Southern Co (SOMN) 2012 Q3 法說會逐字稿

Good morning. My name is Larelle and I will be your conference operator today. At this time, I would like to welcome everyone to the Southern Company third-quarter 2012 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. 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 and welcome to Southern Company's third quarter 2012 earnings call. Joining me this morning 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. In addition, we will present non-GAAP financial information on this call. Reconciliations to the applicable GAAP measure are included in the financial information we released this morning.

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. In addition, we are now making those slides immediately available for download on our website. Now at this time, I'll turn the call over to Tom Fanning, Southern Company's Chairman, President, and Chief Executive Officer.

Good morning and thank you for joining us. Before we begin, I'd like to take a moment to acknowledge those of you that have been directly affected by Hurricane Sandy. Our hearts go out to you and your loved ones during this difficult time and we are doing all we can to help. Our industry's response has been unprecedented with virtually all EEI member companies contributing resources to this enormous effort.

Our own operating companies have dispatched more than 2,400 workers to help restore power. These workers and all the other responders have left their own loved ones and are working long hours under challenging and often dangerous conditions. Together, these folks are some of the real heroes of this disaster. The affected areas are beginning to show signs of recovery and we expect that process to continue. In the meantime, please stay safe and know that everything is being done to restore electric service to your area as safely and as quickly as possible.

Now, let's turn to a review of our operational performance including our recent progress on several important initiatives. Our most important operational metric, as you know, is safety. In 2012, we are having one of our safest years ever with one of the lowest recordable incident rates in our history. This is a testament to our continuing commitment to do every job safely, every day. We also continue to excel in executing our business model which, as you know, is based on putting customers at the center of everything we do. The best evidence of this, our most recent customer benchmark survey, which shows all four of our traditional operating companies in the top quartile for customer satisfaction among US utilities.

A key driver of our success is system reliability, where we continue to distinguish ourselves as being among the best in the industry. In this effort our generation, transmission, and distribution operational areas, we have performed exceptionally well. I'm especially proud of our team for these achievements and their ability to maintain focus on these priorities. I'm also pleased to announce that earlier this month we achieved under budget and ahead of schedule the milestone of 4.4 million Smart Meters installed, completing our installations in Alabama, Georgia, and Florida.

This exciting new technology will help improve reliability, lower costs, and minimize our environmental footprint. For example, we have already avoided approximately 40 million miles of driving by meter readers since the program began. Our customers have also seen benefits from the new system in the form of faster outage response times, and during major storms the technology has proven be an invaluable tool for coordinating restoration activities. Smart Meters are just one more great example of Southern Company's commitment to driving and leveraging energy innovation all for the benefit of the customers we serve.

We continue to make progress on our major construction projects, including Vogtle 3 and 4. In fact, we are now halfway through our project's schedule and more than one-third the way through construction. We recently achieved the major milestone of more than 10 million work hours recorded on the construction site, where our success continues to be driven by our uncompromising focus on safety and quality. Recent progress includes the installation of approximately 480 tons of rebar in the Unit 3 nuclear island and completion of the Unit 3 turbine building foundation which includes approximately 1100 tons of rebar and 8600 cubic yards of concrete.

Extensive progress has also been made on the cooling towers for both units. Assembly of the Unit 3 containment vessel bottom head is complete and the Unit 4 bottom head is more than halfway finished. The structural steel cradle upon which the Unit 3 containment vessel bottom head will be set is also complete. We continue to highlight the quality assurance and oversight processes associated with this project. A significant recent example of our focus on quality is the concrete pour we completed on a 1,000 cubic yard nuclear island mock-up structure. The event lasted approximately nine continuous hours and simulated the first nuclear island concrete pour which will entail approximately 50 continuous hours of work. The mock-up pour was a success and the lessons learned will benefit all of the participants in the upcoming basemat pours.

Major upcoming milestones include the arrival of the Unit 3 reactor pressure vessel and the pouring of the Unit 3 nuclear island basemat. Both are expected to occur around the end of this year. The achievement of recent licensing amendment requests discussed in prior earnings calls have helped to clear the way for pouring the nuclear island basemat concrete. The Nuclear Regulatory Commission approved two License Amendment Requests also known as LARs, one associated with the rebar design and the other with basemat thickness. These approvals demonstrate that the new licensing process worked as it was intended.

Since our last earnings call, the Georgia Public Service Commission approved another $292 million in expenditures. This means that approximately $2 billion has been approved through December 2011. On August 31, 2012, Georgia Power filed the seventh Vogtle construction monitoring or VCM report. This fully unredacted and publicly available report highlights the EPC contract has contributed to stable capital cost, how the projected costs of completing the nuclear facility are still less than the original certified amount, and how up to $2 billion of potential additional savings for customers has been identified since the original certification.

Also highlighted in the reporting process is a disclosure of cost disputes between the project owners and the contractors. Our EPC agreement stipulates a specific path for dispute resolution. The required steps are, in order, negotiation, mediation, and finally, depending on the size of the dispute, either binding arbitration or litigation. The most significant dispute is Georgia Power's potential $425 million share of a claim related to the delay of securing approval of the Design Control Document or DCD. Late last week, the mediation phase of this dispute ended and both parties filed lawsuits associated with the claim.

We continue to assert that the EPC contract is clear as to which party is responsible for certain costs and that Georgia Power and the other owners have no obligation for the costs in question. At this very early stage, there is no definitive time line for resolution of this matter. But we will continue to keep you posted on its progress. We do not anticipate that the litigation will have any negative impact on the continuing work at the site.

At Plant Ratcliffe in Kemper County, Mississippi, construction remains on schedule to begin commercial operation in May of 2014. Cost projections remain on target to finish at or below $2.88 billion. We continue to actively manage ongoing pressures on costs and schedule which are typical for a project of this scale. Installation of the gasifiers and assembly is proceeding exceptionally well and the carbon dioxide absorbers are all in place.

Natural gas and effluent water pipelines, as well as critical transmission upgrades, have all been completed on time or ahead of schedule. Contracts for the sale of final byproducts of the gasification process have been finalized, which combined with the expected savings from financing and factoring in current capital estimates are projected to provide approximately $500 million more in value to Mississippi Power customers than was originally projected.

Over the next few months and early into 2013, the remaining gasifier list will be completed. Other major elements such as the water plant and air compressor are scheduled to be completed in the spring. Start-up activity begins next year as well, with the first fire of the gas turbine scheduled for the second quarter of 2013. Heat-up of the gasifiers is scheduled for late '13 and reliable flows of syn gas are expected to begin in early 2014. Once the plant is finished and operational, customers in Mississippi will enjoy the benefits of a clean, cost-effective, cutting-edge energy for decades to come.

Now I'd like to turn it over to Art for a review of our third-quarter performance and the economic outlook for the remainder of the year.

Thanks, Tom.

In the third quarter of 2012, we reported earnings of $1.11 per share compared to earnings of $1.07 per share during the third quarter of 2011, an increase of $0.04 per share. Earnings as reported for the first nine months of 2012 were $2.26 per share, compared with $2.27 per share for the same period in 2011, a decrease of $0.01 per share. This includes a previously announced $21 million net benefit during the second quarter of 2012 for an insurance recovery that resulted in earnings of $0.02 per share associated with the 2009 Mirant bankruptcy settlement. Excluding this item, year-to-date 2012 earnings were $2.24 per share, compared with $2.27 per share for the same period in 2011, a decrease of $0.03 per share.

Let's turn now to the major factors that drove our numbers for the third quarter of 2012 compared to the third quarter of 2011. First, the negative factors. Usage and economic growth decreased earnings by $0.03 a share during the third quarter of 2012, compared with the third quarter of 2011. Weather effects reduced our earnings by $0.07 a share during the third quarter of 2012 compared with the third quarter of 2011. Weather was $0.04 below normal during the third quarter of 2012, whereas weather was $0.03 above normal during the third quarter of 2011.

An increase in depreciation and amortization representative of our growing rate base decreased earnings by $0.01 a share during the third quarter of 2012 compared to the third quarter of 2011. An increase in interest expense reduced our earnings by $0.01 a share during the third quarter of 2012 compared with the third quarter of 2011. Finally, an increase in the number of shares outstanding reduced our earnings by $0.02 a share during the third quarter of 2012 compared with the third quarter of 2011.

Now the positive factors. Retail revenue effects in our traditional business added $0.09 a share to our earnings for the third quarter of 2012 compared to the third quarter of 2011. Decreases in nonfuel expenses for our traditional operating companies increased earnings by $0.07 a share in the third quarter of 2012 compared with the third quarter of 2011. As we have shared in previous calls, we typically build flexibility to respond to weather and other revenue variances into the second half of the year.

A reduction in income tax expense increased earnings $0.01 a share during the third quarter of 2012 compared with the third quarter of 2011. Finally, Southern Power added $0.01 a share to earnings during the third quarter of 2012 compared to the third quarter of 2011. In conclusion, we had $0.14 of negative items compared with $0.18 of positive items for a positive change of $0.04 a share.

Moving now to a discussion of our third quarter sales and the economic outlook for the remainder of 2012. On a weather-normalized basis, total retail sales decreased 1.4% during the third quarter of 2012. Year-to-date, weather-normalized retail sales are essentially flat. Our industrial class showed mixed results with some pockets of strength and some pockets of weakness. A slowing in export volume seems to be consistent with slowing demand among certain global markets. However, industrial sales on a year-to-date basis remains at approximately 95% of pre-recession levels.

As for bright spots, we continue to see strength in transportation and fabricated metals related to the continued growth of auto production in the region. Other customer expansions in pipelines and lumber drove strong gains of 7% and 5%, respectively. The latest quarterly sales trend reflects a slowing of economic activity which we believe is driven by uncertainty around upcoming elections, the fiscal cliff, and the global economy. Many of our industrial customers appear to be waiting until these issues have been addressed before taking any further steps such as hiring new workers, opening new facilities, or expanding existing ones.

The best evidence of this can be seen in the US economic uncertainty index which shows economic policy uncertainty at an all-time high. In fact, since 2008, economic policy uncertainty has averaged about twice the level of the preceding 23-year period. As further evidence that businesses are waiting to make decisions, can be seen in the tremendous backlog of active economic development projects in our region.

Our economic development pipeline currently features more than 300 projects representing more than 43,000 jobs, and $15 billion in capital investment. Announcements in the third quarter alone represent 3,700 jobs, a 36% increase over the same period in 2011. Those same projects represent $1.5 billion in capital investment, a 155% increase over the same period in 2011. These projects should begin to impact our sales over the next few years.

Examples include, Mando an auto parts manufacturer bringing 660 jobs to Georgia, and Huntington Ingalls Industries which was awarded a $1.5 billion Navy contract to design and build amphibious vessels that could provide up to 2,000 jobs along the Gulf Coast. Also last quarter, Home Depot opened a previously announced call center that's expected to add 700 jobs in Georgia. We continue to monitor events and economic activity as we develop our forecast for next year. As always, we'll share our outlook during the fourth quarter call in January.

Now I'd like to share our earnings estimate range for the fourth quarter of 2012. Our earnings estimate range for the fourth quarter of 2012 is $0.38 to $0.40 per share, which puts us in the middle of our annual guidance range.

Now I'd like to hand it back to Tom for his closing comments.

Thanks, Art.

In closing, I'd like to share with you some exciting news we had just last week. As I've said many times, a critical component of any common sense national energy policy is pursuing energy innovation through investments in research and development. Southern Company continues to lead in this area, particularly with our development of 21st century coal technology which is already being implemented in China and is scheduled to make its debut in the United States in 2014, at Plant Ratcliffe in Kemper County, Mississippi. This proprietary technology, known as TRIG, or Transport Integrated Gasification, is now ready to be offered all around the globe, allowing for low carbon generation using an affordable abundant resource.

Toward that end, we have announced an alliance with KBR to market TRIG technology worldwide. More than half of the world's existing coal reserves consist of low-ranked coal such as lignite and sub-bituminous coal, the very types of fuel that TRIG was developed to utilize. By leveraging this technology we can preserve coal as an energy resource and ensure that more customers have access to clean, safe, reliable, and affordable electricity. It's just one more example of Southern Company's long-standing industry-leading commitment to energy innovation which continues to reap benefits for customers and shareholders alike.

At this point, we are ready to take your questions. So operator, we'll now take the first question.

Daniel Eggers, Credit Suisse.

Listen, Tom -- just on the economic outlook and a little more pessimism in your voice than probably we've heard in a little while -- do you think this is one of these issues that we get through the election and through the fourth quarter, that '13 is looking better when you talk to your guys? Or is this something that could linger longer in the doldrums as you talk to folks?

That's really it, Dan. I think we've tried to call it as we see it. We started out the year like gangbusters. We're meeting many of our annual goals in the first half of the year and then we started seeing things start to slow down; and we've kind of changed our tone from being cautiously optimistic to being just plain cautious.

It does appear -- and this is not a Southern Company issue, this appears to be a United States economy issue -- that during the third quarter, largely because of uncertainty, we are just seeing the economy kind of come to a halt. This morning on Bloomberg there was an analyst from BlackRock who called this out. We just saw from NAM, the National Association of Manufacturers, who said the number one issue facing manufacturers today is uncertainty in the economic climate. That's why we wanted to show you this uncertainty index. It's a fascinating issue. When you look at the number and magnitude of issues that need to be resolved, it's really unprecedented in this nation's recent history.

It is my firm belief that for the good of America, the policy makers in Washington will address these issues in a timely manner; and no matter who's elected, these are not Republican issues or Democrat issues -- these are American issues. For the good of America, I believe that will happen.

When you look at the quality of our backlog -- so when we try and look through the numbers to what's out there -- the quality of the backlog is as good as it's ever been. And so if we can just break through the logjam of resolving the uncertainty, I believe the economic future and the continued recovery of the United States could occur.

And then Tom, on the Residential side, you have had some customer growth this year. So are you seeing efficiency taking hold? Or is it more of a psychological impact that's causing usage to be flat to down versus prior years when the economy hasn't been particularly great either.

We pride ourselves, Dan, on providing lagniappe for these calls. We've done our own research on what's going on with efficiency and everything else. A trend that we have called out in the past has continued, and we are seeing actually the economy, at least here in the Southeast, get more and more electrified. And in fact there is a small amount of energy efficiency weighing against the growth of electricity sales. What we're seeing, if you strip out exogenous factors, we're actually seeing per capita use of electricity grow.

Now, when you look at the numbers -- this is why you've got to peel back and get information around the data -- we have seen, frankly, some -- and maybe we should cover this on the post call -- but there have been some details that involve really accruals for unbilled revenue and unbilled sales around what were before typically-estimated unbilled revenues, compared to now as we switch over to this new digital age and the AMI meters, we're seeing a different process in estimating unbilled revenues. We think that may be largely responsible for the slight downward performance you see in Residential. We believe that the real performance in Residential sales is roughly flat.

Okay. Just one last one, Tom.

O&M has been a pretty good success story, managing against demand. If we were to look to next year, some sort of normalization -- what kind of inflation do you guys think you're going to have on the O&M line, based on the surplus you've been able to accumulate the last couple years?

We build the budget assuming two things for O&M. One is that we have normal inflation associated with the economy, wages, et cetera. The other associates a growth in O&M associated with an increase in rate base, an increase in assets that must be maintenanced, if you will. Here again, when you peel the onion back on O&M for this year, I think the Companies have done a beautiful job managing performance relative to exogenous factors. If you just think about it for a minute, look at year-to-date weather this year versus last year. We're down $0.21.

This has been one of the mildest years on record for Southern Company -- mild winter, mild summer. Even for the third quarter year-over-year, we're down $0.07 on weather. Now, when we look forward on O&M growth, you would expect to see something like 3% to 3.5% growth for the reasons I mentioned. And I think when you look year-over-year on O&M, we're essentially flat. So we've eaten up not only inflation but also O&M associated with new assets.

We will continue to monitor that. Of course, we'll get into our earnings projection for 2013 in the January call.

Great. Thank you, guys.

Yes, sir.

Angie Storozynski, Macquarie.

Two questions -- could you comment about your long-term earnings growth projections now, in light of the slower load growth? And as you said, your ability to control costs is largely absorbed at this point. So how should we think about the EPS growth going forward?

Well, Angie, we'll cover that in the January call. That's what we always do. So we update long-term earnings guidance once a year and we'll do that in January.

Just one comment on your statement. I've tried to convey this so far this call and really even in our remarks, but there is more uncertainty in the economic climate than we've seen in a while. The uncertainty's reflected in the uncertainty index and all the fiscal policy issues that need to be dealt with. Depending on how those get dealt with, obviously we'll be able to be much more precise in our view of the economy. All we're trying to reflect right now is, with the election, with the fiscal cliff, with some challenges around the worldwide economy, it is less clear, more than ever. Hopefully by January we'll get some sense as to how that is being resolved.

With respect to O&M, we'll just see. I wouldn't conclude as you have that perhaps we've used up our flexibility.

Okay. And secondly, about your IGCC. We're watching another IGCC project with some cost overruns and some issues with the gasifier. You mentioned that your gasifier is going to be installed or heated up only in late 2013. How can you be comfortable with the performance of the gasifier before it's actually been installed?

Perfect.

You know, it's funny, we love our earnings call and we love preparing for them. I remember Jim von Riesemann asked me a question about why we were different than Edwardsport, and I went off on a soliloquy for 20 minutes. I'll resist the temptation to do that. Let me give you some headlines as to why we're different.

Number one, this is our technology. We're not buying from a third party. Number two, you know that we are the only one in the industry with an engineering and construction services group of 1600 people. We're able to self-build this effort, along with other main subcontractors; but this is our effort. And when you look at the fact that we've deployed, I guess by the end of '13, $13 billion of environmental equipment, we know how to build stuff. We think we're going to do likewise a great job here.

Thirdly, remember that we're the only Company engaged in proprietary research and development in a robust way in the industry, and the heartbeat of that effort is in our Wilsonville facility. We call it the PSDF, Power Systems Development Facility. We grew this technology and really it evolved into some R&D that we started way back in the '60s with liquefaction. It is now gasification. We've run that thing for like -- I forget how many man hours -- 50,000 man hours or some enormous -- we have enormous experience running this technology with this fuel at that -- we actually imported fuel from that site to run through our PSDF facility.

For a variety of reasons we think we're going to be in very good shape to fulfill the promise of this for the benefit of the customers in Mississippi Power.

Okay. Thank you.

You bet.

Jonathan Arnold, Deutsche Bank.

My question is -- could you remind us in Georgia what level of sales growth is embedded in the current rate plan, as part one? And then, on this O&M management and sales outlook -- if I remember rightly there was a facility in that plan to go in for an interim increase if you thought you were going to under earn your ROE. Is that something you could envisage, absent a reacceleration in the economy triggering? And maybe just remind us how that works?

Yes. I'll deal with the second part of your question first. There is a mechanism, and I can't remember the acronym for it, but that would be applicable to 2013. And it would foresee some event in the economy whereby you didn't find the bottom end of your range. I think it's called the ICR provision. And you would go back in for some kind of accelerated hearing process whereby you might be able to come to some solution of that by year-end to allow them to get inside the bottom end of their range. The actual increase in sales embedded into their plan is -- I'd say, Jonathan, I don't have the exact numbers on me, but somewhere in the neighborhood of 2%.

Okay. Great. Thank you, Art.

Sure.

Greg Gordon, ISI Group.

Thanks for sending all those crews to New York. They really helped.

Hey, man, thank you, appreciate it. It's an honor to help.

I apologize, I came on the call a little bit late. When are you guys actually filing the next Vogtle VCM? And is it your expectation that you'll ask for a certification of an increase?

We just filed one. So we do it every six months, right? The next one will be February.

Okay.

Yes. So you'll see that.

You know, all the numbers look really good right now. We've been helped by some good luck. Let's be clear -- when we think about this $2 billion of additional benefit that our customers are getting relative to what was originally estimated, this has been a dynamite environment in which to finance big CapEx projects. I forget -- Art, what is our number across the system? It's like $3.5 billion of debt financed at about 3%?

About 3% for an average term of 19 years, so --

Yes, just think about -- and I think the estimates when we started this project were more like 6% and 7%.

Yes, yes.

So we are developing a tremendous amount of value, and when I look at just the ETC part of this -- forget what we're doing on capital costs -- we're actually under budget. So we're doing great.

Yes, you guys had certified this at almost $6.5 billion. I know right now you're at $6.1 billion. So even if you went back up towards the original certification it would still be a win. I'm just wondering whether -- because you're already at a current estimate of $6.2 billion, if there are other things that might cause that to drift higher.

The big factor that would cause it to move around, I think, is probably schedule.

Yes.

The construction is going very well.

Greg, you also have the claims issue, too, that's still pending. So we are waiting until that was resolved before we went back to the Commission with any kind of request for an increase in the certified amount.

Recall, the issues around the claim really deal with schedule.

Got you. Thanks, guys.

Yes, sir.

Mike Barnett, Morningstar Financial.

It's Mark; good morning.

Just a couple of quick minor details here. Obviously the proprietary TRIG technology, as you've already discussed a little bit on the call, it goes back a long way. The inclusion of the slide here -- I'm wondering is this going to presage maybe some further details, given that you've got this partnership on the potential for this technology in terms of external revenues?

Well, here's what I would think about that. We've been very consistent. We're going to remain consistent until we have a reason not to be. But basically we think there is a terrific market for this worldwide; so does KBR. That's why we entered into this relationship. You just think about megawatts of need. In the not too distant future, China needs bad 300,000 megawatts of generation. India -- 100,000 megawatts of generation. Both India and China lend themselves to the kind of low-grade coal that is perfect as a fuel resource for our TRIG technology.

Now, we're not going to get all that. We're going to get some segment of it, we believe, and we look forward to that. Until the revenues and profitability of our licensing effort become clearer, we just will not have it associated with any of our projections. So if anything shows up, it will be upside, number one.

And the other thing I will just remind you -- you know that Southern Company is a conservative company. We're very proud, the fact that we along with our partners developed this technology and we think it's going to work great. We think it will be a solution not only for America but for the world to take advantage of this excellent fuel resource. We are going to stick to the business we know the best and, therefore, we thought it was better to give via this contract, KBR the worldwide marketing rights. We'll still pay attention -- as with our research and development facility, as with our engineering and construction services group -- the engineering oversight and further developments on the technology. So we'll not be engaging ourselves in worldwide marketing.

Okay. One more quick thing.

When we get the Q, might there be any kind of reserve or something along those lines for the lawsuits that have been filed? Or is it still way too early?

Way too early, and please understand, we've been very clear, I think, in all of this that while you cannot determine the outcome, we believe that the facts are very much in our favor. That's why we did not settle and that's why we've taken the step of filing litigation. We've done this in a very transparent way with the independent monitor, with the commission, with the staff. We feel like we are representing the interest of Georgia's customers by taking this step.

Please also understand that filing the litigation we think is a normal part of the dispute resolution process, and that going forward, we can still settle or go to some other kind of dispute resolution like arbitration if we feel like that's prudent in the future. People should view this as just another step in the process. Work continues. We don't believe there will be any material slowdowns as we progress the thing.

Sorry for making you go into this. And again, your efforts for the storm are greatly appreciated from everybody here.

Well, thank you very much.

Steve Fleishman, Bank of America.

I'm still waiting for my power. (laughter)

All right. We'll call it up on the GPS. How about that?

Thanks. So just a couple questions.

First, if we think about -- I don't know if Art has handy sensitivity on sales, either for this year or thinking about in the future -- 1% change and how that sensitivity's impacted in terms of customer classes?

Yes, Steve.

Roughly, if it's spread across all of our classes, it's about $100 million. If you do a 1% change in industrial sales, obviously it's less, about $17 million. If it's a 1% change in your residential class it's more, about $45 million. So, if you spread it all across them all, you get obviously a bigger impact. But that doesn't assume that you're going to also manage your expense side of the equation. So you don't want to be just making assumptions that those kind of results and changes in sales will not directly lead to changes in net income.

Sure. Okay.

And if things do remain weak, I recall during the crisis you guys were able to work with your regulators on the Georgia mechanism that you had, as well as, I recall you did something in Alabama. Do you have some of those things that you could work on to help mitigate a weaker economy if you think about it?

Sure. In fact, Steve, just as you recall, we put in place this mechanism that Art referred to earlier --

Got you.

-- that takes into account a big change as a result of an economic slowdown or whatever else to get Georgia Power back to a place where it can operate effectively. So we've already contemplated that. We've made the adjustment in Georgia. Because remember, that's typically been a three-year accounting order process.

If you go elsewhere across the system, RSE operates every year anyway, it's a formulaic approach. Mississippi operates annually, it's a formulaic approach. The only one that doesn't have these kinds of features would be Gulf Power -- and remember, Gulf Power has a traditional kind of rate-making approach. They filed for a rate increase last year. They have something like a great deal of their revenues associated with clauses. It's like 65% -- 60%, 65%. So it's kind of a smaller issue to Gulf Power and they're kind of small anyway.

Steve, we also had the COR issue at Georgia back in 2009, where we amortized some of that back to help mitigate some of the impacts that Georgia was feeling.

I think, the COR impact, as Art points out, is a great example of how we've worked constructively with regulators to do the right thing all the time. So we always have an ongoing dialogue. People should know it is not a discrete relationship. It is a continuous relationship.

Okay. One last question -- just any update on the Plant Ratcliffe Supreme Court reviews and timing of that?

Everything is still pending. The Sierra Club's appeal of the most recent certification order is still pending at the Chancery Court. We expect to hear from that any week now. So we already expected to hear from it, but just haven't heard anything yet. Everything else -- our appeal to the Supreme Court is still pending. That particular issue is around our ability to bill the cash CWIP, the order the Commission gave us denying that request. That won't be heard until sometime in mid-March.

Okay. Thank you.

You bet.

Ali Agha, SunTrust.

Listen -- wanted to just be clear on your comments around the economy and the uncertainty, et cetera. If I'm hearing you right, you're talking more short-term in nature, and believe elections, et cetera, should remove some of that uncertainty? Or are there other secular issues, efficiencies, et cetera, that you may be alluding to as well that may be causing the load growth outlook to be slower on the longer term basis? How should I be interpreting your comments there?

I think you nailed it in your question. Look, I think what we're seeing right now is a pause in the economy, and I think the economy is waiting for the uncertainty to be resolved. Obviously, the big issue facing us, post the election, is the fiscal cliff and what's the United States going to do to get its financial integrity in order. I think the more secular change -- and I just don't know where this is -- is what's going to happen with the European Union, what's going to happen with the long-term growth rate in China, Brazil, and other formerly growth-oriented economies.

I think those are the issues, both from my work at the Federal Reserve, plus the work our economists do here. Economic uncertainty is just at an all-time high; and I think these issues, whether you believe you should cut costs or raise taxes, it is clear to me that what we've got to do is adopt as a fiscal matter policies that promote growth in the economy. I think if we do that, when you look at the quality of the economic development backlog that we have, I think we're poised to resume a really attractive growth rate.

But the proof will be in the pudding. Let's see how Congress, the policy makers around the United States, resolve the issues related to the uncertainty and let's move forward. Believe me, we will be active in those discussions.

Separate question -- coming back to Mississippi for a second. Are you comfortable there with the overall regulatory paradigm? You were mentioning earlier, of course, we've got the CWIP issue, but separately they had this ROE focus and discussion, as well. Comfortable with what's going on there, and any concerns we should be aware of?

Well, I think you're aware of the concerns that we've had. I think historically Mississippi has been a constructive environment in which to do business, has been for a long time. We were all surprised by the decision to defer the recovery of CWIP pending the resolution of the Supreme Court matters related to the certification of the project. Now, listen, we're confident and we believe the certification process of the plant, once now amended, will go through. So we're very confident of that.

That surprised us. That, frankly, been about the only negative that I can put there. I think the folks at Mississippi, the policy makers, are working hard to create a way forward that will work for both Mississippi Power and its customers. I spoke recently at Governor Bryant's Energy Summit, and Governor Bryant I think is doing a terrific job casting as a primary economic development strategy the State of Mississippi as an energy hub. I think he is spot on, frankly, not only carrying forward but extending the good work of Haley Barbour. Kemper County is so important to the state's future. And I think, when you think about the low-cost energy, similar to a nuclear plant in terms of its reliability and cost, I think it will serve Mississippi well for decades to come.

So my sense is we'll get through this rough spot and we'll move forward in a constructive way.

And last question -- Southern Power, historically you guys have been telling us is a $150 million to $160 million annual net income kind of business. It's clearly been running ahead of that. I think third quarter was probably ahead as well relative to that.

Yes.

Any changes in the paradigm there? Or you think with the move up in gas prices in the future, that may bring it back down? How are you looking at that going forward now.

That's a very interesting question. It's one we've had a lot of conversation about here in Atlanta and around.

Look, the earnings have been better. My sense is they'll be better again this year, as the year-to-date numbers would suggest. So they continue to do a great job. Recall, one of the big projects that was a centerpiece this year has been the biomass facility at Nacogdoches, Texas. Brought that in under budget, on time, it's the world's largest bubbling bed technology, North America's largest biomass facility -- I could go on. But it's just a great project.

And then we've done some of these solar projects, none of which are all that big. We put in place an appetite for us on solar, about 300 megawatts over five years, and we're just being very faithful to that level of participation. We don't want to go overboard on that. One of the interesting ideas, though, that we've had is -- you know that our ethos as a Company, our business model, is to put customers in the middle of everything we do; and to provide clean, safe, reliable, affordable electricity to those customers. And that has served us so well in our integrated regulated businesses. Likewise, it has served us very well with Southern Power, and I can tell you when I was down there for the groundbreaking of Nacogdoches, we had lots of interested people from co-ops and munis in the area, come to me and understand how favorable this has been to the City of Austin and wonder could we do more business.

Frankly, we get that wherever we do business, whether it's the Carolinas, whether it's New Mexico, Nevada. And so one of the things we're thinking about is, are there limited circumstances where we could use exactly the same model; and perhaps instead of turning down business, do some business with some other co-ops and munis particularly, and maybe some other IOUs. If we do, let me assure you that we will follow exactly the same conservative model.

That is, long-term bilateral contracts, contracts really in two segments, one of which we earn a return of and return on capital on brick and mortar investment; the other one earning essentially a pass-through on our energy cost, which is largely fuel. So we don't believe we want to take fuel risk. We won't take transmission risk. And we want to have credit-worthy counterparties. We are thinking about maybe doing some business in some of the other areas of critical mass that we seem to be developing. We'll see.

Understood. Thank you.

You bet.

Jim von Riesemann, UBS.

Hey, I wanted to follow up on a couple of the questions that Steve and Greg and Jonathan were asking. I know this question may be premature, but can you discuss how you're thinking about the upcoming Georgia Power rate case -- what the key objectives might be, how the case is going to align with the IRP plan that needs to be filed in 2013; and maybe a little bit about what the regulatory strategy is there for permanent rates from Vogtle, and how all the timing is aligned?

Okay. So let's kind of think about that in some bites. First of all, Vogtle.

Vogtle is progressing very well, and you may note recently that Georgia just did another fuel decrease to its customers. I think it was 1.7% or so decrease in total bills. Recall, we did a fuel decrease earlier that was roughly 6%, 19% to fuel, 6% to total bills. So we've produced some fuel decreases that in fact will largely speak for a lot of the price increases we see for Vogtle. So if you think about price increases for Vogtle, you're typically in the range of about 1% a year that's already pretty well-spoken for through the processes that exist in the state.

Now, we will file an IRP. Recall in -- I guess it's February of next year, January -- recall, too, this is a very collaborative process that we follow with the Commission, whereby we and the staff, the Commission in essence, will evaluate trends and demand. We will jointly agree on that. We will jointly agree on the resources necessary to meet that demand; and then we will jointly agree on how best to supply those resources, whether it is self-build or third-party contract. That has been an exceedingly effective way to think about providing the resources for Georgia in the upcoming years.

If you think about it, we're building Vogtle 3 and 4. We've just finished the last of the McDonough units that we've converted from coal to gas. Now we're over 2,550 megawatts of new gas supply right here in the Atlanta area, and those units are behaving beautifully. In fact, they're producing capacity at greater than their nameplate rating. We've also announced some initiatives in the solar arena in Georgia, and my sense is when you combine that, plus some other power purchase agreements, we will have spoken for the capacity needs of Georgia probably through the end of the decade, would be my guess. We'll find that out in the IRP going forward.

With respect of the rate case that we will file right around the beginning of July, it's way too early to say, but it would argue that, having spoken for Vogtle, having spoken already for McDonough, it would seem that the issues in this upcoming case will be similar to the issues in the last case -- that is, the normal O&M and CapEx associated with building the best electric system in the United States here in Georgia. Or in the Southeast, really.

Okay. Great. Thank you.

Paul Ridzon, KeyBanc.

What was weather compared to normal?

$0.04 negative for the quarter.

Year-to-date?

It's about $0.08 for the year-to-date period.

It was $0.08 for the year-to-date, and you were $0.13 positive year-to-date, so it's $0.21 negative year-over-year, $0.08 versus normal.

Art, you gave an answer to Steve's question about 1%. Were those pretax numbers? Were those --?

Yes, they were.

Against revenues?

Yes, revenue.

Thank you very much.

You bet.

Michael Lapides, Goldman Sachs.

I want to think about risks around authorized ROEs. You have the Georgia Power rate case next year, so authorized returns will get set during that normal TRC process. Can you talk a little bit about how the process in Mississippi will work in terms of the ROE docket they have, looking at the methodology for reviewing ROEs there? And can then you also touch on, in Alabama, when do they in the RSC process, do they actually even look at authorized rates of return in that annual process? Or does that not happen until some other process down the road?

Well, I'm going to let Art -- Art was many years the CFO of Alabama. I'll let him handle that one.

Mississippi is really just an informational hearing as I understand it, and it's not at all clear how that's going to go forward. You do know that by the structure of the PEP mechanism, they in essence go through a theoretical cost of capital calculation by the mechanism, and then that mechanism is adjusted by performance. And Mississippi has always performed well with respect to safety, customer satisfaction, operational excellence, et cetera. So they historically, anyway, have earned a premium to the theoretical cost of capital that PEP calculates. It's interesting to see how all that will work together. It has not been set; it is all not clear.

Art -- Alabama?

Mike, as you know, and we've chatted before about this, the discrete conversations in Alabama occur constantly. There's not a specific date for review of those, but those conversations take place between the staff and management on a continuing basis. I'll remind you, in Alabama, their equity ratios are lower than the industry average. If you look at their return on invested capital, it's more in the second and third quartile compared to peers, rather than the top of the quartile. So the amount of return reflected in price is not near as severe when you lower the balance of equity in the equation. And I'll also point out that Alabama ranks in the top quartile when it comes to customer satisfaction. So it's not a one-element issue; it's a multifaceted issue that has lots of elements to it.

The other thing that people should just understand too -- this model that we have been very faithful in following -- that is, to provide the highest level of financial integrity in running our business, has served our customers exceedingly well. And I know we've shown you in many times in the past this kind of efficient horizon curve where you look at cost of debt by the average life of maturities of the debt portfolios of us versus our competitors, and frankly, Southern Company, all of the operating companies, look terrific on that basis.

At the end of the day, when you look at the decision that our regulators make in a, generally speaking a constructive business climate part of the United States, there is no reason for any of our Commissions to take punitive action against the Company. We're performing well in customer satisfaction, in reliability, in any notable measure. And so we think we'll continue on in that vein for years to come.

Got it. Thanks, guys. Much appreciated, Art, Tom.

You bet. Thank you.

Leslie Rich, JPMorgan.

I'm also in the dark. If you could get those Alabama trucks up to Westchester, that would be great. (laughter)

I'm sorry for that.

Just wanted to ask you about Slide 16 and your coal/gas comparison in the third quarter. It looks like you continued to burn more gas than coal, with the gas plants continuing to run at higher capacity factors. I'm wondering, as you look forward over the next 12 months, how you view that? Because you obviously dispatch on a very economical basis. And are you maxed out on coal/gas switching, or do you think now that gas prices have come up a bit that you're going to be burning more PRB? How are you thinking about that? And also inventory levels?

Listen, I think we can -- I have to look back at some prior data. I'm going to go from memory here, so hopefully I'm not wrong as I say this. We have still a great deal of optionality in our fuel mix. So let's go through that, for example. If gas prices are cheap and coal prices are expensive, we in the future -- and I think this is a 2015 number -- could take our gas fired energy generation up to around 55% and back our coal down to around 25%, is my guess, round numbers.

If the reverse happens, if for some reason gas gets very expensive and coal gets cheap, I think we can take our coal up to about 45% or so and back our gas down to around 35%. That's kind of the broad range of optionality we have going forward. One way to think about that is to think about where are the break-even dispatch curves going forward. So gas at a $1.25 per 1 million BTU has to fall below that before it dispatches ahead of nuclear and, frankly, Kemper County. Kemper County's going to be in that same neighborhood. When we think about PRB, you have gas in the range of $3 to $4, call it $3.50, somewhere in that range for gas to dispatch ahead of PRB. So that would be Sheer, Miller, the big units there.

And then, Central App coal -- one of the things that you will see is that we've been moving, transitioning away from Central App to Illinois Basin. Some of that depends on how we unfold in the years ahead, responding to [hazmat] and a variety of other things. But in fact, those numbers have come down just a bit with the move more to Illinois coal. We used to say Central App coal was kind of $6, $6.50. Now with Illinois being a more important part of our future as we conform with MATS, that number looks more like $5 to $6, somewhere in there, per million BTU. Does that cover it for you?

Well, so that would imply, looking forward to 2013, that you'd continue to run your gas plants really hard.

Yes.

Okay. And then, secondly, just to circle back to the lower nonfuel expenses -- $0.07 a share year-over-year, that's a really big swing. Could you give me a couple examples of the kinds of things that you've been doing or do you budget for normal weather and then if it's not normal weather there's less maintenance that needs to be done?

To everyone's dismay at Southern, I could talk about this for hours. I'll try and be economical here.

We go through what we call a flexible budgeting system whereby we identify a financial plan based on a level of O&M. We already planned for certain normal variances of weather above and below, so we basically find ourselves with a slug of O&M that we keep in reserve, pending the results of third-quarter weather. We call those approved but not budgeted -- I mean, they're budgeted but not approved. I'm sorry. I said that backwards. In other words, we keep that powder dry, if you will. As we see weather become either mild or the other way, then we turn on or off that flexible budgeting part of our program.

The other thing that's interesting about our budgeting process right now really goes to where have we gone with the generating fleet. Recall, the O&M associated with the coal fleet is bigger than, say, with a gas fleet. I think people would mostly get that. So when we think about the MATS issue, recall we had about 20,000 megawatts of coal. It appears that we will maintain, I don't know, 12,000 to 13,000 megawatts of coal in the future. Some of that will be through fuel switching, like from Central App to Illinois Basin. So for the remaining, say, 7,000 or 8,000, some of that is fuel switched to gas; some of that is just retired.

As we evaluate the plants that are subject to be retired, obviously we have opportunities to scale back -- while maintaining safety, scale back some of the O&M that we otherwise would dedicate to those plants. We would let their E4 statistics rise up. Otherwise in the past we would really be very hawkish about keeping those in perfect condition.

Great. That's very helpful. Thanks.

Yes, ma'am, thank you.

Paul Patterson, Glenrock Associates.

Just to go over sales growth again, what's your current projection? I think it was 1.3% at the end of the first half of the year.

That's right.

Where are we now? Where do you think it's going to be for 2012 now? Weather adjusted.

I don't know, man. It could be somewhere between 0.5% and 1%, somewhere in there, 0.5%. Just depends. We've had some strange things happen in the third quarter -- I mean, strange, they happen regularly -- but like DuPont, we had a major facility undergo a prolonged outage in order to retool.

Art?

That's correct. Silicon metal manufacturer in Alabama was down a lot in the third quarter. They came back in the fourth and we expect them to operate in the fourth.

Another major issue that nobody thinks about anymore after Hurricane Sandy was the effects of Hurricane Isaac. Hurricane Isaac shut down a lot of our large industrial load on the coast for periods of a week or more. Olin, being our biggest industrial customer, was down for a while along with Chevron and some other major consumers of electricity. We don't normally weather-normalize our industrial loads, so you see those effects impacting some of the sales loads in the third quarter.

And some of that weather effect, where they couldn't get rail cars and product in.

That's correct.

It was things like that. It was a railroad problem as opposed to the (multiple speakers).

Okay. Let's talk beyond industrial, though. If we look at leap year, the leap year impact I'm estimating around 0.37%, 0.4%, approximately. And we add that into these numbers, it looks like residential, commercial, industrial, roughly down about half -- leave industrial out -- but 0.5% down. I'm just trying to get a sense as to what GDP growth has been, at least what you guys are now looking at it being. You mentioned that there was some concern on the industrial side. But leaving out the industrial, because that's going to be volatile for all the reasons you mentioned, how should we think about what's going on here?

Well, Paul, this is a great question. Listen, we've got as much uncertainty as everybody. I always feel like we do more homework than anybody else that I know of in terms of understanding the economy and holding these customer groups.

One of the trends out of this call ought to be that there is a general heightened level of uncertainty in the economy. At this point, there is a tremendous amount of pent-up economic activity, pending the resolution of some of these really important issues. It is clear to me that, while the year started out great, it started to slow and now it has really slowed in the third quarter. There are all of the kind of chemicals in the sea, if you will, for economic growth to resume. We've got to deal with those issues.

If we look at GDP for the third quarter, I'm thinking -- at least my recollection's around 2% -- it came in a little bit stronger than what people had expected. Is it different in the Southeast? Or are you talking about something that just isn't being picked up by regular GDP numbers, if you follow me? One of the concerns that I have at least, is on the natural gas side, we saw for many years a reduction in absolute sales growth due to basically efficiencies; and I'm wondering whether or not we're beginning to see this on the electric side. You guys are thought of as being relatively strong economically compared to the rest of the country; and other parts of the country we've seen in some cases negative sales growth, weather-adjusted, for three years.

Yes, look, what we've done, in fact, we ought to share this with you. If anyone's interested in the call after the call, the boiler room we call it here, but we've done a lot of research on working at really diving deeply into this notion of what's really going on with existing home sales. In other words, if you strip out all the noise on housing, for who was the customer before and who is the customer now, what we're finding is that from existing premises year-over-year -- actually we go back something like five years -- we have found that, absent 2009, we have seen a continued increase in per capita usage.

Now, we know that there is some small effect of energy efficiency and everything else. But we think that is getting washed out by a greater electrification of the economy. Now, the ratio that we have found as a rule of thumb still works. And that is, electricity sales will probably be around 60% of GDP. So if GDP -- you tell me what GDP's going to do, hit it by 60%, that's what electricity sales will do.

Okay. But GDP was 2% in the third quarter. Right? And for some reason it's not translating. Leaving out the industrial, it's not translating that way for the other guys. That's what I'm missing.

Paul, Tom mentioned this earlier, but there's lots of stuff going on that makes us believe that the third quarter numbers, especially for residential, are far worse than what we actually experienced.

Far better.

Well, yes, far better, excuse me. I misspoke.

But the first issue I want to talk about is weather normalization, which I've always talked about as more of an art than a science. When you compare quarter-over-quarter to that, you're going to gets some noise. And more importantly, the second issue is -- what Tom mentioned earlier -- is the fact that we are now using to estimate our kilowatt hours yet to be billed, or unbilled kilowatt hours, we're using our new digital platform, our new metering system to provide those estimates for us which are much more accurate than our prior methods. They can cause noise year-over-year when comparing to a year that did not utilize that. We think this is an abnormal reflection of what's actually going on in the residential market.

Paul, even as you suggest, even if residential is flat and not down for the quarter, there's still some really interesting issues. We'll just see how they evolve. When we peel the onion on the effect, we think there is still reason to believe there will be economic growth. I would tend not to get distracted with quarter-over-quarter results. When you do the kind of analysis you're thinking about, which is exceedingly valid, you're better off using long-term trends. And I would rather focus on year-to-date results rather than a quarter-to-quarter conclusion.

Okay. I don't want to belabor this. I appreciate your guy's input and would love to talk to you guys further about it off the call.

On the Georgia PSC election -- any thoughts we should see here, or any anything you want to share with us, you being there on ground zero?

Well, look, we have two commissioners up for re-election, Stan Wise and Chuck Eaton. You know, we'll see. The whole Georgia Commission has been, I think, very tough but very fair, and we'll see what happens.

Okay. We'll wait and see. Thanks so much.

You bet. Thank you.

Andy Levi, Avon capital.

Hey, Andy, how are you?

Same as everyone else. No power. Always a good thing. (laughter)

I'm sorry, bud. I know they're working hard to get you back.

We could debate that.

But just a question actually on the storm, and you said you allocated 2,200 workers?

Over 2,400, now.

2,400. How is that allocation set? Are the power companies here in this region, do they contract beforehand, or how does that work? Also, where did the majority of your people go?

Okay. So let me start real quick.

There's a process where, for example, we're part of the SEE, Southeastern Electric Exchange Mutual Assurance Group. There are other mutual assurance groups in the United States. Of course there are in the Northeast, New York, et cetera. Before the event even hit land, we plan well in advance; and then what we do is start to deploy before the storm hits the resources necessary to effectuate the restoration. I know that before Sandy hit the Northeast we had deployed something like 2,000 personnel from Southern.

Then the storm hits. One of the things that people must understand -- and I've tried to be very public about this in all my Sandy, [Sam] Bloomberg, and CNN and all the other stuff I've done -- is that assessment process is so critical. When you consider what you all have faced -- and it's been very challenging, snow, wind, rain, flooding -- some of the areas that have been impacted have been inaccessible; and therefore, without an assessment it's been very challenging to deploy in the most optimal way. There's been some time associated with that. Then they are deployed to the region to fix, and then there's an iteration that goes forward.

When you think about the total resources that we committed, it started at around 2,000, and now around 2,400. Our resources were deployed to Philadelphia, Baltimore, Washington, DC, and pretty quickly, they moved some resources up to Atlantic City. In this iteration that I describe, where they fix, reassess, fix, reassess, our folks are all over the Northeast right now. So when I get a report every morning, they are in every affected area you can imagine. I know one of the big issues our folks came in after the initial damage, were underground crews in the Con Edison area, particularly in Manhattan. They're all over the place right now.

And do the companies up here need to -- I don't know if the word is contract. I understand the assessment aspect. But, do they have to make arrangements with Southern Company beforehand that these assets will be allocated to them?

I'm sorry. I should have answered that one. Yes, so what happens is every -- like the Southeastern Electric Exchange Mutual Assurance Group -- has essentially a contract in place that exactly calls for the reimbursement and the safety conditions and a variety of other things, conditions under which people will effect the restoration. Among the different mutual assurance groups, they basically adopt the same process, so that anyone requesting help will pay for the help that they receive and that work will be undertaken in the manner in which we are used to providing it.

So basically you need to be part of these mutual assistance programs?

Well, but everybody is, and then the different mutual assistance programs work with each other when the damage occurs outside. There's been plenty of SEE resources that have been put into non-SEE regions.

And I'm just trying to understand why your men didn't come further north at first.

That was the original deployment, and I can assure you they went north as soon as they were needed, when the reassessments were done. Remember, this assessment is the big issue. Once the assessments were performed and the reprioritization of the areas of critical need were performed, people were moved in, in the most effective, safest manner possible.

Is there a cost to these utilities to be part of these mutual assistance programs.

Nothing more than overhead costs, people associated with administering the group.

Okay. That's l all I needed. Thank you very much.

Thank you. Appreciate it.

Ashar Khan, Visium.

I have two things, I want your comments -- one on a macro, one more toward Southern Company.

Can I just ask you -- this is my opinion, I think so the utilities have shortcut themselves by going to these programs where you share employees, and they've cut their own resources of employees and hence I feel that US is getting more hurricanes or things and all that, but the amount of interruptions we have versus a, number one, you can call it world tier one country, is horrible, at least versus other tier one countries. And, I think so, this is just my thing, I think that the EEI has to think of some way to get this thing off.

It's just occurring so much reoccurring, and we lose so much output because of this, and the service is -- the breakouts for the time period that they're out is just not acceptable for a country like US. I don't know what it is. Either the infrastructure is really bad, or you guys have cut through so many people that the country's fallen in a manner that it takes two weeks for service to come back. To me, in a country like US, that's just not acceptable under any scenario.

Ashar -- look, I absolutely get the fact that a lot of people in the Northeast -- I'm originally from New Jersey myself -- are really disadvantaged and really going through a lot of pain right now. I completely understand that. I would just dispute the notion about the state of our electric network. The electric network in the United States is the best in the world and the data supports it. We have to continue to focus on that, and we have to deal with different regulatory models, frankly, that deal with it. We in the Southeast, at least I can speak from Southern, we spend nearly $1 billion a year on these issues; and our reliability, you know the statistics are SAIDI and SAIFI. One deals with duration of outages, one deals with frequency of outages. We're now on more than a decade-long track record of performance and the system works great down here.

We get buffeted with storms, and I think what we're dealing with right now in the Northeast -- and I know it's really hard being in the middle of it, and please understand, I certainly understand what you guys are going through, having gone through it a lot down here -- it's just that, that storm, the misnomer of the perfect storm, level one hurricane being hit with a cold front that produced snow, wind, rain, flooding, and unprecedented amount of damage in a very highly concentrated area of population, has just produced some unique circumstances. It is worthy always in evaluating lessons learned from these circumstances and understanding how we can serve customers better, that is always something we should do.

But please understand, you're dealing with an immense storm, unique circumstance, unusual part of the United States. We'll get through it. And when we learn something new we will apply it in the future.

Tom, I get that it's very unusual, but I still think the workforce cuts and this mutual assistance programs by which the utilities have tried to [shuffle] this, this is just not working. This is I think so what's hurting us the customers, is that you have these programs where you have people coming in from all over the thing and not local people. I have a truck coming in from KCP&L. How does a KCP&L truck guy know about Manhattan? I think that's a waste of resources and efficiencies.

He cannot have a good view of how the underground network at KCP&L truck knows about what they will do in Manhattan. It's just like you throw these guys around and then okay, whether they have the resources to get them back on, we'll just attack it with time.

Just going to the second question. Based on what you gave us for the fourth quarter, what ROE is Southern Georgia Power going to earn in 2012? Can you share with us?

Southern Power will earn --

Sorry, Georgia Power. Georgia Power, GP.

Part of Southern Company.

Okay. Well, we outlined the range of $0.38 to $0.40. So Southern Company will be $2.62 to $2.64 within that range for our annual guidance.

About 12.5%.

For Georgia Power it's roughly 12.5%. Excuse me, for Southern perspective, about a 12.5% ROE.

Okay.

It's both. 12.5% for both Georgia and Southern.

Southern; and then Tom, just to remind us, when does that mechanism hit? When can we -- is it like 9.5% or 10.5% that we can go and get help under that mechanism?

10.25% is the bottom of the range.

10.25%. If you go below 10.25% we can go and ask for help?

Yes.

Okay. So we have about 2 percentage points based on right now cushion right now that we have.

We gave you a corporate return there. So remember, the Georgia corporate return is different than the allowed range. Remember, that's 10.25% to 12.25%, where the midpoint -- I think they reset the midpoint at 11.15% last time.

The difference between the corporate and the retail is what, like 150 basis points or something?

More like 100.

More like 100. So it's more like 11% than 10%.

Yes.

Okay. Thank you, sir.

You bet. Thank you.

Vedula Murti, CDP.

I apologize if you addressed this earlier, but going back to Plant Ratcliffe -- if you don't get the interim increase next year and then you have to put the full plan into rates in 2014, from I think previous meetings with you guys I want to make sure I'm clear about this, is that unlike in the past where you would take a plant like that and maybe be able to do a couple year phase-in with deferrals and things of that nature, that the accounting rules no longer permit that, such that you would under that scenario need to put the full plant into rate base or ask for rates in one fell swoop. And that to the extent that it would be considered excessive, that you'd have to possibly have to come back again as opposed to having the deferral mechanism and that type of thing.

Am I correct about that?

So, yes, so, Vedula, part of it is and part of it isn't.

In general, you're correct. Let me say that. Now, the part that I would agree with is, I think Vogtle 1 and 2 may have been the last ones under the old accounting rules where you could do phase-in accounting, essentially. That's what you're referring to. There may be other ways to attack the problem. In fact, Art and I met recently with Moses Feagin, he's the CFO of Mississippi Power; Ed Day; their regulatory people. We meet regularly on this project.

We always call this the whats and the hows. The whats are building the plant, and the hows is how we're working with the regulators and with customers and all that. In fact, I just went down and talked to the customer group in Mississippi about some of these things. I think we have some constructive approaches that we will work with the Commission, in which to be able to handle this plus all the other issues at Mississippi. And we're evaluating those options as we speak.

I'd rather not speculate on those because it's just premature, number one. And we really want to handle that in a very fulsome way with our regulators before we say too much about it in public.

Okay. And then secondarily, given that you're in front of the Supreme Court for CWIP, can you just remind me what the issue is there? Why it's in court, and at this point in time your level of confidence that CWIP would be permitted such that, that would help alleviate some of the issues in '14? Or are you maybe not expecting that to come through?

Sure. So the Supreme Court is dealing with -- actually it's in the Chancery Court now -- is dealing with an issue related to the certification -- not dealing with CWIP -- dealing with the certification of the project. We believe what's going to happen -- I believe, so write this down or whatever, for whatever it's worth -- I believe we're going to be upheld at the Chancery Court. If we are, the Sierra Club could appeal to the Supreme Court. Now, the issue related to CWIP has not been contested as a legal matter right now. The Commission voted to defer putting CWIP in place until the matters related to the certification of the plant were concluded. Okay?

Chancery Court -- we get a good decision there, it goes to the Supreme Court; if we get a good decision there we put CWIP in place. At least that's what the regulators say. That's where we are. As a practical matter, you must understand that by the timing of whatever's going on with the Chancery Court, and then what would have to be resolved at the Supreme Court, we're going to be in service, we believe, May of 2014. So as a matter of prudence, we are planning for the potential of not even having CWIP for Mississippi Power Plant Ratcliffe.

When we think about 2013, though, irrespective of whether you have CWIP or not, it will not be an earnings issue for 2013, because you'll simply capitalize otherwise. So simply it's a cash issue but not an earnings issue.

Precisely. We are booking AFUDC. And we have been very clear -- in fact, the Commission has been very clear I should say -- about their support for the project. I think we read on maybe the last earnings call specific language out of press releases that two of the three commissioners gave; and I've even spoken to one of the commissioners there. They remain resolute in their support of the project. They just didn't feel that it was appropriate to put CWIP in place while matters relating to the certificate were still being considered.

But it sounds like they are very supportive of CWIP also as a means of managing the rate trajectory, as well, and they have a very clear understanding of that.

Yes, I think so. Absolutely. They say so. But if we defer putting CWIP in place until we resolve all the matters leading to certificate, we may have an in-service plant before those matters are concluded.

Okay. Thank you very much.

You bet.

Dan Jenkins, State of Wisconsin.

Just first, a couple follow-ups related to the demand, customer demand issues. Was wondering what the customer growth is you're seeing? Is that in line with what you expected? Or has that been slower as well?

Dan, we thought we'd get about 19,000 new customers this year, and so far through the first half we got all of those. Didn't add any great amounts in the third quarter, but we still retained those. So we're ahead of where we thought we'd be from a customer perspective.

Okay. And then on the industrial side, what sectors or what indicators are you looking at to see if that's more persistent -- I know you occasionally have a round table of manufacturers and so forth that you talk to. Have you done that?

Yes, we didn't do that this quarter. We do it every six months. This is the off quarter for that. But automotive is going very strong and it has continued to expected to be strong; and obviously the suppliers and other industries like fabricated metals that support that. So we expect that strength to continue, and that's on the fact that the age of existing inventory is so old. I think the average age of automobiles today is like 11 years. So that is expected to continue.

The ISM indexes are positive. They had been negative, slightly, in the second quarter. But now they've turned slightly positive. So that is a good indicator.

And we've seen some indicators lately that there's more strength in the economy. Housing is beginning to come off the bottom. But it's coming off such a low level, it's not really going to make a whole lot of difference in the numbers that we're looking at. Really, it's the export-related industries like chemicals and primary metals that have been impacted the most, and we think as we look around, what's going on in the export markets, it's the global economy that's beginning to slow a bit.

Hey, Dan, one more thing. Art mentioned this is our off quarter for doing the customer touches. Every operating company this quarter, I think, held a customer convocation where they bring 100 of their top customers in and I know I visited all of Gulf, Mississippi, and Georgia. I know Alabama did one also. So we stay in touch with our customers on a real-time basis all the time.

Okay. Then I had a couple questions just on your Slide 17, which is the financing plan. And are those primarily debt issuances, or does that include your equity issuance in there?

Which year you talking about, Dan?

For both -- for all three -- '12, '13, '14.

Well, we talked about equity issuances and the fact that we're actually repurchasing shares there. So we don't expect to issue any new equity this year or in 2013. We do plan on raising about $700 million of new equity in 2014 -- again, to support the capital program that we have in place. We've got about roughly $800 million of additional refinancing opportunities in the fourth quarter that we're hopeful to take advantage of; and then you can see the debt issuances in '13 and '14. I think they're roughly equally distributed, about $3 billion each.

Then on your note there, at the bottom about potential DOE loans, is that over '13 through '15? Or -- it says over the next three years. I just want to clarify.

We're still negotiating those particular terms and conditions on the loans, and as soon as we're able to close those, we would begin to draw on the loan guarantees. But I wouldn't look for anything in 2012. I think early 2013 would be a better date for the likelihood of that.

Okay. And then the last thing I was curious about is, you also have a note there that you're evaluating some callable debt for re-funding. Give a little more color on what the coupons are on those, and what the criteria would be for you to call that.

Yes, Dan, I don't have those. We can get back to you with that information as to specific issues, but roughly it's about $800 million in issuances at Alabama, Georgia, and Mississippi.

Okay. Thank you.

Yes, sir.

Thank you.

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

Yes, just briefly. Look, thank you so much for being with us. I know this was a long call. A lot of interesting topics to talk about.

Please understand too, as a matter of empathy, I know you all are going through a lot of hardship right now. Our hearts go out to you. I guarantee you the industry is working as hard as it can to get the power back safely and as efficiently as possible. We'll continue that effort until every last person has their power back.

Thanks very much. Enjoyed being with you today.

Thank you, sir. Ladies and gentlemen, this does conclude the Southern Company third-quarter 2012 earnings call. You may now disconnect.