Southern Q3 2010 Earnings Call Transcript

Southern Q3 2010 Earnings Call Transcript
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Southern (SO)

Q3 2010 Earnings Call

October 27, 2010 1:00 pm ET

Executives

Glen Kundert - Vice President of Investor Relations

Art Beattie - Chief Financial Officer and Executive Vice President

Thomas Fanning - President

David Ratcliffe - Chairman and Chief Executive Officer

Analysts

Michael Lapides - Goldman Sachs Group Inc.

Greg Gordon - Morgan Stanley

James von Riesemann

Paul Ridzon - KeyBanc Capital Markets Inc.

Ali Agha - SunTrust Robinson Humphrey Capital Markets

Jonathan Reeder - Wachovia Securities

Marc de Croisset - FBR Capital Markets & Co.

Nathan Judge - Atlantic Equities LLP

Steven Fleishman - BofA Merrill Lynch

Presentation

Operator

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Good afternoon. My name is Celeste, and I will be your conference operator today. At this time, I would like to welcome everyone to the Southern Company Third Quarter 2010 Earnings Conference Call. [Operator Instructions] I would now like to turn today's call over to Mr. Glen Kundert, Vice President of Investor Relations. Please go ahead, sir.

Glen Kundert

Thank you, Celeste. Welcome to Southern Company's Third Quarter 2010 Earnings Call. Joining me this afternoon are David Ratcliffe, Chairman and Chief Executive Officer of Southern Company; Tom Fanning, President of Southern Company; and Art Beattie, Chief Financial Officer.

Let me remind you we will make forward-looking statements today in addition to providing historical information. There are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements, including those discussed in our Form 10-K and subsequent filings.

We'll also be including slides as part of today's conference call. These slides provide details on the information that will be discussed on this call. You can access the slides on our Investor Relations website at www.southerncompany.com if you want to follow along during the presentation.

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

David Ratcliffe

Thank, Glen. And as most of you know, this is my last earnings call. And as we've announced, Tom Fanning, currently the President, will take over on December 1 as Chairman, President and CEO. So today, I have the privilege of delegating this lead position on our call to Tom Fanning, someone that you all know very well. So Tom?

Thomas Fanning

Thank you, David. On behalf of all of Southern Company's employees, I'd like to thank you for your service to our company. Your leadership over the years had made us all proud. You've delivered outstanding results for the benefit of our customers in the Southeast, and you've done it in the right way. We wish you the best in the years ahead.

Now turning to those of you on the call. Good afternoon, and thank you for joining us. As you can see from the materials we released this morning, we had a solid quarter, which was influenced by warmer weather and the continuing industrial recovery here in the Southeast.

As you know, we have a rate case proceeding underway in Georgia. Georgia Power's witnesses presented testimony earlier this month in the case. And you may have seen where the PSC staff and intervenor testimony was filed last week on October 22. The PSC staff and intervenor hearings will be held on November 8 through 10. The case appears to be moving forward on schedule, and we expect a decision on or about December 21.

Finally, I'd like to mention how well our generating fleet performed the during the peak season from May 1 to September 30. During this peak season period, we experienced record customer demand for electricity of more than 97 million-megawatt hours. We also set a record for natural gas generation, producing 20% more electricity from our natural gas fleet than ever before.

Our fleet once again delivered exceptional reliability, producing a peak season equivalent forced outage rate, or EFOR, of 1.67%. This is the ninth time in the past 10 years that our EFOR has been below 2%. The industry average is 7%. This history of exceptional operational performance demonstrates our commitment to providing reliable service to our customers.

At this point, I'll turn things over to Art for a discussion of our financial highlights for the third quarter and our earnings guidance for the remainder of 2010.

Art Beattie

Thanks, Tom. First of all, let me say that I've enjoyed meeting and getting to know many of you over the past few months, and I hope to meet many more of you in the weeks and months ahead.

As Tom said, our third quarter performance was solid. The results continue to highlight the consistency of our business plan to provide regular, predictable and sustainable performance over the long term, while keeping customers the central focus of everything we do. In the third quarter of 2010, we reported $0.98 a share compared with $0.99 a share in the third quarter of 2009 or a decrease of 1 cent per share.

Before we turn to the financial highlights discussion, I'd like to discuss two important regulatory matters that affected our third quarter earnings.

First, as you probably recall, in August of last year, the Georgia Public Service Commission approved Georgia Power's request to amortize $324 million in a regulatory liability account related to cost of removal obligations as a reduction to expenses. Under terms of the order, Georgia Power was allowed to amortize up to $108 million in 2009 in achieving a retail return on equity of up to 9.75%. Georgia Power amortized $48 million under this quarter for 2009. In 2010, Georgia Power is allowed to amortize up to $216 million in achieving a retail ROE of no more than 10.15%. Due primarily to weather-related revenues, Georgia Power expects to only amortize approximately $150 million in 2010. Amortization in the third quarter of 2010 was reduced to reflect that lower expected level, with year-to-date amortization under the order for 2010 totaling approximately $113 million.

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