Southern's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Southern (SO)

Q1 2012 Earnings Call

April 25, 2012 1:00 pm ET

Executives

Daniel S. Tucker - Vice President of Investor Relations and Financial Planning

Thomas A. Fanning - Chairman of the Board, Chief Executive Officer and President

Art P. Beattie - Chief Financial Officer and Executive Vice President

Analysts

Dan Eggers - Crédit Suisse AG, Research Division

Jonathan P. Arnold - Deutsche Bank AG, Research Division

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

Angie Storozynski - Macquarie Research

Brian Chin - Citigroup Inc, Research Division

Mark Barnett - Morningstar Inc., Research Division

Ali Agha - SunTrust Robinson Humphrey, Inc., Research Division

Marc de Croisset - FBR Capital Markets & Co., Research Division

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

Greg Gordon - ISI Group Inc., Research Division

Steven I. Fleishman - BofA Merrill Lynch, Research Division

Kit Konolige - Konolige Research, LLC

James L. Dobson - Wunderlich Securities Inc., Research Division

Paul Patterson - Glenrock Associates LLC

Dan Jenkins

Anthony C. Crowdell - Jefferies & Company, Inc., Research Division

Presentation

Operator

Good afternoon. My name is Sarah, and I'll be your conference operator today. At this time, I would like to welcome everyone to be Southern Company First Quarter 2012 Earnings Call. [Operator Instructions] I would like to turn the call over to Mr. Dan Tucker, Vice President of Investor Relations and Financial Planning. Please go ahead, sir.

Daniel S. Tucker

Thank you, Sarah. Welcome, everyone, to Southern Company's first quarter 2012 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. 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 and 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 Tom Fanning, Southern Company's Chairman, President and Chief Executive Officer.

Thomas A. Fanning

Thanks, Dan. Good afternoon, and thank you for joining us. Before we turn to Art for a review our first quarter performance, I'd like to take a few moments to update you on our recent progress on several important strategic fronts.

On February 10, we received a combined construction and operating licenses for Plant Vogtle Units 3 and 4, the first new nuclear units licensed in the United States in more than 30 years. Our nuclear development team has done an exemplary job in satisfying the requirements for these licenses, and I have every confidence that they will continue to provide strong leadership as the project moves forward.

We are making significant progress at Vogtle 3 and 4 as those of you following along on the slides can see. Work is already underway on the Nuclear Island and cooling tower, and our heavy-lift derrick, one of the largest in the world, is being assembled. With the new licenses in hand, we have made a smooth transition into the next phase of the project and I look forward to sharing further updates with you in the future.

Meanwhile, the state regulatory process for Vogtle 3 and 4 continues to move forward in a constructive manner. The Georgia Public Service Commission has improved $1.7 billion of project cost through June 30, 2011, and is currently reviewing the company's sixth semiannual construction monitoring report, which reflect an additional $300 million of cost through December 2011. In testimonies filed with the commission, Georgia Power has outlined up to $2 billion of potential additional benefit related to Vogtle 3 and 4 that we believe further enhance the value of this project for our customers. The commission's decision in this proceeding is expected in mid-August.

With any project of this magnitude and length, commercial disputes are to be expected. Discussions between the owners and the consortium are ongoing regarding a number of matters, including issues related to the timing of receipt of the design control document, or DCD, and the combined operating licenses, or COLs. As you may be aware, the construction of Vogtle 3 and 4 will proceed under a new licensing framework that is significantly different from the one used previously.

In the past, nuclear plant operators designed and built their units first and then sought licensing approval for what they had already built. Under the new process, the nuclear units are constructed according to the COLs and the underlying DCD. There are processes in place to assure compliance with the design requirements specified in the DCD and the COLs. One process we have discussed with you before is ITAAC, which stands for inspections, tests, analyses and acceptance criteria. An additional oversight process is rigorous inspection by Southern Nuclear and the NRC that occurs throughout constructions.

As an example of this process, a recent routine NRC inspection review a bit limited details of the rebar construction in the Unit 3 Nuclear Island were not consistent with the DCD. We expect to receive official notes of this finding from the NRC. In the meantime, we are engaged in constructive discussions with consortium to identify appropriate action. We could reasonably expect to encounter additional inspection issues between now and the time the new units are completed as they are a normal part of the nuclear construction process. Our goal is always the same: to build the safest, most reliable and most cost-effective nuclear generating units possible and to achieve our targets with regard to schedule and cost to customers.

Elsewhere, on April 24, the Mississippi Public Service Commission finalized a new certificate of public convenience and necessity for the Plant Radcliffe in Kemper County, Mississippi. This became necessary after the Mississippi Supreme Court's recent reversal of the commission's previous order. In the interim, construction continued on the Kemper County site under a temporary authorization granted by CSC [ph] on March 30 and will now proceed under the authority of the new permanent order. Initial startup and testing are now only 14 months away, and we remain confident that this project will provide the best value to customers over the long term. Targets are then achievable for both the Vogtle and Kemper County projects with regard to construction schedule and cost to customers.

As important as these projects are, they are only part of our all in "arrows in the quiver" strategy for building a 21st century energy portfolio. Georgia Power is making significant progress on 3 new compliance cycle natural gas units at Plant McDonough. The first of these units came online in December and with a nameplate capacity of 840 megawatts, and has actually been generating at significantly higher levels with an extremely efficient heat rate. The second unit is scheduled to begin operation later this month with the third unit expected to follow in November.

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