quarter of 2010 compared to the same period last year. This increased activity should influence new connects, which we believe have bottomed out at an annual rate of 24,000. This activity combined with the fact that household creation in our service area is outpacing the US by 40% and should result in positive customer growth for the future.

As expected, commercial sales remained our weakest sector, declining 0.3% on a weather normal basis in the first quarter of 2010 compared with the first quarter of 2009. Customer growth in the commercial sector has seen a year-over-year decline, as many small businesses have closed their doors as a result of this recession. The vacancy rate for offices of 22.6% has increased slightly from the year-ending 2009 rate of 21.5%, due in part to the opening of three new commercial high-rise buildings in Atlanta, adding to an already over supplied market for office space.

On a positive side of commercial sales, electricity demand by data centers is up 6.9%, reflecting the decision to locate these businesses in the Southeast, due to lower costs and reliable supplies of energy. In addition, electricity consumption by hotels increased by 11.2%, which indicates that convention activity and business travel has begun to increase. In summary, the residential and commercial sectors are performing according to our forecast. Sales to industrial -- to the industrial sector in the first quarter are ahead of plan. However, it should be noted that a comparison to the first quarter of 2009 reflects a period in which industrial sales were experiencing a significant impact from the recession.

Now I would like to take a few minutes to discuss our dividend increase. As you may have seen last week, we announced a 4% annual dividend increase effective with our second quarter dividend payment in June. The dividend is now $0.455 per share on a quarterly basis and $1.82 per share annually. This marks the 250th consecutive quarter that Southern Company has paid a dividend to its common stockholders. In fact, every year for the past 62 years, Southern Company has paid a quarterly dividend equal to or higher than the previous quarter's dividend. Our decision to raise the dividend this year reflects our confidence in the long-term future of our business. While we are comfortable operating in the 75% payout range, our long-term objective remains to achieve a payout ratio at or below 70%. Our dividend and our long-term earnings per share growth, coupled with the stable A credit rating are key components of our overall value proposition.

Finally, the last item addresses two system regulatory issues. As you may know, Georgia Power's current three-year rate settlement will expire on December 31 of this year. Georgia Power will file a new rate case on July 1. We expect a six-month proceeding with a decision sometime in December. As always, we will keep you updated on the progress of this important matter. In Mississippi, the Mississippi Public Service Commission is expected to issue an order by Monday on our proposal to construct a 582-megawatt coal gasification facility. The Commission has already approved the need for the additional capacity. This decision concerns the type of generation that will be built to meet the need. We will, of course, communicate that decision to you after receipt of the Commission's order.

Turning now to our earnings guidance for 2010, our first quarter results exceeded our estimate by $0.18 a share. As we discussed, the quarter was largely influenced by weather and to a lesser extent, the gradual economic recovery we are seeing here in the Southeast. We are to be sure, off to a good start in 2010. However, questions remain about the strength and sustainability of the economic recovery. As you know, the majority of our earnings are derived in the warmer months during the second and third quarters. Therefore, our guidance will remain at $2.30 to $2.36 per share. Finally, our estimate for the second quarter is $0.56 per share. At this point, I'll turn the call back to David for his closing remarks.

Thank you, Paul. As Paul outlined, we're off to a good start in 2010. The economy as shown by sales to industrial customers appears to be gaining strength and momentum. While we're optimistic, we're still mindful that we are still in the early stages of this economic recovery.

In January, you may recall that we announced a strategic alliance between Southern Company and Ted Turner to pursue development of a renewable energy project in the United States. Last month, Southern-Turner Partnership announced the Cimarron Project, a 30-megawatt facility capable of supplying electricity to 9,000 homes. That will be one of the nation's largest solar photovoltaic power plants. The plant will be built by First Solar Incorporated and located in Northern New Mexico. The output from this facility will serve a 25-year power purchase agreement with Tri-State Generation and Transmission Association. The Cimarron Project is an example of our entry into renewable energy projects, which fit our overall business strategy and risk profile.

We will take a measured and disciplined approach to potential growth in this business, while remaining true to the business model that we use in Southern Power. That is long-term contracts for output, with credit worthy counter parties. At this point, Paul and I are ready to take your questions. So Rachel, we'll now take the first question.

(Operator Instructions) Your first question comes from Rudy Tolentino with Morgan Stanley.

Hi, actually it's Greg Gordon. Good afternoon. Two questions. First is -- great quarter by the way. It's good to see the economy is coming back. What factors in the data that you see at the end of the first quarter are those that give you the most pause in terms of not wanting to sort of annualize the momentum you're seeing in sales until you actually see some traction going into second and third quarter in terms of earnings guidance?

Greg, I think -- this is David. Paul can chime in. I think from my perspective, we saw great results, as Paul indicated from the primary metals sector and associated with that in the transportation sector, which sort of says this is part and parcel of the automotive rebuild and restock, if you will. What I want to see is continued expansion of that into the rest of the industrial customer base. I would like to see the typical industrial supplies to the residential portion of our customer base begin to gear up. We think, as Paul said, that the residential situation has bottomed out and we are -- we are back on a positive note. We talked about a rate of 24,000 (Inaudible). That's a long way from where we were several years ago, or a couple three years ago.

So I would like to see a little more strengthening across the entire industrial. I know that if we get the consumer reengaged in automobiles and housing, then obviously that industrial sector will follow. We also know that the commercial sector typically is the last to go in and the last to come out. So we would expect, as we've said, for it to continue to be fairly stagnant, even decline some more before we see it rebound, hopefully late this year, early next year.

Greg, the only addition I will make to that is when you look at the transportation segment, we saw an increase in production a little over 73% across our automobile manufacturing facilities. However, when you look at the industrial sales overall, we're still below the 2008 peak period. And that's one of the items that we're really watching.

Thank you. One other question on the regulatory front. Could you refresh our memories on what the sort of flexibility of the process is in terms of -- I know that historically you've had the ability to file for accounting orders instead of for base rate cases. Do you still expect to go through a formal base-rate making process here or is there a possibility of a settlement? If so, at what point in the process does that become viable, as we sort of gear up to monitor your process in going through this rate-making year? What are the milestones we would look for and what flexibility do you have in the process?

Greg, we will always, and as we have in the past, we'll always file a traditional rate case. We may also file for alternatives to that, such as an accounting order. But it's hard to say what the milestones will be. Obviously when we file, it will be a period of interrogatories and questions and then they will schedule the public hearings. I think when we get into the public hearings probably in the September-October timeframe, that's when you ought to see what the mood is and the temperature is.

Thank you very much.

Thanks, Greg.

Your next question comes from Jonathan Arnold with Deutsche Bank.

Good morning.

Hi, Jon.

I was just wondering if -- I may have missed this, I apologize, but the drivers in Southern Power, just a couple of cents in the quarter, but when you actually look at the net income numbers, it was down very materially percentage wise. Could you just help frame that a little bit?

Sure. Jonathan, when you look at Southern Power as compared to last year, you had two units at Southern Power that came off contract. One of those units will not go back on contract until June, so you have a period where these two units are just uncovered.

Okay. So this was kind of consistent with expectations?

Exactly.

And then maybe I wonder if David might provide us some insights into what may -- what your expectations are regarding potential revival of the, the tri part [energy bill] after recent events.

Jonathan, my crystal ball's not any better than yours there. I think obviously the, the dynamic in the Senate is pretty fluid. And you've read all the commentary. I think the question is whether or not Lindsey Graham will reengage in the discussions and even if he does, remember, that's still a very steep hill to climb in a short period of time. They have made significant progress in making what came out of the House much better.

But we have said very clearly, at this point, this has all been very behind the scenes discussions of concepts, and we haven't seen any legislative language. And we've been clear as a company, as an industry, that until we get the actual legislative language, which they had talked about releasing this week as opposed -- that was prior to the derailment they had over the weekend. Until we get that, it's awfully hard to get comfortable that we actually understand the specifics of what we think has been improved. That means that it, it's going to be difficult to keep this on track in a short period of time. I think they have something like 40 to 45 legislative days left. They say they are going to try to do this and immigration. Remember, this has to be scored through the O&B process. So it's got a long way to go, even if Lindsey does reengage.

Thank you.

Your next question comes from Ali Agha with SunTrust Robinson.

Good afternoon.

Hi, Ali.

Paul or David, to come back to Georgia Power and the way 2010 is supposed to work as I understand it, you've got the amortization that you can take out and then you have an ROE threshold as well, which I believe gets trued up at the end of the year. So it appeared to me that in the first quarter you had the best of both worlds. The amortization was taken out, as well as the strong sales. I'm just wondering, as you look through the year, do we run into a situation where either you run into that ROE cap or you have to stop using the amortization deduction, given the strength we saw in the first quarter?

Absolutely, Ali, you have that opportunity. As last year, if you recall, we had in the fourth quarter an adjustment that we didn't use all the opportunity on the COR, or the cost of removal, amortization. So you do have the potential of that for this year.

Okay, but it's fair to say if we were to annualize our Georgia Power in the first quarter that you probably would have been above that threshold? The ROE threshold?

No, no. Remember, this year we have $216 million, or $54 million per quarter that is amortized. And as you look at this stream of activity, one being the O&M spend at each one of the companies, there is -- from plan, they are a little bit below plan on the O&M spend. So when you true up the O&M spend, I can't make that assumption at all.

I see. One other question, going back to Mississippi Power and the IGCC Project, obviously we'll get some clarity on that by early next week, but is your sense that, is the Commission relatively favorably inclined to the IGCC option based on the headings and the feedback, et cetera? Can you give us some color on how you think it's positioned there?

I think it is positioned extraordinarily well. I think Anthony Topazi and the Mississippi Power team has done an outstanding job of a very thorough presentation of the opportunity it has, all kind of benefits that you would want for this kind of project. We think it is positioned very, very well. The industrial customers and the co-ops are very supportive of going forward with the project. So I don't know that there's anything else we can do, but as you know, this is a process of the three people who are commissioners have to decide and until they decide, there's not much way to predict.

Okay. Thank you.

Your next question comes from Michael Lapides with Goldman Sachs.

Hi. Couple of questions and once again, congratulations on the good quarter. First of all, can you provide a little bit of guidance, just year-over-year 2010 versus 2009 expectation for consolidated O&M costs? And second, can you talk a little bit about what other rate actions you have coming up across your jurisdictions outside of Georgia?

When you look at O&M, Michael, we have, as you recall in the January earnings presentation, the O&M cost escalation would increase approximately 2.7% if you look at annual growth rate from 2008, 2009 and 2010. When you look at 2009 to 2010 and you see the amount of maintenance activity that we have within the system, it's approximately 12% to 13%. It all depends on how you want to treat environmental O&M. But there's an escalation between 2009 and 2010 of that much. The other piece, as you recall in 2009, we were focused on reducing O&M significantly to manage, if you will, the activities of the business to ensure that we provide earnings streams that meets our guidance. The other item that I will address is really that when you look at normal O&M, go back to the escalation rate. That's really the normal activity we have on a year by year basis of an escalation of 2.7%.

Okay. So it strikes me that the year-over-year hike, between 2009 and 2010 is much greater than the normal. Just a little bit surprised, because when I look at the first quarter O&M, to be blunt, we came in well above your expectation -- where you actually reported. And just wanted to know if we're missing a big picture trend, or is this just a quarterly fluctuation, not having as big of an increase as we would have thought?

Let me just say what Paul said. By definition, we made a conscious decision to move some of the maintenance that would normally have occurred in 2009 into the first quarter of 2010. What Paul is saying was we're -- we should be back on a more normal track of routine O&M. So --

The other piece, Michael, is that Georgia Power, as you recall, we had a voluntary attrition program. It also was enacted in 2009. So the benefits are now showing up in the first quarter as well.

Got it, okay. And can you address any, any potential rate filings or rate actions in the coming 12 months outside of Georgia?

When you look at the end of the year, you have the process within Alabama that starts the RSE, the rate stabilization and equalization filings. That would be at the end of the year. You have the same going on in Mississippi, with their PET filings. And then you have cause filings at Gulf Power that are the normal process they go through every year.

Got it. Okay. Thank you. Much appreciated.

Thank you, Michael.

Your next question comes from Paul Ridzon with KeyBanc.

Good afternoon.

Good afternoon, Paul.

You're looking for a down quarter in the second quarter, could you talk about some of the drivers?

We are not expecting a down quarter in the second quarter, Paul. When you look at the first -- the second quarter of last year, we had lease revenues that provided some uplift to the $0.61 that we achieved in second quarter, and we had $0.03 of weather in the second quarter of 2009. So you take those out, we're within the same bandwidth of what we did last year.

You had $0.03 of favorable weather relative to normal last year?

Exactly right.

Okay. Thank you very much.

Okay.

Your next question comes from [Steve O'Connell] with UBS Investments.

Thank you. Good afternoon. Thank you for taking my call. Congratulations on a good quarter.

Thanks, Steve.

$0.10 because of the cold weather, so that would leave $0.60 minus the $0.10 would be $0.50. So that would be about 20% upside from the $0.42 that you were expecting for this quarter, if my math's correct. Obviously you can't control weather.

Right.

How much of that, I guess, upside would be from the industrial production? Because last quarter it was down about 11.7%, industrial sales. So I guess I'm just looking for some color in terms of if industrial production will, hopefully as the economy gets better, increase, as you have seen a little bit with the numbers you have reported from the automobile industry, and the reengagement in the housing sector, what could that do to your earnings per share going forward?

Dave, do you want me to get my crystal ball out for that one? When you look at the --

Or another way to phrase it is if you were down 11% -- 11.7% last year, year-over-year, how is it this year? I assume that the industrial sales are getting better.

Steve, when you look at our industrial sales forecast for 2010, we said that the industrial sales will increase by 2.6%. But if you compare that increase to 2008 actuals, that would show still a decline of 3% in overall sales. So we're now seeing more positive sales growth in our industrial sector. But I want to be cautious about being too optimistic about that sustained growth.

Fair enough.

Okay.

Thank you.

Your next question comes from Danielle [Fick with Betic Research].

Thank you. I was just curious, what is the cost of the clients that project in Mississippi, just was wondering what was the cost per kilowatt?

The total cost of the project is $2.4 billion. Average cost for the plant's in the $3,500 a kilowatt hour, KW.

Okay. And same thing for the solar plant that you are planning with Ted Turner?

No, we don't have any numbers on that that we've made public.

Oh, okay. Thanks. Thank you.

Your next question comes from Annie Tsao with AllianceBernstein.

Good afternoon. I just have -- can you give me more color in terms of your commercial sales? In terms of kilowatt sales, you mentioned on the call that you -- that's the sector you still see some weakness. Do you see that bottom out or do you see continued weakness going forward?

Well, Annie, if you recall, when we set the forecast for 2010, we said that the sales year-over-year would increase by 0.5% in our forecast. If you weather normalize the first quarter, we're down 0.3%. So relatively we're on target to our forecast. There are some sectors that are showing some improvement. However, there are the big sectors, if you will, in terms of the overall sales in the commercial sector that are still very weak. Wanted to point out the grocery store segment is down 2.2% year-over-year.

Thank you.

Okay.

Your next question comes from Nathan Judge with Atlantic Equities.

Hi, Nathan.

Hello, Nathan.

Your next question comes from Paul Patterson with Glenrock Associates.

Good afternoon.

Hi, Paul.

I hope I didn't miss this, but the ROE in Georgia last 12 months, could you give us a flavor for that?

Paul, when you look at it, the ROE for Georgia, remember, you had the cost of removal account that was approved by the Georgia Public Service Commission with a 9.75 cap [for them] on the retail basis. So that's what they earned in retail for the Company last year. And then you add 110 basis points to that for the wholesale activity. So roughly right at 11%.

Okay. Can you give us any flavor for -- I know that we're talking a little ways away on the upcoming rate case. But can you give us a sense as to what you'll be looking at in terms of the potential increase or how we should think about the ROE going into that rate case? Or projected for test year issues or anything that we should be thinking about?

It's too early to really get into that discussion. The [majority] of folks are still working on the details of the filings. So I think we ought to wait until we actually make the filing. When we make the filing, we probably will have a separate call just to go over the fundamentals of the filing.

Okay. That's great. And then also, just has there been any change in the RTP outlook or with this, sort of this boost in industrial usage and all the other many factors that go into RTP, which is sort of hard for us to, at least hard for me to model. Could you give us a sense if there's any change in that, or if you have pretty much got the same outlook as you had earlier?

Paul, it's pretty much the same outlook. As you recall in January, we said it would be relatively flat to a positive $0.01 for the year. If you look at the first quarter, it's [$0.02] on an earnings per share basis for the quarter. And that's really driven by just increased usage.

Okay, great. Thanks so much for your help.

Sure.

Your next question comes from Dan Jenkins with State of Wisconsin.

Hi, good afternoon.

Hi, Dan.

I was wondering if you could update us on how much CapEx you spent in the first quarter and then how lumpy do you expect that spending to be going forward?

When you look at the first quarter, Dan, we spent $1.1 billion. And it really is lumpy relative to the addition of new environmental projects coming online and the spending curve of Plant Vogtle as well.

Is that -- will it mostly be in the second and third quarters? Is it somewhat seasonal due to the construction, or how should we think about that?

No, it is -- for the year, we're saying for Vogtle, about $700 million for the year and it really is a timing question. It's not back end loaded or summer loaded. Projects associated with Kemper County you'll see costs of about $341 million during the year. You have projects associated with environmental controls that are close to $600 million for the year. So it's really the timing. First part of the year, January through April, you'll see the major capital expenditures around environmental. And then during the latter part of the year, you'll have the environmental CapEx spend. Transmission distribution is relatively spread throughout the year, except for the summer months. That's when you do not want to mess, if you will, with the lines during our peak period of usage.

Okay. Kind of related to that, what's the financing plans? Will it kind of correlate with CapEx plans or (inaudible)?

When you look, when you look at our slides in the appendix, we have an update of where we are relative to the -- the capital that we've spent, plus the financing of that capital. We have gotten to -- for debt financing, we have achieved roughly one -- $525 million so far this year on a basis of $1.6 billion that we'll need to the year.

Okay. Then trying to get a little more color on the industrial, and I think you mentioned you have Kia plant that wasn't in production last year that is now in full production and then the steel plant in Alabama. How much of the additional industrial sales is related to those new facilities as opposed to just increased demand from prior customers? Do you have a sense?

Yes, most of the demand is from our prior customers. Kia, if you look at it on a quarter by quarter basis, it's a huge number, almost 426% increase year-over-year, so that tells you about the ramping up during the year until the fourth quarter when Kia came online. But in general terms those kilowatt hours for those automobile manufacturing facilities are not real large in terms of total megawatts that we produce for the industrial sector. The chemical sector, pulp and papers group and the steel group are the primary drivers overall for us in terms of our sales.

Okay. Then the last thing I was wondering, I just wanted to verify, I thought I heard you say that you did more maintenance in the first quarter on the fossil plants that some things that maybe had been deferred in 2009. Is that pretty much caught up, then? Are you saying the maintenance going forward will pretty much be comparable to what we saw in 2009 for the last quarters?

Well, Dan, it will not be comparable to 2009. We are back on schedule in terms of our overall maintenance plan for the Company, relative to our plant and our distribution transmission activity.

So how should we think about them comparing 2010 to 2009 going forward? What we saw in the first quarter is similar to what we'll see going forward?

Again, some of that is timing, but go back to the response we just had on the O&M spend. When you look at our O&M spend on an annualized basis over 2009, it's going to be increasing by 13%. Again, we're back on the average -- if you look at 2008, 2009 and 2010 of 2.7%, compounded average annual growth rate, if you take the 8 and compound it up 2.7%, okay?

Okay. Thank you.

You're welcome.

(Operator Instructions) Your next question comes from Nathan Judge with Atlantic Equities.

Good afternoon. I apologize for the silence previously.

No problem, Nathan.

Couple questions. There's been more transactions done for various natural gas generation plants across the country and I believe you still have some money slotted for potential transactions, despite doing some recently. Could you just give us an idea, an update on your view on that, those potential, that potential. Thank you.

Nathan, we're always looking for a good deal. And if we find one, we're willing to make an acquisition. It has to meet our conservative criteria. We won't buy something just on an asset. We want it backed by contracts with credit-worthy counter parties. That's sort of our disciplined approach. We maintain a pretty active radar screen, as you know, looking at opportunities and we have made acquisitions in the past. We're certainly willing to do that. As you point out, I think we budgeted money if and when we find the right opportunity.

The recent transactions, some of them don't have backing with contracts. It sounds like to me that that's not even an area of interest that Southern would be willing to consider even though those multiples seem to be fairly low. Is that right?

It would be unusual for us to do that, very unusual. I think we did make a swap of sorts with West Georgia asset purchase that didn't have backing, but we felt like it was a much better strategic play for us than just an outright acquisition like you're describing. So it would be very unusual for us to make that kind of acquisition.

Nathan, let me add to that. When you think about assets that are uncovered, the question immediately comes to the front where can we place a contract with that asset pretty quickly? That's one of our business drivers, as we assess the asset. The other on the West Georgia, if you recall, we swapped them, two uncovered assets in Florida for these assets in West Georgia.

Thank you. Just could you give some commentary on the derivatives legislation that's shuffling through congress and as kind of associated question, if there is a requirement for industrial users to post collateral for the customers in Georgia that do shop? Could that potentially be a positive catalyst for Southern, or how would that play out for Southern Company generally and even Southern Power?

Nathan, when you look at the industrial customers in Georgia, they do not shop, if you will, after they have one-time decision. So the competitive platform is for the in-state utility suppliers to compete for lows over 900 KW. And once that decision is made, they are locked for that supplier.

Okay. Do you have a view on how the derivatives legislation will play out and is there any potential impact if there is a requirement for customers to post collateral?

Nathan, we have assessed that legislation, but it's been primarily from a focus of what it will do in our fuels markets, and posting any collateral associated with that. As you recall, we have, through EEI, been active to try to carve out that element, which I think we have succeeded in carving that out. I haven't seen the final language on this proposed legislation, but I think everybody recognizes that we have these type transactions on an ongoing basis.

And without that exemption we would cease the hedging program in all likelihood.

And actually as it comes to your fuel situation, could you just give us an update on where you stand with coal inventories and what you see in the coal markets? Thank you very much.

Okay, Nathan. Currently we're at 52 days of inventory for the system. We were at a peak at the end of the year at 59 days. So the weather has benefited us in terms of coal burn. As we look at the fuel markets, they have moved up in terms of overall price. Some of that's driven by Central App for export markets, primarily for the met market, metallurgical coal. So that is sustaining our higher price right now in the CAP and Central Appalachian market. As you've seen the gas markets fluctuate in the $4 to $5 range.

Okay. Thank you.

Your next question comes from Michael Lapides with Goldman Sachs.

Hi. Real quick follow-up. Someone asked this and I wasn't sure I understood the answer. How do you think about what your earnings guidance sensitivity is to every percentage change in realized demand?

When you look at 1%, it's roughly -- it depends on what sector. Associated with the residential commercial industrial, when you look at industrial, the impact of 1% is roughly $0.02 earnings per share. If you look at 1% for the residential commercial, it's significantly higher, around $0.04 per share.

Okay, thank you.

Okay.

Your next question comes from Paul Ridzon with KeyBanc.

My question's been answered. Thank you.

Your next question comes from Danielle Fick with Betic Research.

Wondering, and maybe you already have that, but [you don't actually] cover the costs of the nuclear project, would you ask for a [rider] so that you do not have to file as often? Or is -- this has already been considered, and refused?

I'm not sure exactly what you're speaking to. We did -- the Georgia legislature passed the Construction Work in Progress bill, which allows us the opportunity to recover some of that money as we are building the plant. When the plant --

Did you have file for it, right? You have to file a rate case for that?

No, we will file with the commission a status report every six months on the status of the construction project and the cost against the budget. At some point in the future, obviously when the plant is commercially operable, then it will be the subject of a rate case.

I see. Thank you.

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

Thank you, Rachel. Let me just say again, thanks to all of you for joining us and thanks to those of you who were complimentary. We were fortunate with a very strong first quarter and as we said, we're comfortable we're off to a good start. We think we can see some legs in the economy that we're optimistic about. Look forward to another call with you on the Georgia rate case. We'll also keep you informed about the decision with regard to Kemper County and then we'll be back again with the second quarter call in July. So thank you very much.

Thank you, sir. Ladies and gentlemen, this does conclude the Southern Company's first quarter 2010 earnings call. You may now disconnect.