Fourth Quarter 2013 Earnings Conference Call. January 29, 2014

Transcription

1 Fourth Quarter 2013 Earnings Conference Call January 29, 2014

2 Cautionary Note Regarding Forward-Looking Statements 2 Certain information contained in this presentation is forward-looking information based on current expectations and plans that involve risks and uncertainties. Forwardlooking information includes, among other things, statements concerning statements concerning future regulatory actions, rate cases, projected cost and schedule for the completion of ongoing construction projects, earnings per share guidance, the economic recovery, dividend growth, dividend payout ratio, and financing activities. Southern Company cautions that there are certain factors that can cause actual results to differ materially from the forward-looking information that has been provided. The reader is cautioned not to put undue reliance on this forward-looking information, which is not a guarantee of future performance and is subject to a number of uncertainties and other factors, many of which are outside the control of Southern Company; accordingly, there can be no assurance that such suggested results will be realized. The following factors, in addition to those discussed in Southern Company s Annual Report on Form 10-K for the year ended December 31, 2012, and subsequent securities filings, could cause actual results to differ materially from management expectations as suggested by such forward-looking information: the impact of recent and future federal and state regulatory changes, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry, environmental laws including regulation of water, coal combustion byproducts, and emissions of sulfur, nitrogen, carbon, soot, particulate matter, hazardous air pollutants, including mercury, and other substances, and also changes in tax and other laws and regulations to which Southern Company and its subsidiaries are subject, as well as changes in application of existing laws and regulations; current and future litigation, regulatory investigations, proceedings, or inquiries, including the pending Environmental Protection Agency civil actions against certain Southern Company subsidiaries, Federal Energy Regulatory Commission matters, and Internal Revenue Service and state tax audits; the effects, extent, and timing of the entry of additional competition in the markets in which Southern Company s subsidiaries operate; variations in demand for electricity, including those relating to weather, the general economy and recovery from the recent recession, population and business growth (and declines), the effects of energy conservation measures, and any potential economic impacts resulting from federal fiscal decisions; available sources and costs of fuels; effects of inflation; ability to control costs and avoid cost overruns during the development and construction of facilities, which include the development and construction of facilities with designs that have not been finalized or previously constructed, including the impact of factors such as labor costs and productivity, adverse weather conditions, shortages and inconsistent quality of equipment, materials, and labor, or contractor or supplier delay or non-performance under construction or other agreements, delays associated with start-up activities, including major equipment failure, system integration, and operations, and/or unforeseen engineering problems; ability to construct facilities in accordance with the requirements of permits and licenses and to satisfy any operational and environmental performance standards, including the requirements of tax credits and other incentives; investment performance of Southern Company s employee and retiree benefit plans and the Southern Company system s nuclear decommissioning trust funds; advances in technology; state and federal rate regulations and the impact of pending and future rate cases and negotiations, including rate actions relating to fuel and other cost recovery mechanisms; regulatory approvals and actions related to the Plant Vogtle expansion, including Georgia Public Service Commission ( PSC ) approvals, Nuclear Regulatory Commission actions, and potential U.S. Department of Energy loan guarantees; actions related to cost recovery for the Kemper County integrated coal gasification combined cycle facility ( Kemper IGCC ), including actions relating to proposed securitization, Mississippi PSC approval of Mississippi Power Company s proposed rate recovery plan, as revised, which includes the ability to complete the proposed sale of an interest in the Kemper IGCC to South Mississippi Electric Power Association, the ability to utilize bonus depreciation, which currently requires that the Kemper IGCC be placed in service in 2014, and satisfaction of requirements to utilize investment tax credits and grants; Mississippi PSC review of the prudence of Kemper IGCC costs; the outcome of any legal or regulatory proceedings regarding the Mississippi PSC s issuance of the Certificate of Public Convenience and Necessity for the Kemper IGCC, the settlement agreement between Mississippi Power Company and the Mississippi PSC, or the State of Mississippi legislation designed to enhance the Mississippi PSC s authority to facilitate development and construction of baseload generation in the State of Mississippi; the inherent risks involved in operating and constructing nuclear generating facilities, including environmental, health, regulatory, natural disaster, terrorism, and financial risks; the performance of projects undertaken by the non-utility businesses and the success of efforts to invest in and develop new opportunities; internal restructuring or other restructuring options that may be pursued; potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot be assured to be completed or beneficial to Southern Company or its subsidiaries; the ability of counterparties of Southern Company and its subsidiaries to make payments as and when due and to perform as required; the ability to obtain new short- and longterm contracts with wholesale customers; the direct or indirect effect on the Southern Company system s business resulting from terrorist incidents and the threat of terrorist incidents, including cyber intrusion; interest rate fluctuations and financial market conditions and the results of financing efforts, including Southern Company s and its subsidiaries credit ratings; the impacts of any potential U.S. credit rating downgrade or other sovereign financial issues, including impacts on interest rates, access to capital markets, impacts on currency exchange rates, counterparty performance, and the economy in general, as well as potential impacts on the availability or benefits of proposed U.S. Department of Energy loan guarantees; the ability of Southern Company and its subsidiaries to obtain additional generating capacity at competitive prices; catastrophic events such as fires, earthquakes, explosions, floods, hurricanes, droughts, pandemic health events such as influenzas, or other similar occurrences; the direct or indirect effects on the Southern Company system s business resulting from incidents affecting the U.S. electric grid or operation of generating resources; and the effect of accounting pronouncements issued periodically by standard setting bodies. Southern Company expressly disclaims any obligation to update any forward-looking information.

3 Agenda 2013 Operational Highlights Vogtle & Kemper Updates 2013 Financial & Sales Results Updated Forecast 3

4 Major Regulatory Activities in Alabama Georgia Gulf Mississippi

5 Outstanding Operational Performance Safety 2013 was our safest year ever Customer Satisfaction Southern Company took the top five spots in annual benchmark survey Reliability 2013 was our best year for transmission and distribution 2013 Generation Mix Nuclear 16% Gas 42% Coal 38% Providing the lowest cost energy to our customers A customer-focused business model 5

6 Vogtle Unit 3 Progress Nuclear Island January 2013 December 2013 Turbine Island January 2013 December 2013 Cooling Tower 6 January 2013 December 2013

7 7 Vogtle Unit 3 CA20 Module

8 Vogtle Unit 3 Nuclear Island 2014 Activity Current View Waste Tanks CA-04 CB-65 Auxiliary Building Walls to Elevation 82 6 CA-03 CA-01 CA-20 CA-02 (Inside Vessel) Projected Year-End View Auxiliary Building Walls to Elevation 100 Middle Ring Lower Ring Shield Building Panel Installation CA-05 (Inside Vessel) 8

9 Kemper IGCC In Progress 679K linear feet of gasifier piping installed (~75%) Testing of combined cycle Combined Cycle Upcoming for 2014 First gasifier heat up Reliable syngas to combined cycle 9 Steam Piping in Gasifier Island Gas Clean-Up

10 Kemper IGCC Gasifier Lignite Delivery Combined Cycle Gas Clean- Up Cooling Towers 10

11 Q Earnings Results Q4 YTD Earnings Per Share $0.47 $1.88 Impact of increase in Kemper cost estimate $0.03 $0.83 Impact of Leveraged Lease Restructure $0.00 $0.02 Impact of MCAR settlement ($0.02) ($0.02) Earnings Per Share x-items $0.48 $

12 FY2013 vs. FY2012 Adjusted EPS Drivers $ Customer Usage & Growth 10-3 Other Revenue Effects Weather -2 Wholesale Revenues 2 Other Operating Revenues -3 Non-fuel O&M 2 PPA Expense -6 D&A -1 Taxes Other Than Income Tax 6 Other Income 3-2 Interest Expense Income Taxes -1 Southern Power -1 Parent and Other -2 Shares $2.71 Traditional Operating Companies 7 FY12 FY13 12 Note: Excludes EPS impact of updated Kemper Project cost estimate, EPS impact of Leveraged Lease Restructure, EPS impact of MCAR Settlement, and EPS impact of MCAR Settlement. GAAP EPS was $1.88 for 2013 vs. $2.70 for 2012.

13 2013 Retail Sales As Reported Q4 Weather Normal As Reported Residential 6.0% 0.5% 0.2% Commercial 1.4% -0.1% -0.9% Industrial 4.8% 4.8% 1.5% Total Retail 3.9% 1.7% 0.3% YTD As expected, stronger 2 nd half sales growth 1.7% Weather Normal* -0.3% -0.1% 1.5% 0.4% 13 Q1-0.9% Q2-0.5% 1.0% * Also reflects reclassification of January 2012 KWH sales among customer classes consistent with actual advanced meter data; use of actual advanced meter data was implemented during the first quarter of % Q3 Q4 Year

14 2014 Outlook Economic Roundtable Expected 2014 Sales Growth GDP projected to grow 2.5% 3.0% Industrial activity continues to improve with many new entrants being international firms Housing markets continue to improve with housing-related sectors benefiting Economic momentum from late 2013 carrying into

15 $15.9B Capital Expenditure Program ( ) $6.1B $5.4B $4.5B 14 - '16 Potential Southern Power Growth Projects 1.4 Southern Power Base 0.4 Environmental 3.2 New Generation 2.3 T&D Growth 1.3 Nuclear Fuel 0.9 Base $14.5B Maintenance 5.4 Other Notes: Totals may not add due to rounding and amounts are subject to change with filing of the K Includes amounts for which Mississippi will not seek recovery above the $2.88B Kemper cost cap, net of DOE grants and cost cap exceptions, of $0.5B in 2014 ($1.1B gross, net of projected proceeds from sale of 15% to SMEPA)

16 Financing Plan ($ in billions) Georgia DOE Loan $ 1.5 $ 1.1 $ 0.4 Mississippi Securitization Capital Markets Issuances: New Money Maturity & Bridge Financing Replacement Long Term Securities Issuances $ 2.8 $ 4.0 $ 1.9 Equity Issuances $ 0.6 $ - $ - 16 Note: Additional details are provided in the appendix

17 2014 Earnings Per Share Guidance $ (+1.5%) 2013 EPS* Dilution from Kemper write-offs 2014 & beyond Adjusted base for growth $ $ (-1.5%) $ * Excludes -83 EPS impact of updated Kemper Project cost estimate, -2 EPS impact of Leveraged Lease Restructure, and +2 EPS impact of MCAR Settlement. GAAP EPS was $1.88 for 2013.

18 Invested Capital Growth is Expected to Slow 5.8% 5.3% 4.9% 3.6% CAGR 18

19 2015 & 2016 Earnings Per Share Growth $3.03 $2.91 Potential longer-term EPS Growth Drivers $2.80 $2.89 Regulated Capacity So Power Capacity $2.71* -7 $2.64 $2.72 $2.80 Effluent Guidelines (ELG) 316(b) Coal Ash Rules (CCR) Equity ratio Dividend Forecast $2.08 $2.15 $2.22 Implied Payout Ratio 74% - 77% 74% - 77% 73% - 77% 19 * Excludes -83 EPS impact of updated Kemper Project cost estimate, -2 EPS impact of Leveraged Lease Restructure, and +2 EPS impact of MCAR Settlement. GAAP EPS was $1.88 for 2013.

20 Guidance and Dividends On average over the past 10 years, Southern Company has had the smallest guidance ranges (measured as a % of the midpoint) UTY average SO Average EPS Guidance Range Size of UTY Companies During this same time frame, Southern Company has increased its common dividend every single year 20 * Excluding non-recurring items as identified in the earnings release for each respective year

21 21 Appendix

22 22 Generation Portfolio Diversity Capacity Factors Q4 YTD Coal - PRB 82% 79% 71% 73% Coal - Non-PRB 18% 25% 29% 32% Gas - Combined Cycle 69% 65% 71% 66% Generation Mix Q4 YTD Gas/Oil 47% 43% 45% 42% Coal 32% 37% 36% 38% Nuclear 19% 17% 17% 16% Hydro/Other 2% 3% 2% 4%

23 Q vs. Q Adjusted EPS Drivers $ Weather Other Operating Revenues Non-Fuel O&M -1 D&A 2 Other Income Interest Expense 2 Income Taxes -1 Southern Power -1 Parent and Other -1 Shares $0.48 Customer Growth Traditional Operating Companies 7 Q Q Note: Excludes Q EPS impact of updated Kemper Project cost estimate and EPS impact of MCAR Settlement; GAAP EPS was $0.47 for Q vs. $0.44 for Q4 2012

24 CapEx Forecast Functional Total $billions New Generation $1.2 $0.7 $0.5 $2.3 Environmental Compliance Transmission Distribution Total T&D Growth Generation Transmission Distribution Total Maintenance (G, T & D) Nuclear Fuel General Traditional OpCo Total $5.6 $4.7 $3.8 $14.1 Southern Power Base Total $5.8 $4.8 $3.9 $14.5 Potential Southern Power Growth Projects Total Capex $6.1 $5.4 $4.5 $ Notes: Totals may not add due to rounding and amounts are subject to change with filing of the K Includes amounts for which Mississippi will not seek recovery above the $2.88B Kemper cost cap, net of DOE grants and cost cap exceptions, of $0.5B in 2014 ($1.1B gross, net of projected proceeds from sale of 15% to SMEPA)

25 CapEx Forecast Company Total $billions '14 - '16 Alabama Power $1.7 $1.7 $1.2 $4.6 Georgia Power Gulf Power Mississippi Power Other Subsidiaries Traditional OpCo Total $5.6 $4.7 $3.8 $14.1 Southern Power Base Total $5.8 $4.8 $3.9 $14.5 Potential Southern Power Growth Projects Total Capex $6.1 $5.4 $4.5 $ Notes: Totals may not add due to rounding and amounts are subject to change with filing of the K Includes amounts for which Mississippi will not seek recovery above the $2.88B Kemper cost cap, net of DOE grants and cost cap exceptions, of $0.5B in 2014 ($1.1B gross, net of projected proceeds from sale of 15% to SMEPA)

26 long-term securities issuances ($ in billions) Alabama Power $ 0.4 $ 0.9 $ 0.4 Georgia Power Gulf Power Mississippi Power Southern Power Holding Company Long Term Market Issuances $ 1.3 $ 2.0 $ 1.5 Georgia DOE Loan Mississippi Securitization Long Term Securities Issuances $ 2.8 $ 4.0 $ Potential Southern Power growth projects would require additional funding of $500M and $250M in 2015 and 2016, respectively Totals may not add due to rounding