Southern Co (SOMN) 2013 Q3 法說會逐字稿

Southern Company's third-quarter's earnings call will feature slides that will be available at the beginning of the call on our Investors Relations website. You can access the slides at investor. SouthernCompany.com. Good afternoon.

My name is Melody and I will be your conference operator today. At this time, I would like to welcome everyone to the Southern Company third-quarter 2013 earnings call.

(Operator Instructions)

As a reminder, this conference is being recorded Wednesday, October 30, 2013. 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, Melody. Welcome to Southern Company's third-quarter 2013 earnings call. Joining me this afternoon are Tom Fanning, Chairman, President and Chief Executive Officer of Southern Company; and Art Beattie, Chief Financial Officer.

Let me remind you that we will make forward-looking statements today in addition to providing historical information. Various important factors 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, as well as the slides for this conference call.

To follow along during the l call you can access these slides on our Investor Relations website at www.southerncompany.com. I'll now turn the call over to Tom Fanning.

Good afternoon and thank you for joining us. 2013 has been a very active year for Southern Company with major progress on construction projects, a robust regulatory calendar and unexpected challenges in the form of consistently unseasonable weather.

Let's begin on the regulatory front where we continue to see constructive processes and outcomes in all four states in which we operate. An extensive review of Alabama Power's RSE rate mechanism was concluded in August.

Following three public hearings, the Commission chose to change the way RSE is measured, beginning in 2014, to a weighted cost of equity range that appropriately takes into account Alabama Power's equity ratio. In so doing, they concluded that Alabama Power's overall return on capital was fair and reasonable. The Commission also approved two regulatory orders that will enable Alabama Power to avoid any increases to RSE in 2014, thereby keeping rates stable for customers.

Earlier this month Georgia Power presented its proposed three-year rate plan to the Georgia Public Service Commission. That proposal includes a one-time rate increase of $482 million that would become effective January 1, 2014. The PSC staff and other interveners have filed their testimony and the next round of hearings will be held next week.

Georgia Power will file its rebuttal testimony by November 15 with rebuttal hearings scheduled to begin November 25. A final decision on the Georgia rate case is expected on December 17.

Recall that Georgia Power has operated under a series of three-year rate plans since 1995. These plans have all been the result of negotiation and compromise between Georgia Power, the Commission staff and other parties, as approved by the Commission and agreed to by the Company. The Georgia Commission has a long history of constructive regulation and we fully expect that the outcome of this case will reflect a continuation of that record.

In other Georgia regulatory news, the eighth Vogtle Construction Monitoring report was approved by the Georgia PSC by a unanimous 5-0 vote. This latest regulatory approval means that a total of $2.2 billion in construction costs has now been verified and approved by the Commission.

Meanwhile, testimony continues to be filed as a part of the Gulf Power rate case. As a reminder, Gulf's request is for a $74 million base rate increase that would become effective in April of 2014, as well as an additional $16 million that would become effective in July of 2015. We expect hearings to conclude in December with a decision in the first quarter of 2014.

Finally, Mississippi Power expects to file an update to the seven-year rate plan to the Kemper County project later this year, reflecting assumptions consistent with a fourth quarter 2014 in-service date. We anticipate that the hearings on the rate plan will now occur in the first quarter of 2014.

The prudence review scheduled for the Kemper project has also been updated. By mid-December, Mississippi Power will file information supporting the prudence of its procedures and controls over the costs that are currently under review. Hearings on those costs are expected to begin in May.

As a reminder, this will be the first of two prudence processes. This initial process will address costs incurred through March 2013, while the second will address all subsequent costs through the completion of the project.

We believe this schedule will allow sufficient time for Mississippi's new Public Service Commissioner, Stephen Renfroe, to become fully informed on the issues involved. As a reminder, Commissioner Renfroe was appointed by the Mississippi Governor, Phil Bryant, to fulfill the remaining term of Leonard Bentz, who resigned from the Commission in August.

Finally, I'd like to give you an update on our Vogtle and Kemper County projects. First, plant Vogtle. Work continues to progress well at Vogtle 3 and 4 as evidenced by dramatic changes across the entire construction site. The project management team from Westinghouse, CB&I and Southern Nuclear is aligned and working hard to the next major milestones, which include final assembly of the Unit 3 nuclear island Auxiliary Building, also known as CA-20, and the pouring of the first nuclear concrete in the Unit 4 nuclear island.

Assembly of the CA-20 module for Unit 3 nuclear island is scheduled to be completed in December. Our contractors are diligently progressing through sub-module inspections and remediation in order to meet this date.

Meanwhile, the first nuclear concrete pour for Unit 4 is scheduled for mid-November. Most of the rebar work is complete and the final inspections and prep work are now taking place at the pour which took 41 hours to complete at Unit 3.

In September, the conditional commitment for the Vogtle 3 and 4 DOE loan was extended to December 31. As of today, we settled on most major terms and conditions and final reviews are under way at the appropriate government agencies. While there is no assurance of a definitive agreement, constructive dialogue with DOE leaves us very optimistic about capturing the value of these loans for customers.

This past Friday we submitted our initial filing with the Internal Revenue Service to secure our allocation of nuclear production tax credits for Vogtle Unit 3. These credits were authorized under the Energy Policy Act of 2005.

We expect to submit an application to secure the Unit 4 allocation of credits after the Unit 4 basemat concrete is poured. The basemat is expected to be the final construction step necessary to lock in these important savings for Georgia Power customers, which could total as much as $1 billion for both units over the first eight years of operation.

Now for an update on the Kemper County project. Earlier this month we announced that we did not expect to meet the original May 2014 in-service date for the Kemper project, largely as a result of lower-than-expected production rates and delays from wet weather. After recalibrating our assumptions on the rate of pipe installation, we have revised the in-service date to the fourth quarter of 2014.

In conjunction with the schedule change, we have recorded an additional pretax estimated loss of $150 million. As a reminder, we estimated the incremental cost for a delay to be approximately $15 million to $25 million per month. Our new estimate is consistent with that projection and also retains a $100 million contingency.

Tremendous progress continues to be made at the site. We are now nearly halfway complete with pipe installation, have fired both combustion turbines and have synced the entire two-on-one combustion cycle to the grid. Our project teams at both Kemper and Vogtle continue to work diligently to complete these state-of-the-art facilities, both of which will deliver outstanding value to our customers for decades to come. I'll now turn the call over to Art for a financial and economic overview.

Thanks, Tom. For the third quarter of 2013, we earned $0.97 per share compared to $1.11 per share in the third quarter of 2012, a decrease of $0.14 per share. For the nine months ended September 30, 2013, we earned $1.41 per share compared to $2.26 per share for the same period in 2012, a decrease of $0.85 per share.

Our results for the three and nine months ended September 30, 2013 include after-tax charges of $93 million, or $0.11 per share, and $704 million or $0.81 per share, respectively, related to the increased cost estimates for construction of the Kemper project. As previously communicated, Mississippi Power will not seek recovery of estimated cost to complete the facility above the $2.88 billion cost cap, net of DOE grants and exceptions to the cost cap.

Year-to-date 2013 results also include an after-tax charge of $16 million, or $0.02 per share, for the restructuring of a leveraged lease investment recorded in the first quarter of 2013. Earnings for the nine months ended September 30, 2012 include $21 million or $0.02 per share of insurance recovery related to the March 2009 litigation settlement agreement with MC Asset Recovery, LLC. Excluding these extraordinary items, earnings for the three and nine months ended September 30, 2013 were $1.08 and $2.24 per share, respectively, compared with $1.11 and $2.24 per share, respectively, during 2012.

Excluding the effects of Kemper County, the primary driver for our third-quarter results was milder than expected weather, resulting in a decrease of $0.07 per share on a quarter-over-quarter basis. Weather was actually $0.10 below normal compared with $0.035 per share below normal for the same period a year ago.

In terms of cooling degree days, the third quarter of 2013 was one of the mildest in the past 20 years. For instance, in Metro Atlanta, where we would normally expect to see more than 100 hours of summer temperatures above 90 degrees, we saw only one such hour. In August, also in Metro Atlanta, we experienced four straight days with average temperatures of 67 degrees.

But even that doesn't tell the whole story. Rainfall during the quarter across the entire Southern Company territory was at its highest level since 1916. The significance of this anomaly cannot be overstated.

When rainfall is that heavy, the typical heat buildup fails to occur. Without this buildup, the temperature momentum that usually results in sustained electric demand for cooling never materializes. This factor greatly affected our earnings during the third quarter of 2013.

It's significant to note that weather affected not only our retail sales but also energy sales to wholesale customers. We were able to offset the total effect of weather somewhat by reducing non-fuel O&M spending compared to our plan. A more detailed summary of our quarter-over-quarter drivers is included in the slide deck.

Turning now to a discussion of our retail sales and economic outlook for the remainder of the year. GDP growth in the Southeast and the nation as a whole remained slower than expected, at 1.5% to 2% year-to-date growth. However, in terms of jobs growth year-to-date, the region is just slightly ahead of the nation at about 1.7%.

Industrial sales growth during the third quarter of 2013 was relatively strong at 2.6%. We continued to see emerging growth in housing-related sectors such as lumber, up 9%; stone, clay and glass, up 7%; and textiles, up 6%. We also saw increased strength in paper, up 11%; petroleum, up 11%; and primary metals, up 8%. Exports have begun expanding again after stalling in the first quarter.

Weather-normal residential sales were relatively flat for the quarter, although customer growth is slightly ahead of the same period in 2012. As expected, residential sales growth continues to lag behind our customer growth.

The commercial market continues to show signs of improvement, as evidenced by a decline in office vacancy levels which have fallen nearly 10% from their peak. Elsewhere, our economic development pipeline remains active and productive, as the Southeast remains a great place to do business. Currently, our traditional operating companies are supporting some 350 potential projects, representing more than 40,000 jobs and $15 billion in capital investment.

Meanwhile, recent announcements are adding nearly 7,600 new jobs in our territory. Included among these are Blue Cross and Blue Shield of Georgia; carpet manufacturer, Shaw Industries; auto parts manufacturer, Hyuandi-Daimos; vinyl tile manufacturer, Mannington Mills; wood pellet manufacturer, Green Circle Bio Energy; and medical software developer, [Isolona].

Now, at this point, I'd like to share our earnings estimate for the fourth quarter of 2013, which will be $0.44 per share. This implies annual results at the bottom end of our guidance range. I'll now turn the call back over to Tom for his closing remarks.

Thanks, Art. There has been a lot of interest recently in the emergence of a changing trajectory in long-term earnings per share growth for our industry. We've noted that many of you are writing about that now. It has been our practice for the last decade or so, we will provide updated guidance range for 2014 and an updated long-term growth rate during our fourth-quarter earnings call in January.

It's been an awfully busy year with a lot of important regulatory outcomes, either pending or complete in all of our jurisdictions. For example, we expect the Georgia Power rate case to conclude in December. So there's still a lot of important information to be factored into our long-term EPS growth.

But still, it's an interesting question. What do we think will remain the same and what do we think will change? While we don't yet have the specifics, we can talk directionally.

First, what do we expect to remain the same? Dividend policy. Based on what we see today, we believe our dividend growth trajectory will remain consistent with the dividend increases of the past six years. Now, dividends are obviously the purview of our Board, but we are confident in our ability to continue to deliver those returns to our shareholders.

Second, what is likely to change? The shape of our EPS growth. Compared to the past 10 years, our EPS growth will likely slow a bit during the middle of the current decade, but will likely increase again by the end of the decade.

Why? Well, as you know, Southern Company has been investing capital at a very healthy rate for many years now, supporting major projects like our McDonough gas unit, Plant Vogtle, Kemper County, our environmental spend, and growth at Southern Power. In fact, our CapEx as a percentage of our invested capital base, has averaged about 8% over this time frame.

As we work through our annual update to the financial plan, this percentage is projected to become smaller through the middle of this decade. Associated with this reduced CapEx and growth of invested capital is the fact that our cash flow metrics are expected to improve dramatically.

In fact, within the next three-year period, our equity needs could be eliminated or go negative in order to preserve our target equity ratio. By the end of the decade, our growth in CapEx is expected to resume with the advent of more environmental spending and the commencement of our next phase of generating capacity for our traditional operating companies and Southern Power.

As always, our objective is to provide superior risk-adjusted returns to our investors by delivering on our commitment to provide clean, safe, reliable and affordable electricity to our customers. Our regulatory jurisdictions continue to prove constructive and we believe the Southeast is poised to lead the nation's emerging economic recovery. And we are prepared to support and take part in that resurgence. We are now ready to take your questions. So, operator, we will now take the first question.

Thank you.

(Operator Instructions)

Our first question comes from the line of Steven Fleischman with Wolfe Research. Please proceed with your question.

Hey, Steve. Hey, Tom and Art. First, when you do get to more specific guidance next year, this 268 that you're now guiding to this year, will you normalize that for the weather as a base? Or is that, assuming you get there, is that the base we should think about?

We always give weather-normal projections.

Okay. Second question is on Vogtle. Can you give us an update on the modules this year, Lake Charles, et cetera? Is that likely to stay on schedule to be resolved by the end of the year?

So the kind of primary focus is on the CA-20 that we referenced. I think the important thing to note is all the material associated with CA-20 is currently on site. Construction is progressing in an acceptable manner.

And like we said, we're projecting the assembly of CA-20 to be done by year-end. That's most important. That actually forms a support mechanism for other modules, for example, CA-01 that will occur later in 2014. Art, do you want to add?

No.

To clarify that then, does that then mean that the issue with the modules is essentially resolved in terms of it being any kind of critical path issue in terms of current schedule for the project?

Listen, I think we said this a lot in the past. There are always issues, right? And so what we're always doing is working through the issues.

So is it resolved? No. Do we have acceptable work-arounds for every issue that we see right now? Yes. When we talk about critical path, we fight among ourselves here about that, because there may be, for the remaining integrated schedule, there may be something like 20 to 30 critical path items.

And if you're a week late on one, that doesn't mean you're a week late on the end of the schedule. We believe that in our evaluation of other critical path items, we actually have improvements in the schedule. We believe right now the sum total of critical path progress keeps us on schedule.

Okay. And then one other question, on Kemper. In the last two updates I think you've given some -- you've obviously had these write-offs, but I think some of the higher costs you've been able to defer for recovery. Could you highlight what that number is and why is that piece able to be deferred for recovery? Versus the others have to be counted in the cost cap.

Yes, Steve. If we look at the project cost that we expect recovery on, it would be the basic $2.4 billion plant cost that we initially certified to; the cost of the mine, which is about $250 million; the cost of the pipeline, which is roughly $115 million; and then there's some other regulatory assets that were on Mississippi Power's books that are scheduled to be recovered as well. That's about $190 million.

And that's when we look at what would be within Mississippi Power's earnings rate base, that's what we look at. The other pieces of it would be AFUDC, which is roughly $425 million. And then the difference between $2.4 billion and the $2.88 billion cap will also become part of the securitization package. That totals about $480 million. Those are the pieces that make up what we're looking at at this point, other than the write-off amounts.

Okay. Great. Thank you very much.

Thank you.

Our next question comes from the line of Julien Dumoulin-Smith with UBS. Please proceed with your question.

Hey, Julien, how are you doing?

Not too bad, thank you.

Good.

Excellent. So just turning to the CBI and I suppose the issue of CBI and litigation or settlement, what have you, how do you see that progressing here? It seems like you've gotten some progress. There's still some other issues of out there.

Ultimately how do you feel about that getting resolved and what time line? And then beyond that, given I suppose, some slippage in settlement, some slippage in schedule of module 20 or what have you, is there potential to go back to CBI for more, prospectively?

Let me give you a broad comment. In the middle of negotiations, whatever, you never want to give specific advice. Let me give you some very clear, though I think general, guidance here.

As Chicago Bridge and Iron acquired Shaw, we had a change in leadership. Philip Asherman is the CEO, you know, of CB&I. We have found the relationship between us and the consortium, particularly with CB&I and Philip Asherman, to be excellent. Danny Roderick now leads Westinghouse. Likewise, the relationship there is excellent.

There are issues that are within the purview of the consortium, how costs get shared among and between Toshiba Westinghouse and CB&I that we're not party to, that certainly do factor into the resolution of the commercial dispute. But between the Company and the consortium, I would argue the tone has turned a lot more positive, and certainly I think the progresses of the litigation is acceptable. So while I can't offer you very much more specific than that, I would say the general tenor should be positive. What else do you want to cover there?

We can leave it there, if you want.

Okay. That's fine. Thank you. I appreciate you calling in.

Our next question comes from the line of Jonathan Arnold with Deutsche Bank. Please proceed with your question.

Hey, Jonathan.

Good afternoon. To clarify, Tom, on these modules, I think the last update was some of them were still in Lake Charles. You're saying today they are all physically in Georgia at the site?

CA-20 is all there.

Okay. But there are still some documentation and other issues you've got to tie up.

Yes, they call them remediation. Essentially whenever you find like a small defect or whatever, what you dos is fix it on-site. And we just thought it was a much more efficient time-effective process to get them on-site, fix the documentation, get them ready to go.

My understanding was the NRC had to sign off on them being moved, and that would be a sign that they were resolved.

That's right.

They've been moved to the site but they haven't been accepted by us and from a quality perspective. Those elements that are still being remediated are still being remediated under CBI's oversight.

Aside from the logistical help, I guess they'll there sooner when you do resolve those issues?

Exactly.

The issues are basically still unresolved.

That's right. We're actually feeling really bullish about that.

Sorry, Tom.

I said we're feeling really bullish about getting to assemble CA-20.

Rather than having them resolving it down in the South, and then you've got to get them up there.

That's right.

Later. Okay. And then on Kemper, can you just -- I think when you originally announced this earlier in the month, you said that this was really weather and there were perhaps some other issues. But the way you talked about it in the 8-K last night, it sounded like it might be more productivity and then the weather was a sub-factor. Is that --?

Let's go through that a little bit. Early on when we talked about it, we did see weather being the major thing. I remember right out of the gate we had some ambitious targets, and right out of the gate we hit our targets. That's the tone you were getting from us.

As we progressed on installing the pipe, particularly, it's almost hard to imagine unless you've been there. I know some of you have been to the site and you'll know what I'm talking about. A, there's a lot of pipe. B, there's different kinds of pipe, wide bore pipe. There is small bore pipe. Some of the pipe is outside the physical structure of the gasifier island and the gas handling system. Some of it is in constrained spaces inside the structure.

Obviously, what we have found is that production levels that we saw early were not able to be sustained because a lot of the work ended up being detail work inside the structure. We just didn't maintain the kind of productivity that we wanted to see. Further, and we kind of alluded to this, we are now at over two shifts of 2,000 craft people per day working on this issue. And to some extent, there's a saturation at the site.

In other words, we don't think it's productive to add more people and add more shifts and everything else. We're where we want to be here. And part of changing the schedule -- I suppose that we could have done more and try to keep May. But we felt that for the overall health of the project it was important for us to take this new schedule, put people to work in a more efficient manner and get the work done. So it's kind of all that combination.

And you know, when we say weather and rainfall and all that, I remember we were down there one day -- we go to visit the site a good bit, as you can imagine. It's not just rainfall. Sometimes it's fog. And in fact, you can imagine big cranes working and manipulating some of the material on the site, if you can't see the top of the crane, you can't work.

Right.

So fog ended up being an issue.

Okay. That's helpful, Tom. Thank you. And then just on the growth topic, you talked about this mid-decade slowdown, shift to more of a cash-generative mode. To Steve's question on weather and guidance, what's your weather headwind year to date?

Year-to-date it's $0.14 against normal.

Would you anticipate talking about growth off of a 268 number, plus that $0.14, to be more explicit?

The thing you have to normalize as well is O&M, so it's not just a one-sided equation. We'll decide where that ought to be when we talk to you in January.

Let's do the dumb math a little bit, real quick. Jonathan, I think this might be helpful. If you add together less than expected sales and loss of sales due to weather, we're in the $480 million range for the year, somewhere around there.

Two years.

For two years.

Yes, yes.

And O&M is down a similar number over something like two to three years. So we have moved O&M and weather in concert to the extent we can. At some point one of the issues that we face is -- and Art loves to keep reminding me of this. Something like the past 25 months we have had below-normal weather or milder weather, 22 of the last 25.

Right.

And therefore, I suppose we could just continue to take O&M out of the business and I guess we could do that. However, that doesn't really serve our responsibility of clean, safe, reliable, affordable energy to our customers. So we have balance that whole equation.

So, look, we do the weather-normal projections. We will do that. We need to restore some O&M to get back to other normal activities.

Hey, let me just -- I'm dying to do it. I always love to do this [line yap] in these calls. You all on the call are familiar with heating degree days and cooling degree days. You're not going to believe the profile this year of Southern Company. If you look at the cooling degree days and heating degree days for the months of January, February, March, June, July, August, they were all about the same number. It is astounding, the kind of year we've had.

So Tom, thanks for all that color and maybe it's pinning you down too far but on the growth outlook, obviously you have this 4% to 6% currently and 5% is sort of the midpoint, do you still see 5% as being part of the range? As you (multiple speakers) out of the decade.

Yes, Jonathan, we'll update everybody in January. What we were able to say here, because I know everybody's going to want to know the specifics, we're just not ready to do specifics. We'll do that January, as we have for the past decade.

But what we could say, in all the uncertainties, even now in our financial projections, we do have what appears to be a dominant solution. The dominant solution basically says to the rate of growth of dividends, we think will be consistent with the past, putting in place all of the caveats about purview of the Board and everything else.

That's great. Thank you, Tom.

You bet. Thank you.

Our next question comes from the line of with Shar Pourreza with Citigroup. Please proceed with your question.

Hello, Shar.

How are you guys?

Good.

Super.

Just a question on your cash flow profile. I think you hinted that you should see a potential improvement in that outlook over the near term. Could that potentially eliminate any equity needs in 2015 at the earliest?

Yes, I think when you look at our equity needs, we've outlined the need for equity a little bit more this year. Total of about $700 million for the year and $600 million next year. 2015 is still a toss-up. But as to whether or not we'll need any is a function of, obviously, tax policy with bonus depreciation that we qualify for, all of that kind of stuff. But we may not need any equity, additional equity, in 2015.

In fact, the net of 2015 and 2016 could be zero. If you sell some in 2015, you could have a negative in 2016.

Okay. Perfect. And then just one real top-level question to the extent that you can answer it. I think you mentioned in the prepared remarks that some of the growth that you see could be back-end loaded. You typically issue your guidance, CAGR, it's usually more of a long-term picture. Can you at least directionally mention whether the growth in the outer years can offset a potential slowdown in the interim?

Well, the way you should think about that is that -- what we tried to say is -- I'm going back to John Chiles, that old stuff. Those of you that aren't old enough to know John Chiles, you ought to read his book. He's an old guy on Wall Street.

Your earnings per share growth permits growth and dividends per share at or above the rate of inflation. What we've been able to do with this tremendous growth period that we've had, is increase our dividend, I guess it's the past six years in a row at $0.07 a year.

What we're saying here is by almost any measure we're looking at, we can maintain that kind of trajectory, assuming that the Board agrees and everything else. But that's what we think. So you should think about earnings per share growth and dividends per share growth together. And by saying I think we can keep that $0.07 trajectory going, I think it says that whatever happens in the near term is benefited in the longer term.

Okay. Perfect. Thank you so much.

(Operator Instructions)

Our next question comes from the line of Daniel Eggers with Credit Suisse. Please proceed with your question.

Good afternoon, guys. Industrial showed nice uptick in the quarter from what we've been seeing of late. Can you give a little more color on, not so much where the breakdown of performance has been, but when you talk to all of your customers what their expectations are, into year-end and for next year, from a planning perspective?

Well, again, it's going to vary, depending on the industry you're talking about. I'd say auto transportation is going to continue to expand and I believe all of our manufacturers are operating two shifts, five days a week, some more. We expect that certainly to continue.

Primary metals has been up and down, depending on what the metal is being produced for. Obviously automotive metal, has been, demand's been pretty high. But construction materials and other steel-related products has been -- that might be delayed towards the export market, has been kind of spotty as well.

Our chemical numbers year-over-year look down. That is because one of our bigger chemical companies closed one of their processes here in Georgia. At the end of this year that will be removed from the process. So you should see a continuation of pretty strong performance in the chemical side.

And again, housing-related stuff is really off a pretty low base, but we're pleased to see that they are improving. I think, Dan, it's going to be a mixed bag. And it's a little too soon for me to comment at this point, but we don't see a wholesale slowdown in the industrial sector.

Let me give you just a little more line yap here. The residential and housing numbers are pretty interesting. We used to get about 70% of our sales from single-family homes. And with the economic recovery from the pullback in the housing level, now to the recovery, the number looks like 62% instead of 70%. So we're seeing more people come in.

One of the other questions that we've all had as an industry, I know we've had a lot of fun talking about on these calls, has been the whole consumption pattern of residential customers. One of the other issues that we -- when you peel the onion on the numbers, we've seen more customers come in, there are houses with meters but nobody's living there. There are people now trying to sell them again, where they didn't before.

You've got to factor all that stuff into account. So we actually think the trend here is positive. Let me give you just a couple more things to keep your eye on. Domestic energy prices, particularly good old Southern Company energy prices, remain awfully strong relative to averages. I think that gives us the basis to compete well and gives us, I think, some good gunpowder, if you will, for companies to continue to locate in our area.

Another thing, exports. Significant part of our industrial production goes to the export market as the worldwide markets continue to improve, we'll do it. One more and then I'll turn it over. But pipelines is interesting.

Pipeline shows up as an industrial customer. Most times industrial customers are not sense sensitive to weather. In this case, pipelines were sensitive to weather. And in fact, I think it was our worst performing segment. But we think it was all weather-related. If you get more normal weather, more normal throughput, better performance.

Got it. That was interesting on the house flipping front. Switching gears on Kemper and these prudence reviews, can you share really what's going to be a conversation and how that's at play relative to the $2.88 billion cap you guys already agreed on?

I'll give me shot at it. Art, give yours. Who knows, number one. We've got to have the prudence review and we're giving them all the documentation and everything else.

Certainly we are disappointed with the additional charges that we've recognized and what we believe will be a future loss. It would be amazing to me for somebody to come up with an argument that for at least the first $2.88 billion, that we were imprudent, knowing that we are writing off now on a pre-tax basis, over $1 billion. I would find that a very tough argument to make.

I think it's also important to note that under Mississippi law, as I understand it, that an assumption of prudence has to be made. And that there has to be proof of imprudence when you go through the whole process. So it's something that's been clarified here as of late.

And I'll just tell you some. We believe the problem at Kemper was essentially at the time that we made a fixed price commitment with 10% engineering done at 6.7% contingency. In other words, the problem has been one more of a lack of engineering that was completed, rather than construction. By all accounts, the construction of Kemper has gone very well.

Got it. And last one, Tom. I know you guys can talk to this next quarter, but you know anything about the acceleration of growth, just big bucket-wise. Is that going to be driven by infrastructure replacement? Is that going to be driven by re-acceleration in power demand? What do you think are the things on the horizon that's going to facilitate a higher rate of growth?

Sure. It's higher rate of growth compared to the 2016, 2017 time frame. It's going to be more like this, I think. When you look at the integrated resource plans across the system, the next time frame of new generation will be in the early 2020s. So let's just say 2023.

So getting ready for that, starting construction, all that, will be one. That's for our retail operating Companies, further. Southern Power, the Southern Power people work really hard to produce results. When I think about Southern Power this year -- last year they made something like, I don't know, $175 million and we've given them a stretch goal to improve that this year.

We think they'd want pre-tax, something like $40 million on energy margins this year, just because the capacity factors of their equipment is lower, gas prices have gone up something like 80% off their lows, coal prices have come down a bit, especially as we've shifted to Western coal in the aggregate. So the other thing is, we keep pushing Southern Power to go evaluate deals and go buy things that fit our business model.

I can tell you, there is a lot out there for sale, but we are very disciplined and we have not pulled the trigger very much, absent the solar deals we've announced, on striking new deals. So we want to clear that inventory out of the way and accelerate Southern Power's own growth plan.

We've also told you in prior calls that we're looking elsewhere. So Texas, Miso, PJM West, a variety of other things where we might be able to find some more fertile ground. That also is a function of our reserve margins in the Southeast.

The other thing I would mention is environmental spend, particularly ash, water, what else is down the road. The new rules that we're looking at, particularly for ash and water, are bigger in nominal dollars than our incremental MATS costs.

So we think that as we find the firm dates in which we have to comply, affluent standard 316B, CCB, coal combustion byproducts, et cetera, we think those numbers will emerge at the back end of the decade. So we'll be spending money there. Those are kind of the big buckets. New generation, Southern Power, environmental spend.

Great. Thank you for that. I appreciate it.

You bet.

Our next question comes from the line of Greg Gordon with ISI Group. Please proceed with your question.

Hello, Greg. Greg. Don't tell me you're --

Mr. Gordon, your line is open.

Sorry about that. (laughter) Sorry I'm late. I was -- I just hopped off another call.

yes, sure.

Just to follow up on that line of conversation on the -- I take it you said earlier in the call that you would see a dip in growth in the 2016, 2017 time frame and then accelerate back up in the back half of the decade. I just heard the answer to the last question which put some more bones around that.

If I look at slide 14 of your slide deck, it gives us the 2013, 2014, 2015 CapEx by segment. So is what you're telling us that your new generation and environmental compliance spending will see a dip in 2016, 2017 and then re-accelerate later in the decade, but that T&D maintenance, new fuel, the other things are steady as she goes? That is the right --

Yes.

-- way to think about it?

That's a good way to think about it.

And that Southern Power, you think will also dip? Or you think you'll be able to find opportunities to spend there?

We hope we'll find opportunities. By definition, we're a big EVA Company and if we can find things that fit our business profile, we're not going to change long-term bilateral contracts, no fuel risk, credit-worthy counter parties, we're going to keep the course there. If we can find more deals, we'll do them.

Gee whiz, we'll do them next year and the year after. The thing is, like I said, there's a lot for sale. It's just junk in my view. And the other thing is, we don't know how much solar is out there, what our appetite is. We said before, tax advantaged investing to us requires a risk premium.

Right. And that $2.4 billion over 2013, 2014, 2015 has always been to some degree a place holder for opportunities, right?

It's exactly those --.

Those numbers are even, to some degree, opportunistic.

They are precisely opportunistic. You're exactly right.

Okay, Tom, thanks. That's very clear. Take care.

You bet. Thank you. You too.

Our next question comes from the line of Paul Ridzon with KeyBanc. Please proceed with your question.

Hey, Paul.

How are you?

Super. Hope you're well.

I am, thank you. Just the prudence review, is the $2.88 billion, is there any threat of that being disallowed at all? Or is it just anything above that that they're looking at?

Well, there is no -- anything above $2.88 billion -- wait a minute. Let's be clear. There's three big hunks of things. There's a mine, there's a pipe and there's a plant. And what I said before was -- we're already not charging Mississippi customers above $2.88 billion. That's what gives rise to these expected losses that we've been booking.

In terms of inside of $2.88 billion, that's subject to the Company and the PSC to decide. My only point was, given the cost above $2.88 billion that we've taken for our own account, I would find that to be a tough argument. But let the process go, and we'll see.

And then with this latest Kemper charge, how is that going to impact your equity needs into 2014 and 2015?

Yes, Paul, we don't expect that they'll change from what we outlined on the last call. $700 million this year, $600 million next and then 2015 will be dependent on other Southern Power projects, or whatever. But right now, we may not see any need in 2015 or 2016. But we're still maintaining a target 44% equity ratio.

Okay. And then it sounds like you -- subject to the purview of the Board, but you see $0.07 dividend hikes. Is that the way to look at it? Or is it a percentage increase we should think about?

What I'm referring to is the $0.07 per share that we've been doing now for six years in a row. And all I'm saying with that is, you got to put all the right caveats there. I can't sit here and guarantee everything for you. That is the purview of the Board.

But I can say that based on every projection I've seen, we still need to work through all the details. We have a lot of regulatory uncertainty still with Georgia and others. It looks like to me a dominant solution. I feel reasonably confident in saying that we can sustain that.

Tom, you sounded pretty optimistic about a Georgia settlement in your commentary. Did I interpret that properly?

We've been treated constructively in this three-year process since 1995. I know there's been lots of questions before by people outside Georgia, asking the Commission how will they rule, et cetera, et cetera. And I know that there's been this consistent theme of why should I hurt this Company?

Georgia continues to provide some of the best customer satisfaction. You know that's the middle -- the center of our business model. We call it circle of life. But it in fact works. If we deliver reliability, low prices and the best customer service, that translates into customer value.

Our four Companies among the national companies we follow, are the top four in terms of customer value in the United States. So we see all of the fundamentals in place to continue a constructive relationship with the Commission. Outside of that, I have no color on how that will go. I just think we'll be treated fairly as we have in the past.

Are you going to do your triennial Investor Day in 2014?

We are still considering that. As of this point, we haven't made any commitments.

Okay. Thank you very much, guys.

Thanks.

Our next question comes from the line of Ali Agha with SunTrust. Please proceed with your question.

Hello, Ali.

Hey, Tom, good afternoon.

Good afternoon.

Wanted to clarify one or two things. One is, to be clear, the fact that you will end at the low end of your guidance range for this year. Are you attributing that at all to weather or were there some other factors we should be thinking about as well?

The vast majority of it is weather. If it was just economic growth, we could make that up easily. It's mostly weather. We've never had a third quarter in our history, we think, that mattered $0.10 in weather.

Okay. And then year-to-date weather normalized growth, load growth has been pretty much flat. Or 0.1% down. Can you remind us, normalized, what do you see normalized load growth 2014 and beyond? How should we be thinking about that?

Ali, don't think of it year-to-date flat, all that. Think of it as we suggested. The profile of growth this year has been almost exactly what we thought it would be, except it has been a bit attenuated.

So the first six months we thought would be flat. Well, in fact it was flat, maybe slightly negative, and you can fool around the edges on that. The last three months has been a little positive, plus 1%, weather normal. We hoped it was going to be a little better than that but that's because GDP is down.

You know, it's fascinating. We look at all sorts of things, like all the fundamentals that we give you guys every quarter on the bottoms-up evaluations of the economy. The other thing that the Fed looks at too, is this uncertainty index. And the absolute level of this uncertainty index, that's put out by some people coming out of the University of Chicago, shows that the nominal level of uncertainty is just about double what we've seen in history. And importantly, the volatility of uncertainty is enormous compared to prior history.

And so what we see now is not only a challenged economy, showing a recovery, although a bit feeble. We now have introduced event risk. And when we see fiscal policy fail to resolve the issues of the day, we see all sorts of effects in the economy as a result.

People not withholding spending, actually saving more money, not all a bad thing. We're seeing companies hold back a bit on capital expansion. We're seeing companies hold back a bit on employment. You know, we've got to get out of this log jam in Washington in order for the full potential of the economy to achieve its numbers.

Down the road we continue to see recovery. We see all the data. I think the only one Art didn't mention is commercial recovery. We continue to see good, what do you call them, grain shoots or whatever, there. Typically that's our lagging indicator.

So Tom, to be clear, as you look forward, remind us -- you see normalized growth, what, in the 1% to 2% range annually?

1.3%.

1.3%. Okay. And then, Art, year-to-date can you remind us how much equity actually has been issued?

Okay. Hold on a sec. It's about $500 million year-to-date. You need about $200 million more to get to our target. I think there's an appendix slide on the website, Ali, that could give you that number as well.

Got it.

One other thing about weather normal and I know I've always said this, is that it's more of an art than a science. But weather this year has been so abnormal that when we do -- I know our load forecast folks shoot arrows at me when I say this. But when our models try to normalize, it is using modeling from normal weather years.

So when you take abnormal year like this and try to figure out the weather impact, we don't think we're getting reliable numbers. We think our growth could actually be a bit better than what we're reflecting.

Yes, and let me give you a -- I couldn't agree more with Art here. Here's one more. Normally when you think about weather adjustments you go to temperature. It is clear that the rainfall has had a significant wet blanket on economic activity.

People are going out less, spending less. We've laughingly used in the past the traffic over the Pensacola Beach Bridge and beer sales out of the Wal-Mart. People just didn't spend as much money. Shopping is down. So --

That comes from the Fed.

Yes, there's a rainfall effect here, which is interesting. We don't capture that.

Understood. Thanks a lot.

You bet.

Our next question comes from the line of Michael Lapides with Goldman Sachs. Please proceed with your question.

Hey, Michael.

Hey, Tom. Hey, Art. One or two questions on CapEx. I'm just looking at the slide in the appendix from this quarter's slide deck and last quarter's slide deck. I want to make sure I understand what's happening here.

It looks like you moved CapEx up and into 2013 at Mississippi Power, but then you backed down the back-end numbers there. And then at Alabama Power, it looked like you raised the back-end numbers but lowered 2013. Just want to make sure I understand the drivers there and then I want to follow up on Southern Power.

Yes, Michael, I'm going to have to get back to you on that. I don't have that detail. We'll be certainly glad to get you that information.

Okay. Also, Southern Power, you had earmarked $900 million of CapEx for 2013. We're basically at Halloween. I just didn't know where are you in that run rate? And is that a number that's likely to come down and be a source of cash to the holding Company in the next -- as you have to fund the Kemper and fund some of Vogtle?

We're about half of that at this point. Somewhere around the $450 million number is my recollection, anyway.

And there --

We thought there would be more gas deals around. We looked at another bios mass deal. We looked at other stuff. And we just haven't liked what we've seen.

Tom, you've made some comments about Kemper County and the engineering versus construction processes. Given the fact that it's an innovative technology, if you were sitting down a year or two, three years from now with some of your peers and had to give a lessons learned, or if I had a do over, what would I do differently type, are there other things you would have done significantly different? And I'm really trying to think about this longer term, next 5, 10, 20 years as other companies in the industry have to do things that are technologically different than what they've traditionally done.

Let me give you a quick, simple answer. And that is it would be, do more front-end engineering.

Okay.

So that would be it. The other thing is, we're seeing lots of potential outside the United States. And here, let me give you two factors. We continue to innovate around Trig. That's the brand name of our technology.

In fact, there's this other technology we're working on. It's just the natural evolution of Trig where we might capture as much as 100% of the CO2. We are far from being ready for prime time there, but the linkage of CO2, not as a waste but as something of value, particularly with enhanced oil recovery, may have some potential. And so we're continuing to work on it.

So look, we're very proud of Trig. We made a mistake on the engineering. We agreed to a price cap without having done fully our homework on the deal. And we're paying for it. But I think down the road we'll find ways, we think, to keep the capital cost down and make this thing economic.

The other thing people talk about all the time is, gee whiz, how can you do Vogtle, how can you do Kemper with low gas prices? Well, we have made probably the biggest shift in the industry from coal to gas. Southern Comp[any is now the third largest consumer of natural gas in the United States. Everybody knows I'm bullish on natural gas. But we can not put all our eggs in that basket. We must find innovative solutions to go forward.

Final point. We are now engaged in some discussions around the world, China, Pakistan, Indonesia, Australia, Poland. I'll be in Washington on November 7, 6, 7, with Secretary Moniz and other energy secretaries from international companies, talking about the applicability of Trig or any improvement to Trig that we make down the road.

And think about it, why would it might make sense there rather than here? Because they may not have the advantages of the natural gas industry that's been created through fracking. So if they don't, places like China, Indonesia, Australia, Poland, et al, may have nearer-term uses for this kind of technology.

So look, I guess to summarize quickly, do more homework upfront, understand the risk of a price cap. It would be, we're going to continue to innovate and we're very proud of this technology. We think it's got great promise in the feature. We're continuing to work on it.

Thank you, Tom. Much you appreciated.

You bet.

Our next question comes from the line of Julien Dumoulin-Smith with UBS. Please proceed with your question.

Julien?

Julien.

Sir, your line is open.

Operator, I guess we go to the next question.

Of course. Our next question comes from the line of Kit Konolige with BGC Partners. Please proceed with your question.

Kit, how are you?

Tom, how you doing? Hi, Art.

Dynamite. Good to hear from you.

You too. Couple incremental bits of information. To go with that growth rate in sales, what's your assumption about the longer-term five-, seven-year growth rate in O&M as you go forward?

Well, yes, Kit, this is Art. You look at O&M and we have a hard time defining normal in O&M these days. (laughter) As we look back in time and we just look at our operating Company, O&M levels over the last four years, and if you normalize it for things like the Daniel lease at Mississippi, we've been relatively flat on non-fuel O&M since 2010.

How many assets have you added?

We have added over $7 billion of plant and service during that time, including units here in Georgia around the McDonough, 2,500 mega-watts of natural gas units. We've added scrubbers and SCRs around the system. All of these assets require O&M. So we've been able to absorb that around the weather and economic impacts that we have suffered through for the last two years.

So let me just say it a different way. So assuming -- accounting for increases in assets, increases in inflation, we've actually had declining real O&M levels.

That's correct.

Over four years.

Now, you asked a question, what did we plan? How do we plan from there? I would take -- this is a sling shot over the back here, but take a $200 million, maybe $250 million and add it to our current 12-month ended numbers and add 3.5% to it a year, and that would give you a normal process or expectation around O&M.

3%?

Yes.

Great. And then one other item related to the discussion of the future, and things you don't want to be pinned down on, Tom. Obviously doing the arithmetic if your growth rate in EPS is likely to slow some, and yet you keep up the rate of growth of the dividend and the payout ratio increases, what level of payout ratio are you comfortable with?

Yes, right. So that's the obvious math. Remember, we said the EPS has a shape now. So we have a trajectory. The trajectory could flatten a bit and then resume.

So remember where the payout ratio would rise in the time of flattening. You're going to be much more cash-flow positive. So from a credit metrics, cash flow coverage of dividend, or however you want to think about that, we can sustain a higher payout ratio.

So we wouldn't be afraid at all going above 75. I don't see any scenario right now credibly that would get us north of 80, but I think we could be in the 75 and north range. But I think that would be fine for us because I think longer term we'd work it back down.

It's more important for us to have regular, predictable, sustainable increases in the dividend policy. We understand how important that is to investors and I feel confident that we're going to be able to sustain that, assuming the Board goes along with it.

Thank you.

Hey, Kit. This is Art. On that O&M comment, that may not be level across all our operating Companies. You may see Companies increasing. For example, Georgia Power putting the Vogtle 3 and 4 into service, you're going to see some elevated levels of O&M around those assets.

And McDonough.

Yes. Those numbers may not work by an operating Company standard.

Right, fair enough. If you bring them all up to consolidate them at the Southern level, that should be the rough approximation.

Yes, yes.

Thank you.

You bet. Thank you.

Our next question comes from the line of Mark Barnett with Morningstar Research. Please proceed with your question.

hey, Mark.

Hey, good afternoon, everyone. It's been a long call so I won't pepper you with too much. Have a quick question on something that NRC staff released last week. They were talking about a greater coordination of safety or severe accident management guidelines. Now, it might be a very small item, given size of Southern, but I'm just curious if you think that there's something in there that might meaningfully impact cash operating costs for nuclear.

No. We meet all the time on this stuff. You wouldn't believe, I guess between me and Mark Crosswhite, our COO, Board members, we go to NSRB, Nuclear Safety Review Boards, where we go to each of our plants and evaluate all the details of the operations of the units. Our off-code CEOs, McCrary and Paul Bowers at Georgia, McCrary at Alabama, go to these meetings. We have Board meetings at Southern Nuclear. We meet all the time on these issues as well at our management council meetings, we evaluate budget to actual performance and projections of all of our business units, including nuclear.

While these are important issues that you're highlighting here, we don't think it's a significant budget issue. And we'll be able to work through anything coming our way here. This is not one of the issues that's going to be a driver to an investor's decision in a material way.

Okay. I think it seems that it's still something that's up in the air and there seems there might even be some internal disagreement. Do you have any feel for what if any -- whether it's a small item or not, what, if any real changes might be brought about by any such coordination of SAMG?

Hey, Mark, you know what I'd rather do here? I would rather get you on the phone with some of our nuclear guys and talk through that. Talking about that in isolation really doesn't tell the whole story.

Remember we had the whole post-Fukushima things and we were going to do Hydrogen venting and a whole lot of other issues. I can just tell you, looking at the budgets of our nuclear business, they do grow. But it's nothing that's going to weigh down our ability to deliver financial results. If you want a lot of detail, I can put you with the right people.

Great. I'll do that. Thanks.

Super.

Our next question comes from the line of Mitchell Moss with Lord, Abbett. Please proceed with your question.

Hey, Mitchell.

Hey, guys. Two quick questions. One, I noticed on the September versus October status reports that you just put out, there was a point about the process piping installation. And it looked like the number went down by 1%. I wanted to make sure I understand what went on there. Is there a problem on the construction end? Or what happened?

Okay. Yes, hey, Mitchell. We're going to probably want to get back to you on that. My only sense would be that it's production- and weather-related, as I described earlier on the call. But we'll get you the specifics on that. You're looking at a specific, I think, regulatory report, probably what you're looking at.

Yes.

We'll get back to you. Call us back later and we'll figure that out for you, specifically.

Okay. And then on the upcoming milestones, previously it said that the steam turbine synchronization was going to be at the end of October. So --

we're synchronized.

You're synchronized.

Yes.

Okay, so that's been completed. It looked like there weren't any other 90-day milestones coming up, or at least listed. What should we be paying attention to (multiple speakers) significant bench marks?

I think one thing we mentioned in the past, was the first gas fire heat-up. That was originally scheduled, I think, December. Now it looks like mid- to late-second quarter.

Okay. So that's the next major milestone that we should be paying attention for?

That's correct.

Yes, finish the piping. Get the heat-up going. Going so far, it's been going very well. We're 60% through start-up, something like that, 50%.

Right.

And it's gone well.

We'll have some other milestones beyond that, around reliable syngas out of each train. That's a bit far off, so --

Okay, great. I'll follow up with you off-line on the piping.

Our next question comes from the line of Andy Levi with Avon capital. Please proceed with your question.

Good afternoon, guys. You can hear me I assume, right.

Oh, yes.

Okay. One thing I was confused about that came up earlier in the call. Maybe I just wasn't aware of it. But on Mississippi, on the $2.88 billion, did you say there was going to be a prudence review around that? I thought that was set in stone.

Well, no, there's always been a prudence review associated with the project. As we outlined in our opening remarks, there's going to be one in the Spring of 2014 that will cover, I think, through 2013. And then we'll -- through March of 2013. And then expenditures beyond March of 2013 to in-service, we'll have another prudence review on that. That's always been the case.

Okay. I apologize. I thought the $2.88 billion --

No problem.

$2.88 billion was guaranteed and there was no risk to losing that. But I guess I was wrong.

I suspect that probably isn't true for anything in the utility industry. (laughter)

Fair enough. A last question on Southern Power. Anything that you end up doing, whether it's down in Texas or outside of your Southern footprint would be contracted, right? We're not talking any type of merchant type --?

Yes, I said that before. We don't believe in the merchant model. We don't believe it doesn't serve any customer's interest in the long run.

Our business model, remember, is long-term bilaterals, credit-worthy counter-parties, no transmission or fuel risks, things like that. We're going to stay on that case. That's why we haven't done a lot of deals. Like I said, there's lots of stuff for sale. We kick every tire we see.

But we're very disciplined in what we're doing. So the lack of spending and buying projects at Southern Power is not because they aren't there. It's because we don't like what we see.

Great, okay. I'll see you guys in a week. Thank you. You bet.

Our next question comes from the line of Ashar Khan with Visium. Please proceed with your question.

Hi, Ashan.

Hi, good afternoon, Tom. I had two questions. One is a factual question, going to page 8 of the earnings package. And this shows the financial overview of earnings as reported by each subsidiary for year to date as well as quarter to date. I'm focusing on Mississippi Power. Just want to make sure I'm doing my numbers correctly.

Year-to-date the net income is $115 million, and I add back nearly $48 million write-offs, it's $163 million, prior to the write-off for 2012 year-to-date. And then if I take the 2013 year-to-date I'm adding $704 million to the negative $490 million, I get to $214 million. So am I correct, Mississippi Power, the earnings are up year-to-date about $50 million versus everyone else is flat or down,? But am I correct in my interpretation that there's a $50 million improvement in Mississippi Power earnings year-to-date?

Yes, I believe you are. It's mostly AFUDC, once you net out all the X items that you mentioned.

Okay, okay. And then Tom, I wanted to get, as you have mentioned strategically, you're looking into the next decade in terms of growth and all that. One thing, when you were the CFO, in your CFO role in the later half of the last decade, one thing which was very clear about Southern was -- and you propagated and I guess you guys still do, was risk-adjusted returns being very, very superior.

Yep.

What I'm trying to understand is that as you guys were planning for this decade, where did the miss come? Seems like what's hurting is that you started two highly risky projects at the same time. So I'm just trying to see what -- did the management review that in terms of what you guys were in taking on such two risky projects all at the same time as to why that didn't come into the mind?

Because now we are suffering from that risk adjusted. We've become a much more riskier Company as the implementation is going through. I wanted to understand, did those things come into mind? Or what drove the decisions to pursue two projects simultaneously at the same time?

There are days I ask myself that, I suppose. Gee whiz, you have to put yourself in the context the of the time in which those decisions were made.

I think management at that time felt that there was pretty robust growth. A lot of the planning and all that occurred before the downturn in the economy. And we were seeing pretty robust growth and so we've always felt about the broad portfolio. We felt that the nuclear program, which is actually going exceedingly well, had the right supports in place to make it effective.

And so my sense is around Vogtle 3 and 4, it's a terrific project. It's going along terrifically. We've had terrific support, support by the Governor, the PSC, the legislature, the General Assembly in Georgia, the administration in Washington, Congress. Vogtle's going great.

The only black cloud here is Kemper. And I've said many times that while we're very proud of the technology that we developed along with our partner, KBR. Remember originally Kemper that technology was going to get built in Orlando, but it was going to get built without CCS. When we moved it to Mississippi, we combined CCS with enhanced oil recovery.

And we made a strategic mistake back then. We committed to do the deal with a price cap without enough engineering being done. That would be my sense of it.

Recall also the State of Mississippi was in an interesting position to where failing to do Kemper County would have subjected them to about -- I forget what the number r would be, 70% to 90% of gas for their electricity generation. From a public policy standpoint I think the regulators in Mississippi didn't want to have that much volatility of energy production tied up in that fuel resource. There was a host of issues.

But if you think going forward, how well Vogtle is going, we definitely have taken our shots on Kemper. I think when you consider all of the efforts in Alabama, all of the other efforts in Georgia outside of Vogtle, all of what's going on at Gulf and really the work in Mississippi outside of Kemper, Southern is as Southern was.

We continue to deliver value to customers every day, price reliability, customer service. I think if you want that underscored, it is the notion that our customer value numbers have been terrific for a long time. We're the top four among the companies we survey. I think Southern is going to be fine in the long run, it's just getting through Kemper is the issue.

Okay. Thank you.

Yes.

Our next question comes from the line of Dan Jenkins with the State of Wisconsin Investment Board. Please proceed with your question.

Hi, good afternoon.

Hey, Dan.

So just a couple here. You mentioned, I think, on Vogtle how you're in the final phase of potentially these DOE loan guarantees.

Yes.

And I was just curious, you also mentioned in your appendix on financing needs that there could be up to $2.5 billion, I think. So would that tend to mitigate the needs for Georgia Power to enter the public debt markets?

Absolutely.

-- That time frame.

Yes.

Okay.

You got it. You got it exactly right.

And then on -- I'm trying to understand on -- for Mississippi Power, given the $1 billion plus of write-offs, obviously that would have a big impact, I would imagine, on the equity in their capital structure. How do you account for that in the rate-making process, given that the shareholders of taking the brunt of those write-offs? Would you use an imputed capital structure? For rate making purposes, how would your capital structure, the equity in your capital structure be --?

The equity it hit has already taken place. We'll replace the equity as we finance the additional capital that we're investing in Kemper. So the additional $1.1 billion will be financed with a portion of equity from Southern. It will help restore by the end of 2014, their equity ratio to about a 50% or so level.

So you won't try to do an imputed capital structure. You'll just use whatever happens to be even with that hit that was basically taken by the shareholders for coming up with the cost of capital for rate-making, you're saying?

That's correct.

Okay. That's all I was wondering. Thanks.

Okay. Thank you.

Our next question comes from the line of Vedula Murti with CDP. Please proceed with your question.

Hey, Vedula.

Good afternoon. How are you?

Good, how are you?

I'm okay. You were talking a bit about the back end of the decade and particularly in terms of place holders and CapEx, the turn in cash flow. I'm wondering, can you range off over the five-year period, 2016 through 2020 or whatever you feel like you can? What type of cash flow flexibility you think you're going to have over and above maintenance CapEx and everything like that and that might be available? Because seems like that you have a chance depending that this might be a period of time that would look somewhat similar to the period of the mid-1990s after you just completed Vogtle.

Hey, Vedula, I appreciate your interest in that kind of number. We'll give you more updates in January. We're just not prepared to go there right now.

All right. Thank you very much.

Sure. Thank you.

Operator. Our next question comes from the line of Paul Patterson with Glenrock Associates. Please proceed with your question.

Hey, Paul.

How's it going in?

Dynamite, how are you?

Oh, you, managing. Wanted to follow up on Kemper. I know that there's always a disclaimer in everything. There was this discussion there about some uncertainty associated with what could happen with future expenses, cost overruns, what have you. Can you give us any flavor as to how you feel about that now with the latest update that you've given us?

Yes. The numbers we've given you are based on everything, every piece of information that we know right now. Essentially, the information we've given you is consistent with the information that we suggested in the past, that any schedule change is worth about $15 million to $25 million.

If you just want to do -- I always love kind of dumb math, simple math, $15 million to $25 million in a month. If you go six months times $25 million is $150 million. And we've retained, in light of that, $100 million of contingency. That's how you get to where we are. Of the $150 million, there's still $100 million of contingency in there.

Okay. But I mean in terms of just qualitatively speaking, one would think as time goes on and as you guys reach certain milestones and what have you, that the uncertainty level would go down. Is that --

Oh, I see.

Do you see what I'm saying?

Sure.

Maybe not. Maybe you uncover something. And you say -- oh, well, actually it's not what we -- That's what I was trying to get a feel for.

I'm sorry. Yes, I see what you're saying. Yes, the risks should start converging. So clearly now the risks are moving away from construction, because we're converging on the completion of construction, and the risks are shifting more to starts-up risks.

As we have said on prior calls, I know several calls, the big start-up risk goes to, I think, the integration of the instrumentation and control environment at Kemper. Recall, we have an electricity island. We have a gasification. We have a gas handling system. So that's what the big risk, I think, in start-up will involve.

Now, we were doing everything prudent in our power to anticipate that environment. We model. We already have teams in place to assess it. But that probably is how the risk moves. So clearly construction risk is converging, maybe you go to start-up risk.

Okay. And then in terms of sales growth and EPS growth, and I know that you're not going to give us really anything until January. If I understand you guys correctly, you're giving qualitatively how it may flow through in the next couple of years from a very general concept, as opposed to specifics. I assume that's correct. I'm not going to be able to get out of you any relative numbers, is that correct? That's correct. Okay. Just want to check. (laughter) So is it potential that you might actually also reassess the long-term sales growth at that point in time? Or is that a separate issue? It's more of a CapEx issue that you guys are looking at or in terms of O&M, things other than sales growth that will be making the determination as to what you guys will be providing us in January.

We do the whole thing, Paul. We start with the load forecast and then we put every piece together after that. So it's an annual process we go through.

It's all the package. It's all together.

So everything's really actually reviewed.

Oh, sure. Oh, sure.

Okay. So we'll see what happens. Okay. Thanks so much. All my other questions have been asked.

Thank you.

Take care, guys.

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

Yes, I just want to say thank you so much for your attendance on the call. We went over a lot of interesting territory. It was a little unusual for us to talk about longer-term performance, but since it's been such an interesting topic that many of you are writing about, we felt that it was a good thing to highlight here.

We continue to work hard on making Kemper as successful as it can be. We feel confident on our ability to execute there. Everything else at Southern is going well. When you look at Alabama, Georgia, Gulf, the rest of Mississippi. When you look at our fundamentals, Southern is performing as well as it ever has.

We've got to get Kemper built and operational and we'll be in great shape. We thank you so much for your attendance this afternoon and look forward to talking to you soon in Florida. Take care.

Thank you, sir. Ladies and gentlemen, this does conclude the Southern Company third-quarter 2013 earnings call. You may now disconnect.