Dan Tucker - Vice President, Investor Relations and Financial Planning Tom Fanning - Chairman, President and CEO Art Beattie - Chief Financial Officer.

Greg Gordon - ISI Group Dan Eggers - Credit Suisse Steven Fleishman - Wolfe Research Anthony Crowdell - Jefferies LLC Mark Barnett - Morningstar Paul Ridzon - KeyBanc Ali Agha - SunTrust Paul Patterson - Glenrock Association Michael Lapides - Goldman Sachs Videla Marti - CDP Capital Andy Levi - Avon Capital Dan Jenkins - State of Wisconsin Investment Board.

Good afternoon. My name is Tommy, and I will be your conference operator today. At this time, I would like to welcome to everyone to the Southern Company’s Second Quarter 2014 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remark, there will be question-and-answer session.

(Operator Instructions) And also as a reminder, today’s call is being recorded. 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, Tommy. Welcome everyone to Southern Company’s second quarter 2014 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 of this conference call.

To follow along during the call you can access these slides on our Investor Relations website at www.southerncompany.com. At this time, I’ll turn the call over to Tom Fanning..

Good afternoon and thank you for joining us. As you know, 2013 was one of our busiest ever from a regulatory standpoint.

The constructive results our traditional operating companies achieved has our company well-positioned to execute our plan to continue delivering on our core commitment to provide clean, safe, reliable and affordable energy to customers and communities that we are privileged to serve. Our second quarter results were consistent with expectation.

Weather was normal for first time in the past few quarters and the regional economies is gaining strength as anticipated. We achieved major milestones in our two major construction projects and continue to expand our track record of solid operational performance.

In a few minutes, I will provide an update on our financial results, as well as our sales and economic outlook. But first, I’d like to begin with an update on the constructions activities at Plant Vogtle and Kemper County.

We continue to make impressive progress at Plant Vogtle Unit 3 and 4 as you can see from the recent aerial photo we have included in our slide deck. Our next major milestone will be completion of the CA05 module for Unit 3, which will comprise one of the major wall sections with the containment vessel.

That module is now outside of the module assembly building and it’s projected to be installed in September.

The next key element for Unit 3 will be CA01, a large containment vessel module that will have the Unit steam generators and a series of concrete pours that will raise the structural concrete currently surrounding the containment vessel bottom-head and bring it to ground-level, typically referred to as elevation 100.

This concrete will ultimately serve as the foundation for the Unit 3 shield building. We currently have 36 of the 47 sub-modules for CA01 on-site and expect to install the completed module in late fourth quarter this year or first quarter next year. The concrete pours to elevation 100 should be finish near year end 2014.

Meanwhile, the latest Vogtle construction monitoring or VCM hearing are complete with a vote scheduled for August 19th. During the hearing, the commission independent construction monitor concur that project risk are consistent with those contemplated when the project was approved and that they are being managed well by Georgia Power.

The construction monitor also concur that -- sufficient oversight is being provided to contractors and global supply chain vendors. It was further noted, that Georgia Power has been successful in meeting requirements to secure the benefits of the DOE loan, production tax credits and other option to help mitigate risk for customers.

We anticipate the filing of VCM 11 at the end of August. I am also happy to report that Plant Ratcliffe at Kemper County had a good quarter, in which Mississippi Power achieved significant construction milestones.

Pressure testing is complete on both gasifier train, a significant step towards the heat up of the first gasifier, which is targeted for late third quarter or early fourth quarter 2014. We also have achieved pipe-tight status, meaning that all piping more than 900,000 linear feet is installed, sealed and ready for testing.

Successful combined cycle testing is winding down at Mississippi Power prepared to place this portion of the plant in service. On the regulatory front, Mississippi continues to engage constructively with the Mississippi Public Utilities Commission staff. There are a number of issues involved that we are working are to resolve.

In the meantime, we remain optimistic about the outcome of these discussions. Elsewhere, I'm pleased to report that the acquisition of the Macho Springs Solar Facility by Southern Power and Turner Renewable Energy closed during the second quarter.

This 50-megawatt facility, the largest solar project in New Mexico is now in commercial operation and can generate enough electricity to power more than 18,000 homes. Southern Power continuing to seek new solar and natural gas projects with long-term contract and creditworthy counterparties.

I will now turn over the call to Art for a financial and economic overview..

Thanks, Tom. For the second quarter of 2014 we earned $0.68 per share, compared to $0.34 per share in the second quarter of 2013, an increase of $0.34 per share. For the six months ended June 30, 2014 we earned a $1.08 per share, compared with $0.43 per share for the same period in 2013, an increase of $0.65 per share.

Earnings for the six months ended June 30, 2014 included an after-tax charge of $235 million or $0.26 per share, related to increased cost estimates for the construction of Mississippi Power's Kemper County project recorded in the first quarter of 2014.

Earnings for the three and six months ended June 2013 included after-tax charges of $278 million or $0.32 per share and $611 million or $0.70 per share, respectively, related to the Kemper County project.

Earnings for the first six months of 2013 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.

Excluding these items, earnings for the second quarter of 2014 were $0.68 per share, compared with $0.66 per share for the second quarter of 2013, an increase of $0.02 per share.

Earnings for the six months ended June 30, 2014, excluding these items were a $1.34 per share, compared with a $1.15 per share for the same period in 2013, an increase of $0.19 per share.

A primary driver for our 2014 second quarter results was more normal weather compared to the same period in 2013, resulting in an increase of $0.03 per share on a quarter-over-quarter basis.

Second quarter 2014 earnings also benefited from increased industrial sales and retail revenue effects at our traditional operating company, earnings were offset somewhat by increases in non-fuel O&M expense. A more detailed summary of our quarter-over-quarter drivers is included in the slide deck.

Economic activity in our region continues to be led by the industrial sector, as evidenced by our 13 consecutive months of year-over-year industrial sales growth. This growth is consistent with national trend such as the ISM Manufacturing Index, which has remained above 50, signaling expansion for the past 13 months.

In our region we continue to see exports play a big role. In the second quarter of 2014 exports from Alabama and Georgia grew at 4.1%, almost twice the rate of the U.S. as a whole. Container exports from the Port of Savannah grew 6.3% in the second quarter of 2014, compared to 2.5% for all of 2013.

This growth has been broad-based across all of our traditional operating companies and across all of our top 10 industrial segments. As an additional point of interest, 90% of our major customers say that they expect their sales for the second half of 2014 to be either the same or better than the first half of 2014.

In the housing margin we continue to see signs of a slow recovery. The most recent Atlanta Federal Reserve survey of brokers and builders indicates that home sales are up from last year. Inventory levels continue to fall and prices continue to increase albeit modestly.

Overall, builders and brokers expect activity in the Southeast to continue to increase. These trends are consistent with our internal measure of new housing activity, new connects, which were up 17% in the first six months of 2014, compared to the same period last year, with positive growth across all of our traditional operating company.

These findings which are consistent with our expectations for the period were underscored at the most recent meeting of our economic roundtable earlier this month. As a reminder, this is a group of regional economist and executives from a handful of our largest customers.

Overall, the economic roundtable affirmed our view that of the continuing momentum behind the industrial sector and the continued recovery of the residential sector.

The group's consensus is that GDP during the first quarter of 2014 was not consistent with employment or industrial production trends and that quarter-over-quarter GDP growth of 3% can be expected for the remainder of this year.

Several of the economist on the roundtable noted that income growth continues to be weak and will likely remain so until underemployed workers are absorbed. This weakness in income growth is reflected in Southern Company's continued weakness in use per customer growth, as well as a signs of continued discipline on consumer spending patterns.

All of this data is reflected in Southern Company’s sales results, industrial sales were up 3% in the second quarter of 2004, compared with the second quarter of 2013, with all 10 of our top sectors demonstrating growth. For example, chemicals were up 5%, paper was up 6% and transportation was up 7%.

As a group, the housing related segments of textiles, stone clay and glass, and lumber were all up 3%. Meanwhile, weather normal residential sales were down 0.6% and weather normal commercial sales were flat in the second quarter of 2014, compared to the second quarter of 2013.

Looking forward, we continue to see this ongoing recovery reflected in strong economic development activity. One example of this is the Elba Island LNG Terminal where a joint partnership of Shell Oil and Southern LNG, a Kinder Morgan Company is adding natural gas export capability at its existing facility in Savannah.

Once fully operational, the associated electrical load increase will be 180-megawatt making it one of the largest customers in our service territory.

Meanwhile, in Alabama we continue to see growth among Tier 1 and Tier 2 auto suppliers for assembly plants we serve, as well as inquiries for suppliers that will serve the future Airbus assembly facility. Our economic development pipeline remains robust.

We are currently tracking some 330 prospective projects, representing 37,000 new jobs and $14 billion in capital expenditures. From this pipeline more than 8,000 jobs were announced during the second quarter of 2014, a 23% increase over the same period in 2013, with the potential for $1.3 billion in capital expenditures.

Now I'd like to share our earnings estimate for the third quarter of 2014, which will be $1.06 per share. I'll now turn the call back over to Tom for his closing remarks..

Thanks, Art. As I've said many times before, Southern Company values the opportunity to engage constructively at all levels of government for the benefit of the customers we serve. This week we had another such opportunity in the formal public hearing on the EPA proposed rule for greenhouse gas emissions at existing power plant.

Several of our company senior officers participated in the hearing yesterday and today both in the nation’s capital and here at Atlanta. We continue to have concerns about the impact of this proposal, particularly with regard to the reliability and affordability of our nation's energy supply.

We are currently reviewing the proposed rule and will submit our formal comments to the EPA in keeping with the established timeline. Our initial review, however, has revealed three primary reasons, why we believe the current proposed rule should be amended.

First, the proposed rule significantly overreaches the EPA's authority by attempting to regulate activities that are clearly beyond the scope of the Clean Air Act and other existing legislation, and that have historically been under the purview of the states.

Second, the detail of the proposed standard do not appear to be workable, relying upon unrealistic standard of performance and violating long standing regulatory construct. And third and perhaps most importantly, the proposal is not in the best interest of electric consumers due it potential negative impact on retail prices and system reliability.

As we have in the past we will continue to engage constructively on all fronts in this important policy debate. We are now ready to take your questions. So, Operator, we'll now take the first question..

Thank you very much. (Operator Instructions) And we will proceed with our first question from the line of Greg Gordon from ISI Group. Go ahead..

Hey, Greg.

Hi. Good afternoon, guys. I apologize if you answered any in the beginning, because I was a little bit late.

I saw that things were looking up at Kemper this quarter you didn't have any further cost escalation beyond your current budget? As we get into the list of activities on the bottom right of page six, at what point over the course of the year should, if you are going to have further slippage, should we be focus -- what are the key things we should be focused on and when will they be incurring?.

So, yeah, we actually talked about this slide, getting ready for the call, year around our 95% of the way through construction. There will be tales of construction, when we say construction is complete there will be tales of construction that go right into just about in service.

So saying its complete is kind of a term of our, but we’re very close to kind of being there in a substantive way. The real risk, I think, going forward relate to start-up and of course, there are the normal issues related to start-up.

But the one think we always say to ourselves is the unknown, unknown and that is, there could be as we go though the start-up process, potential equipment failure that we don’t contemplate or have quick inventory or quick turnaround solution for that could impact schedule.

But with respect to the risk associate with construction, those are winding down pretty quickly. The risks that largely remain in front of us are the risk that relate to start-up..

Okay.

Second question, which is more of a tactical or short-term question just because we've had such a huge build in gas production, natural gas production and we've had a decline in the amount of gas being burned for power gen nationwide and so natural gas prices, partly because of weather, obviously, natural gas prices have fallen a lot? As you look at the rest of the summer, how do you see your gas burn relative to what you burned last year, because if I look at the very short-term data, I noticed that, it's gotten cooler down there over the last few days but you are still burning off a lot of gas relative to where you would be burning it, where the weather was, let's say, a month ago or two months ago? Is there something going on where we should expect a higher gas burn for the balance of the summer or should we assume that if the weather continues to be cool, that you will back down on the gas?.

Well, so, Greg, I think you are all over the question, right. We do steadfast economic dispatch, so whatever the cheapest energy is local provide and whatever energy resource provide the cheapest energy as what we will use.

Look a year ago when gas prices were moderately higher and you had coal prices moderately cheaper, I am sorry, just the opposite, gas prices were cheaper, we burnt a lot more natural gas than we did coal.

What we are seeing in this year is similar to what we projected and that is kind of in the 40% range for both coal and gas from an energy standpoint. We are slightly ahead so far in ‘14 on coal relative to gas. But I would argue with gas dropping down here recently right in the $4 range that gas will pick up a little bit.

So my sense is kind of going forward is kind of where we thought we would be in the general range of 40-40 for both coal and gas. I can you specific number but I’m not sure the differences are meaningful..

Okay. Thank you very much..

You bet..

Thank you. And we will go to our next question is from the line of Dan Eggers from Credit Suisse. Go ahead..

Hey. Good afternoon, guys..

Hey, Dan..

Hey. Tom, can you just give a little your clarification as, the headlines hit on kind of the discovery process of new nuclear.

Can you just maybe explain more broadly how you were thinking about that?.

Sure. Yeah. Sure. Absolutely. It was funny how that got reported. It’s actually on the YouTube website. I gave a speech, I think, I was keynoting at the Bipartisan Policy Center along with Energy Secretary, Ernest Moniz, and with all that energy innovation and after the talk was given, I had a few questions-and-answers.

And I think this was the first question and it really went to, why isn’t anybody else building nuclear and I went on to describe kind of what kind of companies could build new nuclear and what kind of had to be in place and I referred to different energy markets in the United States and at the very end of the comment, I said, something like, and what, I would love to be in position by the end of the year to announce that we are building that was starting even more nuclear.

In doing that, everybody should know, that the way you start the process is the way we start the process at Vogtle 3 and 4, and that is you would begin a permitting process. Remember too that from kind of beginning to end is 10 years or so.

So we are really talking about nuclear generation that could be in service in the middle of next decade and the first process that you start is the permitting process, where we would only do that as we did with Vogtle 3 and 4 with concurrence of our state regulatory jurisdiction, whichever one was relevant at that time.

That I was talking it and what that does is preserves the option to build a nuclear if in fact that looks like it desirable from a customer standpoint in the future..

Tom, with the carbon rule sitting out there or with the review going on, what do you think is going to be the legal course as you guys look at the rule if it stays roughly as written in the final decision and do you guys think there is a potential for a stay or is that too big of an ask?.

That's a fascinating question, Dan. The overreach here to me is so clear and it’s interesting. The EPA says we are giving everybody flexibility. They can’t give you what is not there to give.

The inference must be the somehow Congress via the Clean Air Act gave EPA more power over the electric utility industry and new power over relatively what has been the purview of the state than even the Federal Energy Regulatory Commission.

In other words, somehow EPA is taking the authority to require in some respect renewable portfolio of standard, state energy efficiency standards, they are taking the power to obviate what has been the long standing practice of economic dispatch and incorporate a concept of environmental dispatch and in the course raise prices significantly and perhaps, reduce reliability.

My sense is this overreach is so great. I think there is, number one, a significant opportunity to amend the rule before it becomes final, and number two, to work in whatever jurisdiction is sensible to achieve a better structure or better timeframe in which to evaluate it..

Will determination on a final rule have bearing on the potential construction of additional nuclear division -- nuclear, so you….

Sure..

… would starting this process now facilitate more?.

Yeah. In other words, but, there is also some unintended consequences, the nuclear rule is written really doesn't it actually helps to penalize, people have taken early action. Since 2005 Southern Company has reduced our carbon emissions 26%.

We’ve led the United States in the renaissance of new nuclear and essentially we don't get on to getting credit for those actions. And even in the plant, even if you haven’t started, if you’ve contemplated plant, they would include those in the calculation and you don't get credit for that.

Now, having said all that, any passage of further regulation around greenhouse gases does incent new nuclear, that is clear. And in fact, building new nuclear is in our view has been a hedge against future carbon regulation..

Great. Thank you guys..

Eggers, thank you..

Now, we’ll go to our next question. It is from the line of Steven Fleishman, Wolfe Research. Go ahead..

Hey Steve..

Hey Tom.

How are you?.

Good.

How are you doing?.

I’m doing great. So, first, I guess just to clarify the clarification of the nuclear -- the new nuclear, excuse me.

So, is this -- are you at a point, when you are doing kind of your RFP process or other stuff, where you need to be making decisions on the next round of baseload and, thus, looking at permitting nuclear or something else over the next 12 months or 24 months or no?.

There is nothing new in the statement that we haven’t said numerous times already. We believe nuclear is a dominant solution in the portfolio of Southern Company generation going forward. When all things considered, we need baseload, you need baseload intermediate peaking. We know that coal is kind of moving away from favor in America.

So to the extent, you’re going to do coal. It looks like a Kemper plant. If you’re not going to do coal, it’s nuclear. And so if you’re going to preserve nuclear as an option to add as a baseload resource in the middle of the next decade, you need to start thinking about the steps necessary to preserve that option, that’s all I was referring to..

Okay. And then switching gears, I think Georgia was going to do a pretty large solar RFP.

Is there any update on that process?.

Yes, Steve, they have that process ongoing. There were bids that were made. I think it was late April. There will be a short-list notification sometime in the middle of August and then a final -- the final selection, I guess, would be mid October of this year.

And we’ll know by then, I guess, whether Southern Power or Georgia Power will be either in the short-list or the final list by the October call..

Okay, great. And then I guess, one last question, I guess for Tom. Just -- we started seeing some more utility M&A activity recently in the sector.

Could you maybe just give us an update in your thinking on consolidation in the sector, and how Southern might or might not participate in that?.

Well, here again, this is going to be a standard answer, Steve. We are not going to comment on any specific transaction, of course.

And of course, it is standard for management to exercise its fiduciary responsibility to evaluate option enhancing -- the value enhancing strategy for its shareholders to the extent, any of those opportunities come to fore, of course, we’ll pursue it and if successful, announce it. But it’s something we do all the time. We look all the time.

And our position is we’re reasonably conservative from a financial standpoint. We believe in maintaining the highest level of financial integrity. I know one of the invoke idea is these day is to use cash. I think the underlying presumption there is to use debt at least as a bridge underlying the cash.

But I really don't have anything new to add that I haven’t said before. We’ll look at it all the time. You look extraordinarily hard to complete successfully that really do accrete to shareholder value. But that doesn't mean we won't be trying..

Okay, great. Thank you..

Yes, sir..

Thank you very much. We’ll go to our next question. It is from the line of Anthony Crowdell from Jefferies LLC. Go ahead..

Good afternoon, guys..

Good afternoon, Jeff.

How are you?.

Just hopefully a quick question on the Southern Power project.

I’m just wondering, what type of returns are you seeing on solar now? And I think, with the advent of YieldCos and all these other type entities, has there been like a downward pressure on the returns you are getting from renewables?.

Well, we continue to look at that, Anthony. We’ve got a process whereby we evaluate every deal on its own. There is not a one-size fits all approach here.

We look at the terms and conditions around whatever they maybe, the offtaker, where the project is located, whether there is any other legal risk associated with the contracts within the states that we’re looking at. And we’ll adjust our hurdle rates based on those.

But I’m not going to comment on any kind of return number that we look at because it varies honestly with every project we did..

It’s reasonably consistent, I think. We haven’t changed our hurdle rates as we expect kind of what the market is showing us. I haven’t seen a dramatic change of what yield curves are offering in the market..

Great. Thank you guys..

Yeah, bet..

Thank you. And we’ll take our next question. It is from the line of Mark Barnett with Morningstar. Go ahead..

Hey Mark..

Hey, good afternoon everybody.

How are you doing?.

Great..

This is going to be a tough question, but I know you can't really comment on the details. But I guess, maybe the larger items that we should really be focused on when we see the outcome of the Mississippi prudency process there.

And can you maybe walk us through how that's going to -- how it will be announced and what to look for?.

So we alluded to it in the opening comments and it really kind of go to the idea of global settlement. There is a whole host of the issues that could be taken into account in what we describe as our ongoing constructed dialog with this type of questions. I know you all will say about where are you in that.

And I think the best thing for us to say right now is to let the people do their work and when we have something to announce, we’ll announce it, to not say too much at this point..

Good..

We remain optimistic about our result..

Okay, okay. I guess the most likely outcome, like you mentioned is maybe more of a settlement between the related -- the parties involved..

Well, sure. We are then working on our -- so called global settlement that takes into account a number of issues and we think we’re having constructive dialog about that issue..

Okay. Thanks. I know that's pretty hard to talk about at this point. Just a quick question on operations. It's a smaller item, but kind of an ongoing trend from the last quarter. You have a pretty major shift in your non-Powder River burn away from the Powder River Basin.

Is this just a function of where your contracts and pricing are at or is there something else moving that needle?.

I think that’s a function of outages. We had some of our Powder River units..

Thank you very much. We’ll take our next question from the line of Paul Rizdon with KeyBank. Go ahead..

Hello, Paul..

Just any updates on the Vogtle dispute?.

No. We have all engaged in conversations. There is kind of two ways to think about that. And I would direct you to go to their earnings call as well. But there is the nature of the conversation between Georgia Power and the Consortium. Recall the Consortium is Toshiba, Westinghouse, Chicago Bridge & Iron.

And then there is a conversation within the consortium among and between Westinghouse, Chicago Bridge & Iron, and Toshiba. In effect, what I’m saying is both of those have to be resolved in order for us to reach the settlement..

Any venture, I guess, as to the timeline until settlement?.

No, I have said this before and I don’t mean to sound glib. It’s something that could happen quickly or something that could take a long time including going to litigation. Recall, venue is Augusta, Georgia..

And then just back to the new, new nuclear, so anyone who is expecting an announcement out of Southern by year-end took your comments out of context?.

Sure. Look that’s something we said consistently. I was kind of surprised at the amount of press it got. Love to be in a position by the end of the year to announce and what you do when you start that process is you undertake essentially a permitting process.

And we would only do that with the approval of the relevant jurisdiction in order to recover those costs. Recall also that’s not a commitment to build, that’s a commitment to gain the option to build.

So this is something that will -- these are first steps you take in order to achieve new generation by the middle of the next decade, for heaven’s sake, something like that..

Okay. Thanks again..

You bet..

Thank you. And we’ll go to our next question from the line of Ali Agha from SunTrust. Go ahead..

Hi Ali.

How are you?.

Good. Good afternoon. Just a couple of questions.

One, Tom or Art, can you remind us in your ‘14 numbers, what weather-normalized electric sales have you assumed for the year? And how are you looking at them on a longer-term basis? Can you just remind us of those numbers?.

Yeah. On the -- if we look at ‘14, total retail sales, we expect it to be up 0.7% over 2013 level. And then beyond that, it really is around 1% to maybe a little stronger than that. That’s a function of how fast the economy grows in the ‘15, ‘16 timeframe..

And year-to-date?.

Year-to-date we are standing at 1.1%..

All right.

And I know third quarter obviously is the biggest, but given the trends you are seeing, would that cause you to change your full-year outlook at this point?.

No, we don’t comment on that until third quarter..

Yeah. And just to remind everybody, we only talk about guidance twice in a year. Once when we give it and once when we kind of update it in October..

Okay. Separately, Art, I know last time, I think it was in the last earnings call, you had mentioned with regards to equity, needs for equity that you were pretty much close to your limit in staying out of the equity issuance side.

Are we still there or can you just give us an update on your latest thoughts regarding equity needs perhaps in the future?.

Yeah. Ali, what we talked about is issuing about $600 million of new equity this year. And through June, we’ve issued $331 million. So we’re well on track to hit our target. And our target hasn’t changed..

Okay. And last question, Tom, for you. Again, you all have given us an update longer-term, talking about your earnings trajectory, slight slowdown next couple of years and then a pickup again down the road.

Are you seeing opportunities that could change that trajectory and cause the near-term growth to go up as well or is that still the profile we should be looking at for the next five years or so?.

That’s still the profile. You know that we’re a conservative company and so we wanted to give you kind of -- we've never really gone out that far talking about what our earnings trajectory might be. And the reason we did that because we felt it had a shape. And so we wanted to describe the shape to you all.

We continue to work hard on late to improve that shape. We have several things that we’re kicking around internally here, opportunities with Southern Power, opportunities around the traditional business. But not that we want to give the weight that would be derived from conversation in this form, still kicking around a lot of stuff..

Got it. Thank you..

Yes sir. Thank you..

Thank you very much. And we’ll go to our next question. It is from the line of Paul Patterson of Glenrock Association. Go ahead..

Hey Paul.

Paul?.

Hi.

How are you doing? Sorry about that?.

Sure..

Hi, how are you doing? Sorry about that. A lot of my questions have been answered, but just to sort of fall back on Kemper. If I understood your comments earlier, it sounds like you guys pretty much feel that the boundaries are laid out in such a way that there probably isn't going to be much more of a cost increase potential there.

Is that -- am I understanding that correctly?.

So I am looking at all those risks. If I were to focus more on startup risks, what would the risk be and I used the funny phrase, unknown, unknown, right. So let’s say as we go through startup, some piece of equipments failed that we didn’t anticipate.

We tried to mitigate or at lease be proactive in mitigating startup risks by providing I think extra man of inventory of we think -- what we think are critical parts to the plant.

But in startup if something does not perform well or needs to be redesigned or whatever, that could add more months to the schedule for example and that would require increased cost. Right now we have reserves through I guess the very end of May, June for us whatever you to call it. So we maintained that estimate.

Obviously if we didn’t have comments to that estimate we would have changed it. We had a good quarter in construction and I think being pipe-tight. So that means essentially all the pipe is erected. Now we still need to test it and other things. We just had a good quarter and I want to make sure that’s been on the site there.

They are just working like crazy. Understand that we appreciate their effectiveness this quarter. The challenge now transitions I think largely become a structure project to a start project. That will have its own set of issues we will see..

Okay. I did notice that the first fire of gasifier A's schedules have been pushed out.

Would that be a key thing to look for in September or October as being one of key test?.

That’s right, Paul. I mean to the extent you can’t made that kind of schedule that puts pressure on the back end, we move the schedule in concert with the new estimated, new member when we came up with the May schedule. So we changed a lot of the major components along that way.

So that schedule is consistent with the completion date at the end of May..

Okay. And then I think Steve was asking about M&A. And I remember previously that you guys had a preference for the super Southeast. And I was sort of wondering just geographically, does that -- I'm not sure exactly what that means.

Does that include Texas? Or is that still something that you guys have a preference for the Southeast versus other areas?.

Let me speak very broadly about that. The preference in something like a super Southeast would be where you could gain natural synergies. That’s what that comment alludes to, okay. So let me just pick stuff out of the air. We would have more synergies operationally in a company that was inside our footprint or adjacent to it or whatever.

Then, we would for a company in Canada. That’s really the concept you are after there. So in preferring the super Southeast, it is the idea that you can more readily gain operational synergies and let me also distinguish between asset M&A where you don’t really require synergy so much.

That’s like building a solar plant in New Mexico relative to corporate M&A which is I think what you are referring to..

Okay. I got the picture. Thanks so much..

Thanks..

Thank you. And we will go to our next question. It’s from the line of Michael Lapides with Goldman Sachs..

Hey, Michael, how are you.

I am all right, Tom. Thanks for taking my questions. Really a near-term one, and this may be more of an Art one.

Third quarter guidance, if I back out all the one-time items from third quarter of last year is flat to actually down a little bit? How should we think about the puts and takes, not really just for third quarter, but also for fourth quarter -- meaning, kind of what's weighing on third quarter? Why isn't there a little growth year-over-year, of third quarter of 2013 to third quarter of 2014? And what does that mean or imply for fourth quarter? Is it an O&M timing issue? Is it a view on kind of the summer? Just trying to ask some of the near-term puts and takes..

Yeah, O&M is certainly an aspect that if you look at our history, we are second half spending company. And depending on actually how the third quarter goes because the third quarter represents fully 45% of our annual earnings, it’s a big player and that points directly at four quarter earnings over the last five years.

We have earned anywhere from $0.18 and $20.10 to 0.48 last year and that’s a reflection of where we end up through the third quarter. We also have weather impacts as well as you know and we’re assuming normal weather throughout the remainder of the year, but that’s certainly something we have to plan into account for.

The other aspect is the share count and share counts are up. We talked about issuing new shares this year. So you got to weigh that into and once you factor all of that net, these are all the things that are as you say puts and takes on where the number went up..

Got it.

And when we think about just the next year, year and a half, maybe year or so, what's next on the horizon going across the Southern system in terms of just thinking about rate filings, rate actions, that could involve not just pretty small numbers, but where there is stuff on the horizon that folks should pay a lot of attention to?.

Michael, this is Art. Georgia completed their rate case last year, right. So they are good through 2016 from a new rate filing perspective. And when you look at Gulf, Gulf power miss a -- well they filed the rate case last year that was settled. They are going through 2016 as well.

Alabama as you know has filings every year and there will file hat something in the fall so you would need to look at their as to what particular filing would have. There are also clauses at some of our operating companies that could operate as well. Alabama being one of those.

You also have fuel issues at each of our operating companies .Right now systems wide we are 283 million underrecovered on fuel and some of our companies have had to file with their regulatory bodies just as information not necessarily for a change in rate, but some of them maybe dealt, with some of them maybe pushed out.

And then Mississippi I believe is good through 2025-$016 as well from their PEP filings. So it varies but o think to a large degree al of those are pretty well settled. Alabama be in the annual filing that you would have to each year..

And in Alabama, you would attempt to recover the deferral that you made in the prior RSE process?.

Yeah, of the O&M deferral that what you were referring?.

Yes..

That’s correct. And that’s over another period of time I think over 3 years. Any of that is always part of the calculus..

Yes, got me. And then last item, just thoughts on bonus depreciation. It’s kind of been bantered around back and forth a little bit in DC.

Just curious in terms of, A, what the impact would be on cash -- I don't know, needs and uses for next year, a little bit, if it gets extended? And, B, just the general -- from a policy, and from an impact on Southern's spending level, how you think about it in the broader energy policy framework..

Well, Michel has already in. At 2014 we are looking at anywhere 200 to 225, but when you look at 2015, it’s would certain impact some of our assets and it will impact some of our match compliance. So I don’t have a number to share with you, but it could dramatically impact the financing that we do from a cash flow perspective.

The other side of that sword is the fact that it reduces rate based growth. So they are good and bad associated with bonus depreciation..

Got it. Thank you, guys. Much appreciate it..

Thank you..

Our next question is from the line of Videla Marti with CDP Capital. Go ahead..

Hello, Videla..

Good afternoon, how are you?.

Great..

I have got two questions kind of first one is much more industry type of thing versus you guys specifically.

Is there a lot of press recently about couple of years ago, there was a huge solar flare that came off with close to threatening our entire grid and doing that and historical even back in the 1859 that knocked out all the telegraphs and things of that nature.

So I am just kind of wondering one kind of what yourselves and industry are doing to possibly prepared for that type of event that just like kind of tail end kind of things. And that is also tied into the cyber issues.

Well, so if you can just kind of talk a little bit about obviously given your position in the industry, you have to sure you guys are extremely involved in all this, just like to get a sense of that and I’ve got separate secondary separate question..

Yeah, so we are involved. I chair for the industry and that’s not IOUs, that includes co-ops and municipal utilities, it’s called the ESCC, the Electricity Sector Coordinating council. You may know that under the Department of Homeland & Security they have cut commerce in the United States, they segmented it into 16 pieces if you will.

And so our sector is one of the 16 so I chair that electricity sector coordination council. And we are responsible essentially for proactive planning and adaptive responses to all things cyber, physical terrorism and natural disasters. And some of the things you suggest are absolutely part of our purview and there is quite a bit of activity going on.

And in fact the government I think you can look this up. They government has held the electricity sector up as -- I think the best sector in terms of preparedness and response to different threats. Lot of different things we could go into here.

You know that we have been involved in response to the kind of request for additional physical security updates. So this kind of interrogatories back and forth between NERC.

The cyber issue you may know that we have adopted a single kind of cyber threat regime, a set of software that’s kind of under the offices of the government which we will be able to detect anamolies within electronic commerce, servers other things.

Access those anamolies and then be able to piece together information around the potential for threats and the best way to either protect or respond to a current threat.

All of that is going on right now and I would say on the third sector this response of natural disaster CEO of AEP great friend of mine, great guys have been leading an effort in the industry to meet together a more effective response from what they call RMAX regional mutual assistance groups.

We actually I thin performed well with Hurricane Sandy, but I think even now we will perform better and I think we are much better suited from a comprehensive storm to be able to respond great. So I would be glad to fill it up, with a lot more details, but that’s the quick flyby. The ESCC govern cyber terrorism, physical terrorism, natural disasters.

We work hand in glove with the department of homeland security through the department of energy. We have I think unique among all the other industries deep CEO participation. This is nothing that delegated down. And I think we've already demonstrated, I think really good plan and responsive to threat..

How much is this costing a year or cumulatively over a period of time in order to address all these possibilities?.

Videla, that changes based on each company. Each company is going to have a different kind of response to that question. So if you have somebody in mind, it’s much better for you to ask them than me. Let me just give you the aggregate answer. The amount of money that we’re talking about pale in comparison to the benefit.

As an industry, we have always been committed to providing the best reliability and we understand that the United States is in a new era. And we all understand that not only responding to but being proactive to defend ourselves against these threats is job one for us.

So, yes, it’s going to require some more money, but I think the cost pales in comparison to the benefit..

Okay. And I guess one last thing going back to the old M&A question couple of times. I mean, in my career, last time you guys ever did a corporate-on-corporate was when I first showed up in 1987 when you guys bought savanna. And I'm just wondering given the state of the industry, I mean other than finding something discrete.

Is there anything that is within -- what’s going on in the industry that makes your attention or interest in M&A any higher than what it’s ever being in the past?.

That’s a very interesting question. My quick answer is probably not, not really. I think we are where we have been. We've always been very consistent in our love of the integrated regulated utility model. We always think that we generate the best long-term value for shareholders by providing the best risk-adjusted returns around.

We think that our jurisdiction have demonstrated that we can deliver attractive returns with low-risk profiles and therefore from an EVA sense deliver I think a terrific value proposition. For us to undertake M&A activity we have to be convinced in the long run that we can preserve that kind of performance. That’s just a big challenge.

When you look around, the expression also don't chase fads. A lot of companies will pursue things in the short run. We really are focused on the long run. So we don't get kind of dazzled by short-term trends, we tried to keep our eye on the right long star here..

Appreciate. Thank you, Tom..

Yes..

Thank you very much. And we get our next question from line of Andy Levi with Avon Capital. Go ahead..

Hi, Andy.

How are you?.

Yeah. I’m good. Thank you. And I thought that was a very good question on last one, we are last. And I apologize ahead of time for asking this question, but I feel the question is need to be ask because I just had a notice it’s coming up in one of the companies that your doing businesses.

So, if you look at kind of CBI and its stock price has dropped from 85 to 60. And I am by no mean an accounting expert or an expert in CBI, but obviously this is the financial issues that were brought up whether they are true or not.

But I just want to know how kind of that affects your thinking and whether it’s affected any of the construction or are there any concerns that Southern has relative to CBI..

Yeah. And Andy, thank you for the question. You all know this we’re completely transparent, we love question. Anything you want to ask is fully fair game, so never apologize. The second thing is we think CBI is a great partner in this project. We think the performance frankly off the project. The challenges have been redo some states comment.

And I meet periodically with Philip Asherman, their CEO back. In fact, Buzz Miller and will flew to Houston two weeks ago to meet with them. Just go eye to eye on certain issues. We do that all the time. And frankly, I think this week we’re meeting with Westinghouse and Toshiba personnel and DC. So, this is something that we do as an ongoing matter.

This is not constructing plant Vogtle 3 and 4, in many respects, it’s not a delegated activity. But Buzz Miller certainly does a great job, but we’re all involved. With respect of any challenges that CBI had recently that have been in the press look the right people that I ask about that is CBI.

We can't speak for them at all and we do look at their earnings call and at least from our position in terms of the interrelationship, we have on plant Vogtle 3 and 4. We think they have fully explained that to the investment community and we are very satisfied with their relationship in the consumer channel and their relationship to us..

Great. Thank you very much for answering that..

You better. Thank you..

And we’ll get our next question from the line of Dan Jenkins, State of Wisconsin Investment Board. Got it ahead..

Hello there..

Hi. Good afternoon. I have a couple questions on your slides on Vogtle, Kemper, and then some on related to your sales. And excuse me if these are repeats, but I kind of missed the beginning. I had some issues with calling in.

But I just wanted to try to get a sense on slide 4, how we should think about the timing? The things you have listed as near-term and on the horizon are those things that will occur in the third quarter, or how should we think about the timing of those items that you have classified there?.

Yeah. Dan, this is Art. CA05, I think we get dressed in the script that we talked about this morning and we’re looking at like it was September. Before CA05, that what we did comment there was, is out of the module assembly building but it is a waiting.

It’s going under further modifications but it will be lifted sometime within the next month or two into the nuclear island. But setting the containment vessel lower ring, those are already complete and ready to go. They're going to probably do that after they insert CA05, so again, from a timing perspective, it sometime probably September.

And then the cooling tower vertical construction, I guess on unit 3. I'm guessing Dan, and this is sometime in the next four months. But Dan, that really is not what we would call critical path. Critical path is all in the nuclear island. In terms of unit four, again module fabrication has just begun on their major module.

The nuclear wall installation will continue and by the way we’re making great progress on unit four. If you compare activities, we’re learning a lot of lessons from our construction in unit 3 and applying them on unit 4.

And then the turbine building vertical construction is certainly not critical path either on unit 4 but it is going very well and you'll see steel come up out of the ground, probably sometime late this year..

Yeah. If I do that real quick, I would say and it just goes back. Dan, maybe you miss the reading on the script. CA05 September, CA01 late fourth quarter or early first quarter next year, Elevation 100 concrete pour near year end..

Okay. And then on Kemper, I was wondering just I was looking, prior to the call, at your presentation I think you did back in June. And I just want to make sure I understand the terminology. You've mentioned first gasifier fire expected late third quarter or early fourth, where earlier it set first gasifier heat-up targeted for mid-to-late summer.

So is heat-up and fire different, or are they the same or how should I think about that?.

Hey Dan, those are the same. And it’s moved out a bit again. It’s getting ready, doing a lot of the milestones ahead of that, like airflow testing and making sure the lignite dryers work like they are designed to do. So there are test all along of the way with equipment that Tom describes earlier in the call.

But the pressure test on Train A took a couple of three weeks or whatever the pressure on Train B went very quickly. So we’re very gratified with our progress so far..

I know the last quarter, I think you talked a little bit about how the timing of these in-service dates on Kemper have some implications for the tax credits and so forth, or the investment tax credits. And you have here first syngas production expected late this year.

Would that be enough to qualify that for those credits this year, or not, if you were able to achieve that?.

Tax perspective, from a mix bonus depreciation perspective will be the combined cycle by putting it in service -- for bill. They push is bonus depreciation into 2015 as well. So we just have to wait. That probably wouldn’t happen until later this year.

But we really don't want to get into all the details of that because we don't want to front run the regulatory discussions going on..

Okay. And then just the last question I had his kind of related to -- your industrial sales year-to-date have been up almost 3%, which is quite a bit stronger than, I think, your forecast. I wonder if you can give us a little more color just on….

I’ll catch you up. Yeah. It was broad based, you look at our top 10 industrial segments, all of them show growth most of the quarter and year-to-date period. Chemicals, our largest segment, was up 5.4% for the quarter. Primary metals are second largest was up 3.5%.

So it’s been very broad based and you think geographically it was across our entire footprint. All the operating companies participated in the growth and expansion on the industrial side..

And your roundtable, economic roundtable seems to suggest that people were bullish about prospects going forward. So we expect it to continue..

Yes, one other element that you may have missed, Dan, was that we also survey our top customers, about what their sales going to be over the next six months and 90% of the risk today through 2014. So that’s a very bullish indicator to me that they’re expecting similar sales of their products into the market..

Okay, and then the last thing just on the residential side, in terms of customer growth.

Is the customer growth in line with what you expected, or how is that tracking?.

Yeah. It’s going directly in line with what we expected. We’ve added 13,300 residential customers since the end of last year. If you look at a year-over-year it's right at 25,000. So it is going directly in line with our expectations for the year..

Okay. Thank you..

You are welcome..

Thank you very much. And at this time, there are no further question. Sir, are there any closing remarks..

Yeah. Just want to say thank you again for participating with us this afternoon. The team here is working hard to generate value by continuing the attractive returns that we’re able to demonstrate and manage risk, especially in our major projects as we go forward.

We appreciate your attendance and will be with you shortly as we hit the road as we always do. Thank you very much..

Thank you. Good day everyone..