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Southern Company Overview. Credit Suisse First Boston 2007 Energy Summit February 6, 2007. Cautionary Statement Regarding Forward-Looking Information. - PowerPoint PPT Presentation
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Credit Suisse First Boston2007 Energy SummitFebruary 6, 2007
Southern Company Overview
2
Cautionary Statement Regarding Forward-Looking Information
NOTE: Much of the information contained in this presentation is forward-looking information based on current expectations and plans that involve risks and uncertainties. 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 Dec
31, 2005, and subsequent securities filings, could cause results to differ materially from management expectations as suggested by such forward-looking information: the impact of recent and future federal and state regulatory change, including legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry and implementation of the Energy Policy Act of 2005, and also changes in environmental, 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 EPA civil actions against certain Southern Company subsidiaries, FERC matters, IRS audits and Mirant-related matters; 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 population and business growth (and declines); available sources and costs of fuels; ability to control costs; investment performance of Southern Company’s employee benefit plans; advances in technology; state and federal rate regulations and the impact of pending and future rate cases and negotiations, including rate cases relating to fuel and storm restoration cost recovery; the performance of projects undertaken by the non-utility businesses and the success of efforts to invest in and develop new opportunities; fluctuations in the level of oil prices; the level of production, if any, by the synthetic fuel operations at Carbontronics Synfuels Investors LP and Alabama Fuel Products LLC for fiscal year 2007; 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; the ability to obtain new short- and long-term contracts with neighboring utilities; the direct or indirect effect on Southern Company’s business resulting from terrorist incidents and the threat of terrorist incidents; interest rate fluctuations and financial market conditions and the results of financing efforts, including Southern Company’s and its subsidiaries’ credit ratings; 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, pandemic health events such as avian influenza or other similar occurrences; the direct or indirect effects on Southern Company’s business resulting from incidents similar to the August 2003 power outage in the Northeast; and the effect of accounting pronouncements issued periodically by standard-setting bodies. Southern Company and its subsidiaries expressly disclaim any obligation to update any forward-looking information.
3
Agenda for Today
• 2006 results• Our focus for 2007• Traditional Operating Companies• Southern Power• Preparing for the future• Financial metrics and performance
4
2006 Results
EPS excluding synfuel
Guidance: $2.03-$2.08
Actual: $2.10
EPS with synfuel: $2.12
Other Key MetricsCompetitive Generation Net Income: $305M(SPC $125M)
Core ROE: 13.5%Payout ratio: 73% Common Equity Ratio: 41%
Reconciliation to GAAP numbers for 2006 in Appendix
5
Historical EPS Performance – Excluding Synfuel
$1.58
$1.81
$1.95 $1.92
$2.03
$1.50
$1.70
$1.90
$2.10
2001 2002 2003 2004 2005
2001-2006Average
Growth Rate
5.9%
Reconciliation to GAAP numbers for ’01-’06 in Appendix
$2.10
2006
6
Our Focus in 2007 – Near Term
• Georgia Power retail rate case
• Capital projects, including a $4.6 billion environmental construction program over the next three years
Plant Bowen, Cartersville, Georgia
Scrubbers –2005 – 2010
Scrubbers –2005 – 2010
Precipitators – 1979 – 1981
Precipitators – 1979 – 1981
NOx Controls1992 – 2003
NOx Controls1992 – 2003
Original Plant1975
Original Plant1975
7
Our Focus in 2007 – On-going and Long Term
• Continue industry-leading reliability and customer satisfaction, while maintaining retail prices that are below the national average
• Meeting increased energy demand with the best economic and environmental choices
• Continuing to deliver on our value proposition: superior risk-adjusted total shareholder return
ConstructiveRegulation
Healthy CapitalSpending
High ReliabilityLow Prices
High CustomerSatisfaction
Customers
8
EFOR of 1.11% ranked first among electric generation companies with more than 6,000 MW
RELIABILITY
CUSTOMER SATISFACTION
Number 1 among electric utilities in the American Customer Satisfaction Index for the past 7 years
Our Focus on Low Price and Reliability Drives Strong Customer Satisfaction
Nuclear EFOR of 0% in 4th quarter 2006
Prices significantly below national average
LOW PRICE
9
4 Traditional Operating Companies
Southern Power
Net Income: Solid base plusLong-term growth
Exceptional Long-Term
Shareholder ValueTop Quartile Returns (13.5%)
Our Major Businesses
Georgia Power
Mississippi Power
Gulf Power
Alabama Power
Traditional Operating CompaniesThe foundation of our business
11
Traditional Operating Companies
• Strong organic growth– 2% average long-term growth in electricity demand– 1.7% average long-term customer growth
• Economies of scale– 4.3 million retail customers– 27,000 miles of transmission– Over 41,000 MW of generation
• A diverse regional economy
• Constructive regulatory environment
35%Industrial
32%Residential
33%Commercial
Customer Mix(12/31/2005)
12
We Plan to Invest Over $11B in Our Traditional Operating Companies Over the Next 3 Years
All Other
New Generation
Transmission & Distribution
Environmental 4.6
$2.4
0.7
3.8
’07-’09 Total $11.4
’07-’09
40%
21%
6%
33%
100%
• Intensive environmental spending period
• $3.3B of growth capital
• 6-7% annual growth in invested capital
• Expected annual D&A of approximately $1.3B
(in billions)
“All other” includes generation maintenance, nuclear fuel, and general corporate investments
13
2007 Georgia Power Base Rate Case
• Expect to file June 29, 2007• Decision due December 2007 with new rates
effective January 2008• Primary driver for need for increase:
– Recovering environmental capital costs • Other drivers:
– Transmission and distribution– Additional capacity– Operations and maintenance
Southern Power
15
Southern Power Business Model
• Long-term bilateral contracts
• Financially strong counterparties
• Minimal fuel risk and spark spread risk
• Minimal remarketing risk through the middle of the next decade– Over 6,700 MW of nameplate capacity at Southern Power – Recent contracts provide average coverage of capacity of
about 82% through 2015
16
Southern Power Company
MunicipalsCity of Dalton FMPAPMPA KUANCMPA1 OUC
Co-ops11 GA EMCs NCEMCEnergyUnited Seminole
IOUs & IPPsAlabama Power Georgia PowerFlorida Power & Light Gulf PowerProgress Energy Florida DukeProgress Ventures
Franklin 1 & 2 CCs
563 & 623 MW MW
Dahlberg 1-10 CTs - 747 MW
Wansley 6 & 7 CCs - 1,129 MW
Harris 1 & 2 CCs
625 & 628 MW Stanton A CC 657 MW*
Oleander 5 CT 160 MW
(2007)
Rowan 480 MW CC 465 MW CT
DeSoto CT 320 MW
Franklin 3 CC 620 MW (2009)
Orlando Gasifier 285MW** (2010)
Oleander 1-4 CTs - 693 MW
CUSTOMERS PLANTS
Orlando Gasifier285MW (2010)
Stanton A CC657 MW
Franklin 3 CC620 MW (2009)
17
Southern Power Business Outlook
• Earnings projections through 2009 are at or slightly above 2007 projection of $115 million
• Existing contracts for capacity, including new units at plants Franklin and Oleander, will add to earnings growth beyond 2009
• Expect additional growth opportunities from markets reaching equilibrium by end of decade
• Maintain our strategy of a low risk business that seeks long-term contracts with solid, creditworthy counterparties
Preparing for the Future
19
• Plans to meet demand must include multiple technology options:– Nuclear power– Coal – both pulverized coal and integrated
gasification combined cycle (IGCC)– Natural gas combined cycle– Renewable energy– Energy efficiency
Southern Company Must Continue to Meet Increasing Demand for Electricity
20
Nuclear Power Development
• Southern is taking deliberate steps toward adding new nuclear capacity– Financial strength and scale– Filed an Early Site Permit (ESP) for two additional units at
Plant Vogtle in Georgia– Proposed the Westinghouse AP1000 reactors– Only ESP to date that has referenced a specific technology– Georgia Power nuclear accounting order was approved by Georgia
PSC, to allow recovery of up to $51 million in permitting costs– Working toward a COL in March 2008
21
Advances in Coal-Fueled Generation
• FutureGen – Southern Company is a founding member and a key participant with the U.S. Department of Energy
• Southeast Regional Carbon Sequestration Partnership sponsored by the Department of Energy– Mississippi Power’s Plant Daniel – test site for CO2
storage project• TRansport Integrated Gasification – TRIGTM technology –
developed at PSDF in Wilsonville, Alabama
22
Wilsonville, AlabamaPower System Development Facility
“America’s Advanced Coal Research Center”– U.S. Department of Energy
23
Southern Company’s IGCC
• TRansport Integrated Gasification – TRIGTM technology – developed at PSDF in Wilsonville, Alabama– Unique that this can efficiently use PRB or lignite coal
• Technology to be further demonstrated at Orlando Utilities’ Stanton Energy Center– 285 MW IGCC air-blown transport gasifier– Startup expected in mid-2010– Jointly owned by Southern
and Orlando Utilities, co-funded by U.S. DOE
• Mississippi Power is exploring building 600 MW facility– Received DOE certification
and IRS approval of tax credits
Coal
Air/Oxygen
Gasifier
Syngas to CC
Combined Cycle
24
Renewable Energy Investments
• Southern Company is pursuing equity investments in renewable energy projects including wind, solar, biomass, and geothermal– Southern Company owns a 30 MW geothermal
project that supplies 15% of the power in Hawaii
• Southern Company has invested $6 million over the past five years in research and development of renewable energy– More than 20 research and development
projects are in progress, including one that uses switchgrass as a biomass fuel
• Our customers in the Southeast can now sign up for green energy
25
Energy Efficiency
• Southern Company’s programs have avoided the need for ~3,000 MW of peaking capacity
• Programs include– Interruptible/Stand-by– Direct load control– Time of use rates, real time pricing– Energy audits– Good Cents / Good Cents Select
26
Southern Is the Industry Leader in Demonstrating and Applying New Technologies
Chiyoda ScrubberEnergy Efficiency
Renewables
FutureGen
CO2 Sequestration
IGCC – TRIG
Mercury Control Research Center
Power SystemsDevelopment Facility
Real Time Pricing
GoodCentsSELECT
Southern Company’sFinancial Metrics and Performance
28
The best, risk-adjusted total shareholder return (TSR)(balanced price appreciation plus dividend yield)
EPSGrowth
DivYield
TSR
Southern Company
ValueProposition
TSR
Regular, predictable, sustainable earnings growth with attractive dividend growth
5% 5% 10%
29
Historical EPS Performance – Excluding Synfuel
$1.58
$1.81
$1.95 $1.92
$2.03
$1.50
$1.70
$1.90
$2.10
2001 2002 2003 2004 2005
2001-2006Average
Growth Rate
5.9%
Reconciliation to GAAP numbers for ’01-’06 in Appendix
$2.10
2006
30
Best Forward-Looking Earnings Predictability in the Industry
SOSCG
ED EXC SRE
AEECEGETR FPL PEG
MDUPGN
PPL
D NI PNWWEC
AEP FE
DUK
DTE
XEL
TXU
AYE EIX PCG
0
10
20
30
40
50
60
70
80
90
100
Source: Earnings Predictability Score from Value Line as of 12/29/2006; includes all large-cap electric utilities covered by Value Line as of 12/31/06
Value Line Earnings Predictability Score
Regular, predictable, sustainable
31
In April 2006, the Southern Company Board of Directors approved an increase to the annual dividend of 6¢, or 4.0%, to $1.55 per share
Commitment to Dividend Provides Stable Income for Investors
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
237 consecutive quarters of
dividend payments
Commitment to dividend is foundation of financial policy
32
OneYear
PostSpin
TenYear
ThirtyYear
Southern Company (%) 11.7 15.2 16.0 15.4
S&P 500 Electric Utility Index (%) 23.2 9.2 11.8 NA
S&P 500 Index (%) 15.8 5.6 8.4 12.5Annualized returns for periods ending December 29, 2006
Source: Bloomberg, FactSet and Standard & Poor’s. Assumes all dividends are reinvested and returns are compounded daily.
Exceptional returns for long-term investors
Focused on Shareholder Return
33
Consistency Has Provided Exceptional Value for Our Shareholders
Focused management team has delivered on its commitments
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06
Value of $1000 invested on 12/31/86Value ($)
Source: Bloomberg; assumes all dividends are reinvested and returns are compounded daily through 12/31/06; includes all large-cap electric utilities covered by Value Line as of 12/31/06
SO$16,023
34
Price performance as of 1/26/2007 from Bloomberg
-60%
-40%
-20%
0%
20%
40%
60%
80%
4/2/01 10/2/01 4/2/02 10/2/02 4/2/03 10/2/03 4/2/04 10/2/04 4/2/05 10/2/05 4/2/06 10/2/06
SO 69%
Dow Jones28%
S&P Electric Utility Index
31%
Southern’s Price Performance from Spin to 1/26/07
35
U.S. companies with electric utility operations and market capitalization over $10 BBSource: Bloomberg; data as of 1/26/2007
Southern’s Credit Rating is Among the Best in the Industry
Strong balance sheet provides financial security
Market Cap S&P Issuer($ billions) Credit Rating
Southern Company 27.2 AFPL Group 22.7 AConsolidated Edison 12.4 AExelon Corp 39.7 BBB+Sempra Energy 15.0 BBB+Constellation Energy 12.9 BBB+Dominion 29.0 BBBDuke Energy 24.0 BBBEntergy 19.0 BBBFirstEnergy Corp 18.8 BBBAmerican Electric Power 17.1 BBBPublic Service Entrp 17.0 BBBPPL Corp 13.4 BBBProgress Energy 12.0 BBBAmeren Corp 11.0 BBBTXU Corp 24.8 BBB-Edison International 14.5 BBB-AES Corp 13.8 BB-PG&E 16.1 NR
36
SRE
AEPAYE
AEE
CNP
EDCEGDDTE
EIX
ETR
XEL
EXC
FE
FPLMDU
PNW
PPL
PGN
PEGSCG
TXUWEC SO
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Source: Based on annualized TSR for Mirant spin to 12/31/06 and S&P issuer credit rating as of 12/31/06 from Bloomberg; includes all large-cap electric utilities covered by Value Line as of 12/31/06
S&P Issuer Credit Rating
TSR since Mirant spin
BB+ BBB- AA-BBB+BBB
DUK
NI
Southern’s Returns Are Highest for its Credit Rating
Attractive returns coupled with financial security
37
SO
AEP
AEE
CNP
ED CEG D
DTE
DUK
EIX
ETR
XEL
EXCFE
FPL
MDU
NI
PCG
PNW
PPL
PGN
PEG
SCG
SRE TXU
WEC
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
0.60 0.70 0.80 0.90 1.00 1.10 1.20 1.30 1.40
Sources: Security Market Line drawn using 10-year Treasury yield from Bloomberg as of 12/31/2006 and latest market risk premium from Ibbotson; utility betas from Value Line as of 12/29/06; annualized TSR from Bloomberg for Mirant spin to 12/31/06; includes all large-cap electric utilities covered by Value Line as of 12/31/06
Beta
Security Market Line
TSR since Mirant spin
Exceptional risk-adjusted returns
Southern’s Returns Among Highest For Level of Risk
38
Top Five Reasons to Own Southern Company
• Focused management with a proven track record of delivering on commitments
• Regular, predictable, sustainable earnings growth • Attractive dividend growth rate• Strong balance sheet• Exceptional risk-adjusted returns
Industry-leading financial integrity
Credit Suisse First Boston2007 Energy SummitFebruary 6, 2007
Southern Company Overview
Appendix
41
Reconciliation of 2001-2006 EPS Excluding Synfuel to EPS as Reported Under GAAP
2001 2002 2003 2004 2005 2006 CAGR, 01-06
EPS excluding synfuel $1.58 $1.81 $1.95 $1.92 $2.03 $2.10 5.9%
Synfuel earnings 0.04 0.05 0.08 0.15* 0.11 0.02
EPS as reported under GAAP $1.62 $1.86 $2.03 $2.07 $2.14 $2.12 5.5%
*2004 synfuel earnings includes $0.05 for the recognition of synthetic fuel tax credits reserved in previous years
42
On the Agenda for 2007:Georgia Power Company Fuel Recovery Case filed September 15,
2006 Refiled November 13, 2006 Decision expected February 2007
Base Rate Case – to be filed by July 1, 2007 4 three-year Accounting Orders since
1996 Decision expected December 2007
Retail Regulated Business: Regulatory ProceedingsAccomplished in 2006:Georgia Power Company/Savannah
Electric & Power Fuel Recovery Case – March 2006 Merger completed July 1, 2006 Nuclear Accounting Order
Gulf Power Company Storm Damage Recovery
Existing stipulation extended through 2009
Mississippi Power Company Storm Damage Recovery
Mississippi PSC certified storm damage and recovery costs of approximately $302M
Recovered $276M through community development block grants
PSC Order for $112M Securitization Financing (remaining unrecovered, storm center, reserve)
43
Projected Sources and Uses
SourcesNet Operating Cash FlowCommon EquityNet Debt and Preferred
Capital ExpendituresCommon Dividends
2007-2009
$ 11.01.54.6
$ 13.2
$ 17.1
(billions)
Uses
$ 17.1
3.9
44
Projected Capital Expenditures by Function'07 - '09
New Generation 0.7$ 5%Fossil/Hydro Retrofits 1.0 8%Environmental 4.6 35%Nuclear Fuel & Retrofits 0.7 5%Transmission 1.5 11%Distribution 2.3 17%Other 0.6 5%
Traditional Operating Companies 11.4$ 87%
Southern Power 1.6 12%Other 0.2 1%
Total Southern Company 13.2$ 100%
45
Projected Capital Expenditures by Subsidiary
'07 - '09Alabama 3.9$ 30%Georgia 5.6 43%Gulf 1.1 9%Mississippi 0.6 4%SEGCO 0.1 1%SCS/SNC (Corp.) 0.1 1%
Traditional Operating Companies 11.4$ 87%
Southern Power 1.6 12%Other 0.2 1%
Total Southern Company 13.2$ 100%
46
• Over the next decade our current plans call for more than two dozen scrubbers, a dozen SCRs, and several baghouses
• $4.6 billion over the next three years to further lower emissions of sulfur dioxide (S02), nitrogen oxides (NOX), and mercury
Notes: Alabama Power and Georgia Power each include 50% of SEGCO; “Coastal Utilities” includes Gulf Power and Mississippi Power
Our Environmental Strategy Will Help Preserve the Availability of Our Low Cost Generation Fleet
(billions)
Alabama Power
Georgia Power
Coastal Utilities Total
Scrubbers $1.3 $1.4 $0.8 $3.5SCRs 0.2 0.2 0.1 $0.4All Other 0.1 0.3 0.2 $0.6
$1.6 $1.9 $1.1 $4.6
47
Developing Technologies for CO2 Capture and Storage
• FutureGen – Southern Company is a founding member and a key participant with the U.S. Department of Energy– The project includes the design, construction, and
operation of a gasification-based plant that will capture and sequester carbon dioxide at full-scale
• We have joined the Department of Energy-sponsored Southeast Regional Carbon Sequestration Partnership– Mississippi Power’s Plant Daniel has been chosen as a
test site for a carbon dioxide geological storage project
48
Mercury Control Research
• Southern Company conducted the first full-scale tests of activated carbon injection for mercury control
• We designed and built the industry’s first integrated Mercury Research Center to test new power plant control technologies
• We are delaying adding expensive baghouses with activated carbon injection by chemical addition at PRB units
49
Land and Natural Resource Conservation
• Power of Flight – protects birds though habitat and species restoration and environmental education
• Longleaf Legacy – supports restoration of longleaf pine forests and helps sequester carbon through tree planting
• Five Star Restoration – national conservation program that provides grants and technical support for riparian (land-bordering waterways), coastal, or wetlands restoration projects
50
Southern’s Returns Among Highest For Level of Risk
Attractive risk-adjusted returns
ED
AEE
SCG EXC SRE ETRFE FPLWEC
PPL PGN
DCEG DTE MDU EIX PCG
PEGPNW TXU
AEPNI AYE XEL DUK
CNP
SO
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Source: Based on annualized TSR for Mirant spin to 12/31/06 and standard deviation for 2002 - 2006 from Bloomberg; includes all large-cap electric utilities covered by Value Line as of 12/31/06
Ratio of Historical TSR to Standard Deviation of TSR
51
Update on FERC Settlement
• In October 2006, Southern Company accepted a FERC settlement order on Southern Power’s pool participation
• The order calls for the functional separation of Southern Power and the embedded wholesale business– Southern Power remains a member of the pool– Southern Power will establish its own marketing, planning, and
sales activities
52
EmbeddedWholesale
SouthernPower
Organizational Implications
Pre Settlement Post Settlement
Embedded wholesale and Southern Power separated and no longer managed jointly as Competitive Generation
Competitive Generation
Embedded wholesale and Southern Power managed as one organization
TraditionalOperating
Companies
SouthernPower
EmbeddedWholesale
TraditionalOperating
Companies