Daniel Tucker - Vice President, Investor Relations and Financial Planning Thomas Fanning - Chairman, President and Chief Executive Officer Arthur Beattie - Executive Vice President and Chief Financial Officer

Greg Gordon - Evercore ISI Dan Eggers - Credit Suisse Steven Fleishman - Wolfe Research Jonathan Arnold - Deutsche Bank Paul Ridzon - KeyBanc Michael Lapides - Goldman Sachs Stephen Byrd - Morgan Stanley Brian Chin - Bank of America Merrill Lynch Ali Agha - SunTrust Mark Barnett - Morningstar Julien Dumoulin Smith - UBS Paul Patterson - Glenrock Associates Dan Jenkins - State of Wisconsin Investment Board Ashar Khan - Visium

Good afternoon my name is Rebecca, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Southern Company's fourth quarter 2014 earnings call. [Operator Instructions] 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, Rebecca. Welcome everyone to Southern Company's fourth 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 for this conference call. To follow along during the call you can access these slides on our Investor Relations website at www.southerncompany.com. We have a full agenda for today's call. We will begin with a brief recap of 2014 operational highlights, followed by an update on the Kemper and Vogtle projects. We will then discuss fourth quarter and full year 2014 financial results and sales results, and finally we will provide earnings guidance for 2015. At this time, I'll turn the call over to Tom Fanning.

Good afternoon and thank you for joining us. I am pleased to report that Southern Company's franchise operations have never performed better than they did in 2014. In 2014, we continue to provide the best customer service in the business. In fact, Southern Company and its four traditional operating companies occupied the top five spots for all customer classes combined in the customer value benchmark survey, our annual peer comparison of United States electric utilities. This marks the 11th time in the past 13 years that Southern Company has ranked in the top cortile for all customer classes in that survey. And earlier this month, those of our traditional operating companies that were rated in the J.D. Power & Associates survey, all ranked either first or second in their respective categories. Alabama Power was also named the most-trusted residential electric utility in America by Lifestory Research, an independent consumer market research firm. In terms of system reliability, we have continued to set and raise the bar. Our 2014 peak season EFOR of 1.9% was particularly exceptional compared to the most recent five-year national average of around 9%. And our transmission and distribution businesses performed superbly, setting all-time system records for frequency and duration of transmission outages as well as an all-time system record for distribution outage frequency. Meanwhile, we achieved our second best year ever in the duration of distribution outages. We also continue to grow our wholesale renewable portfolio through our Southern Power subsidiary, which added three new solar facilities in 2014. The 20 megawatt Adobe facility in California, the 50 megawatt Macho Springs facility in New Mexico and the 150 megawatt Solar Gen 2 facility in California. Southern Power also had a 131 megawatt solar plant under development in Georgia that is expected to begin operation in late 2016. With completion of this facility, Southern Power is expected to own more than 460 megawatts of solar capacity, and is clearly becoming an industry leader in the advancement and operation of this important technology. In these areas and many others, Southern Company's franchise business continues to lead the way, strengthening existing operations and seeking new opportunities to expand our reach, all for the benefit of the customers and communities we serve. Let's now discuss our two large construction project, beginning with plant Vogtle Units 3 and 4. As you can see from the site photo, we have included in our slide deck, progress continues on Vogtle 3 and 4, including completion of the 601 foot Unit 3 cooling tower in December. Our focus continues to be on quality and safety for the entire project with the two nuclear islands, as our critical path going forward. Major concrete work is progressing on both units, as we prepare for key module placements later this year. For Unit 3, we are working towards installation of the CA01 module inside the containment vessel this spring and the first shield building panel this summer. For Unit 4, we are working towards installation of the CA04 module in the containment vessel and assembly of the CA20 auxiliary building. Vogtle 3 and 4 remain a valuable investment for customer. Considering all of the $2.3 billion in projected customer benefits, including production tax credits, DOE loan guarantees and CBI pay-in rates, in addition to the benefits of low cost nuclear fuel, we expect the net rate effect on Georgia Power customers to be approximately 6.8%. Recall that when the Georgia Public Service Commission initially approved the project in 2009, base rates were expected to increase 12%. L.A. last week, we disclosed the receipt of a revised forecast for completion from our contractors that reflects an 18-month delay from the previous estimated in-service days. The process of reviewing the revised forecast for completion, the drivers for change and possible mitigation opportunities continues. We have not agreed to any change to the guaranteed substantial completion dates, nor do we believe that all efforts to mitigate the contractor delays have been made. Based on our review thus far and considering the fixed and firm nature of our EPC contract, we believe the contractors are responsible for their costs associated with the delay and any costs to mitigate. We will still be responsible for our share of the owners cost. For example, cost associated with oversight and operational readiness, which we estimate to be approximately $10 million per month. We will also continue to incur financing cost of approximately $30 million per month. Our contract also provides for liquidated damages for each day the two units are late, and this stipulation should help mitigate the cost of any delay. Largely because of the protections provided in our EPC contract, even if one assumes the entire 18-month contractor delay, the rate impact to customers is minimal and were made solidly inside our earlier projection of 6% to 8%. We will continue our review process and plan to file our 12th Vogtle Construction Monitoring Report with the Georgia Public Service Commission on February 27. Now, let's turn to an update on the Kemper County IGCC project. As we shared with you in October, we are moving down three parallel path towards first syngas production in the third quarter of this year. I'm pleased to report that all three paths, operational training, control systems validation and start-up and check-out activities are underway and progressing well. Steam blows and a series of low pressure tests were completed in late 2014. The first quarter of this year will include critical airflow tests as well as first fire of the gasifier this spring. During the same timeframe, we will be testing and tuning our Lignite delivery system. The combined cycle at Kemper project also continues to perform very well. We expect the fine tuning we've enabled to do while operating the unit on natural gas will benefit the project greatly during the final integration with the gasifier. With construction largely behind us and in recognition of the critical startup and operational activities ahead, in early December we augmented our existing team by adding a new Site Vice President, Chip Troxclair. Chip brings over 30 years of industry experience to the project, primarily in the startup and operation of gasification plants. Chip's extensive background combined with existing expertise, already on site, will help us navigate the startup process all the way through the operation of the facility. Turing to the regulatory front, we continue to have constructive discussions with the PSE staff in Mississippi. As is our usual approach, we prefer to let those discussions conclude, before we share any details. I'll now turn the call over to Art for a financial and economic review.

Thanks, Tom. As you can see from the materials we released this morning, we had solid results for the fourth quarter 2014 as well as for the full year 2014. For the fourth quarter of 2014, we earned $0.33 per share compared to $0.47 per share in the fourth quarter of 2013. For the full year 2014, we earned $2.21 per share compared to $1.88 per share in 2013. Our results for the fourth quarter 2014 include after-tax charges of $43 million or $0.05 per share. And the earnings for the full year 2014 include after-tax charges totaling $536 million or $0.59 per share related to increased cost estimates for construction of Mississippi Power's Kemper County integrated gasification combined cycle project. Earnings for the fourth quarter of 2013 include after-tax charges of $25 million or $0.03 per share. And earnings for the full year 2013 include after-tax charges totaling $729 million or $0.83 per share related to increased cost estimates for construction of the Kemper project. As a reminder, Mississippi will not seek recovery of estimated cost to complete the facility above the $2.88 billion cost cap, net of Department of Energy grants and exceptions to the cost cap. Results for the full year 2013 also include an after-tax charge of $16 million or $0.02 per share for the restructuring of a leverage lease investment recorded in the first quarter of 2013. Earnings for the fourth quarter and full year 2013 also include $12 million or $0.02 per share of insurance recovery related to the March 2009 litigation settlement agreement with MC Asset Recovery, LLC. Excluding these items, earnings for the fourth quarter and full year 2014 were $0.38 and $2.80 per share, respectively, compared with $0.48 and $2.71 per share, respectively, for the same periods in 2013. Earnings for the fourth quarter and full year 2014 were positively influenced by retail revenue effect at Southern Company's traditional operating companies, offset by increased operating and maintenance expenses. Full year 2014 earnings were further positively influenced by closer-to-normal weather and increased customer growth compared with the full year 2013. Moving now to an economic and sales review of 2014. As expected, economic growth in 2014 was modest, but after experiencing weakness during the first quarter, the company expanded strongly throughout the remainder of the year. This expansion was led by manufacturing output, increased exports and a stronger domestic economy. Total weather adjusted retail sales grew 0.9% in 2014 led by industrial sales, which were up 2.3% in the fourth quarter and 3.3% for the year. We have now enjoyed seven consecutive quarters of positive year-over-year industrial sales growth in our region. We experienced growth across all major industrial segments, with sales now at pre-recession levels. The strongest segments include primary metals up 8% and transportation up 6%. Housing-related industries continue to improve with both lumbar and stone, clay and glass up 5%. Weather adjusted residential sales were essentially flat for 2014. Customer gains in the first quarter of 2014 were interrupted due to extreme weather, but began recovering in the second quarter. In fact, we added more than 31,500 new residential customers in 2014, 15% ahead of 2013, and saw the issuance of 57,000 residential building permits or 6% more than in 2013. Personal income, meanwhile, grew at 2% in 2014 compared with flat growth in 2013, but a higher share of multi-family customer gains continues to challenge use per customer growth. Weather adjusted commercial sales were down 0.4% for the year and continue to be challenged by high office and retail vacancy rates. In Atlanta, for example, vacancy rates were 18% versus a national average of 17%. On the bright side, however, employment growth continues to absorb excess office and retail space in Atlanta, which is ranked number 10 nationally in overall office market activity and number one in hotel occupancy rates. Meanwhile, our economic development pipeline remains robust with more than 300 projects, representing 43,000 potential jobs and over $29 billion dollars in potential capital investment. Major announcements in the fourth quarter of 2014 included the decision by Mercedes Benz to relocate its U.S. headquarters to Metro Atlanta, a move that will add some 800 jobs to the local economy. General Motors' decision to locate a technology development center in Metro Atlanta creating 400 jobs and plans by Unisys for a research and development center in Augusta, which will create some 700 jobs. In addition, Häring, a manufacturer of precision automotive components will locate a production facility in Hartwell, Georgia creating an additional 800 jobs. Looking ahead to 2015, industrial sales are expected to lead the way with growth of 1.7% continuing the momentum of the last seven quarters. Some of our industrial customers could be positively impacted or affected by lower oil prices, while others could be negatively affected by an increase in the value of the dollar and a slowing global economy. Elsewhere, we anticipate continued residential growth of around 1% and commercial sales grow of approximately 1.4%. The primary driver of residential sales growth should be continued strengthening of residential customer growth and a continued recovery of the economy. The strengthening of personal income growth. Both residential and commercial sales should benefit from lower oil prices, which some have characterized as a $700 per car oil dividend. As noted earlier, the Atlanta office market is one of the most active in the U.S. with vacancy rates dropping throughout 2014. In 2015, we expect to add more than 1 million square feet of office and retail space to be added in just three new Atlanta area mixed use developments, Ponce City market, Avalon and Buckhead Atlanta. These new commercial projects are expected to absorb the majority of their new space during 2015 and should therefore contribute to increased energy sales this year. As a final note, we reengaged earlier this month with our economic roundtable group of regional economist and executives from several of our largest customers that meets twice a year. The panel has indicated that they expect GDP growth of approximately 3% in 2015, consistent with our own expectation, but we're cautious about the potential impact of a stronger dollar in the short-term and higher oil prices later in the year. The group agrees with our expectation, that industrial activity will continue to improve, but believes that growth will be more restrained than in 2014 and that U.S. housing markets will continue on an upward trend. Meanwhile, the group expects the global economy to remain sluggish. In addition to our new sales forecast, we have included an updated capital expenditure forecast and financing plan in our slide deck. Our CapEx forecast totals $16.6 billion for the three-year period, 2015 to 2017. With environmental compliance CapEx for MATS wrapping up in 2015 and early 2016 and Kemper CapEx concluding in early 2016, the CapEx for our traditional operating companies is projected to decline from $5.4 billion in 2015 to $4.2 billion and $3.9 billion in 2016 and 2017, respectively. As we highlighted during our call in October, and as Tom reiterated earlier in this call, Southern Power had tremendous success finding new renewable projects in 2014. The 2015 and 2016 base CapEx forecast for Southern Power include the projected investments for several of these projects. As we look ahead, Southern Power continues to pursue additional renewables projects that meet our investment criteria. To account for these new potential investments, we have designated $1.9 billion as a placeholder CapEx for 2015 to 2017. Since the 30% investment tax credit will be reduced to 10% after 2016, most of the placeholder dollars are allocated 2015 and 2016. Our external financing plan reflects zero equity needs for 2015 to 2017. Our forecast assumes more than $1.8 billion in additional draws over the three-year period on our DOE loan guarantees for plant Vogtle 3 and 4. And I would like to note that we have been very pleased with the success of this financing program. The financing savings we have captured through our draws to date have exceeded our projection, further increasing the benefits that we have gained for customers since certification of the project. Moving now to EPS, our earnings per share outlook. Our earnings per share guidance for 2015 is $2.76 to $2.88 per share. We have slightly widened the range for 2015, particularly to address to account for potential variability in Southern Power's earning. As I discussed earlier, our plans assume that Southern Power will continue its efforts to find renewable projects that meet our investment criteria. The middle of our guidance range assumes that Southern Power is able to invest all of the placeholder CapEx that we have included in our forecast. The size of the range recognizes that we may find fewer or more projects than we are currently forecasting. It is also intended to capture the potential for projects to slip out of 2015 and into 2016, which would shift the ITC benefits accordingly. Of course, our guidance range also accounts for the normal variability we have historically seen in our traditional operating companies as well as Southern Power, including normal variations in weather, the economy, and wholesale energy prices. As has been our practice for many years, we have considered much of this potential variability in developing our flexible O&M spending plan. Going forward our long-term EPS growth outlook is still in the 3% to 4% range. In addition, our earnings estimate for the first quarter of 2015 is $0.55 per share. I'll now turn the call back over to Tom for his closing remarks.

Thanks, Art. After a successful year in 2014, Southern Company is entering the New Year with a strong sense of momentum. We see a franchise business that is operating better than ever, solidifying its position as an industry-leader in all phases of the business. We see important progress on major capital project and a continued commitment to resolving challenges in a manner that is consistent with our customer-focused business model. And we see a strengthening economy and a region poised to grow in the months and years ahead. In short, we believe Southern Company is well-positioned to succeed in the year ahead, behind the strength of our 26,000 employees and their commitment to provide clean, safe, reliable and affordable energy to the customers and communities we're proud to serve. We are now ready to take your questions. So operator, we'll now take the first question.

[Operator Instructions] Our first question comes from the line of Greg Gordon with Evercore ISI.

So couple questions. When I look at the guidance range for this year, it's like $0.03 lower on the high-end and maybe $0.04, $0.05 lower on the low-end than the aspiration you had in the last year's fourth quarter earnings call. Those aren't big numbers, but can you give us a sense of what the drivers were, that caused the range to come down slightly year-over-year?

Yes, Greg, you're right. It's a little overweight. We are where we were with some minor tweaks. We've had some cropping of the top-end due to a couple things; additional bonus depreciation that we have not factored in the last year's numbers, and we issued slightly more equity than we had communicated last year. Most of that being due to stock option exercises, primarily in the fourth quarter. So instead of raising $600 million of new equity, we raised $800 million of new equity. So we've got more shares outstanding. And those two things will crop the top-end a little bit. The bottom-end really is, as I've said in the script, mostly related to performance variability around Southern Power. If we didn't get any of those price holder investments, than that's where we'd be at the bottom.

And timing of those as well.

Two more questions. Second question when I look at Southern Power on Page 8 of your earnings release; you gave the quarter ending and year ending net income by segment and Southern Power did a $172 million in '14. Is it your expectation that at the midpoint of guidance you'd be at around the same number, the high-end, the low-end or are you higher or lower than that.

It might be in and around that, maybe a little more that that. But it would require that we do something similar that we did last year in the terms of our Solar acquisition.

Yes, Greg, that number at midpoint is $180 million.

And that assumes you deployed the amount of capital you just articulated?

That's right. But as Art said, it's highly dependent on how much and when, and all that, it's a little lumpy.

Final question. Can you give us a sense of, I understand your legal and financial position with regards to your relationship with your constructor at Vogtle, what are the next series of milestones that we need to be mindful of to see how this interaction evolves? Have you worked with them to get the performance that you want, and they in turn pushback against you on what they deem to be their perspective on the costs?

Just recently we were given a 10,000 page document that speaks to an intergraded project scheduled, and so the very first steps are to kind of wait through all of that detail and to really kind of turn data into information. We need to work with the contractors to understand the assumptions underlying that new schedule that they have provided. Even from the outset we believe that they have not taken, and this is in the words I've been using consistently, this is like an unmitigated schedule. And that we believe there is lots of things that they could do to improve it. Weighing against that are the facts that, and this has been disclosed thoroughly on VCM 11, that they just have continued issues with respect to engineering and construction and we look forward to their effort to resolve those issues. If you want to something describe those issues, it's the VCM 11 process. It's exceedingly open process. The independent monitor, Dr. Jacob testified that length in VCM 11, so you can get all the information you want to get. I think it's very clear that the contractors have just had continued difficulties. We say all along that you will always challenges and the issue is how successful you are, is determined by how well you resolve the challenges. We are working with the contractors to resolve their challenges. Complicating all of these issues is the fact that we believe there are financial disputes among and between Westinghouse and Chicago Bridge & Iron. And we think that's having an impact on the schedule that they have delivered to us, so it's really going through all of that. We are very comforted by the fact that we are committed to building a quality plan, a safe plan, and we are also very much comforted by the fact that for the additional costs, even if you believe it's going to be 18-month delay, which we dispute that the rate increases to customers remain within the 6% to 8% level, not the 12% that was originally contemplated. And we believe that for our additional cost, there are liquidate damages to help offset those costs.

The next question comes from Dan Eggers.

Just on the CapEx plans. If you compare last year's CapEx plans to this year's CapEx plan, obviously they all have this backward shape that you've shifted it out a year from what you had last year. What do you see is the ability to fill in kind of '16 and '17 to maybe stabilize that CapEx plan looking out or are we going to have wait until further in the decade to see that happen?

What we've got in there now are placeholders from Southern Power. Obviously, we could do more. We've got the tax appetite to do a little more than what we've outlined there. But we are still incubating other opportunities around the things that we talked about last year, be it expansion of our ability to take advantage of additional rate-based items and our investment in pipes and other things, but we are not in a position to work to talk about that yet. But in addition to that we've got opportunities possibly on the environmental side, which aren't fully vetted yet. Tom?

Well, what I would add is this kind of spectrum I've chatted about here on the stump really since the Dallas Financial Conference and then again in South Florida. We kind of have this spectrum of opportunity, Dan, of kind of at a minimum buying back our own shares. We've talked about how, for the amount of business risk we see we maybe equity over capitalized. On the other hand, given the kind of high market-to-book PE ratios, however, you want to describe it, maybe it's more attractive to buy somebody else's shares. But as we've talked in the past that's always been a very challenging proposition for us across. We have a big EVA shop, we believe that we would have to be reasonably clear about a way to earn a return on and return up the premium associated with any sort of activity there. And I think in the middle is kind of where we've tipped our hand as to our sweet spot, and that is buying other assets. Certainly, that's what we did in '14. So look for us to be active, creative and aggressive in looking for opportunities.

Now, you spent a lot of money on assets this year successfully or in the process, but it didn't really change the growth rate with the deployment of capital. Is that reflective of the fact you're seeing some pressure on the returns you're getting on those projects or is it other things mitigating some of that upward inflation you would have expected on growth?

We've always been reasonably conservative in terms of setting our IRR curves for the kind of risks and projects we see. One of the things we mentioned back in October that we thought was emerging in the market remains true and that is we do have compared to a lot of people scale and a robust tax appetite. And therefore, we look like a pretty good customer, pretty good partner in these deals. So my sense is we're still going to see those opportunities. It's not causing us to drop our IRRs in any respect, we're able to maintain those to our satisfaction.

And I guess one last question on loan growth. Your expectations in residential and commercial show your positive year-on-year comps, after this year not really showing those gains. What do you think will be the biggest factors to convert that from flat to growth this year?

We are looking at a lot of strong employment growth. I think we've seen that across the board, especially in the Southeast we've actually outstrip the U.S. growth rate and employment. And our manufacturing employment is also stronger than the U.S. As the economy continues to improve, as consumers consume the benefit of this oil dividend that we mentioned in our script, we think household income is also going to be helped by the portion of that household income that's disposable. That will translate, we think, into more commercial sales and hopefully will translate into more household formations, which I believe jumped pretty strongly in the fourth quarter nationally. We saw a pretty strong customer growth in our fourth quarter period as well, about 10,000 new customers on the residential side. So there is a number of elements there that we're looking at. I mentioned on the commercial end, we've got a lot of new projects coming in and around Atlanta. There are really three areas of Atlanta that are trending towards real strong growth. One is around the Perimeter, and that is where Mercedes is going to more than likely announce their headquarters. And that's a really strong market for new office complexes. There is a midtown development in and around Georgia Tech, which is mostly office related, but it has been real strong as of late, as new companies have announced citing of that to take advantage of the technology development out of Georgia Tech. And then most recently as Porsche moved their headquarters down near the airport. And that is a longer term development opportunity. But they're looking at expanding office space, Class A hotel space and other residential opportunities in and around that particular area. So there are number of things that we point to. Some will affect 2015 directly, some will be later, but those are real strong indicators to us that we are going to see a turnaround in commercial and residential growth per customers.

Dan, let me do a quick deconstruction on the household income statement. When you look at the revenue part of a household, its wages, and while we have seen some pressure there from a variety of factors, people withdrawing from the work force or people moving from fulltime to part time or whatever full time jobs they have, a disproportionate share going to service kind of industries. We still see pressure on the revenue side, but on the cost side, the expense side, if you will, the household as Art mentioned, I think energy prices, low gas prices have really helped. So the net consequences, net income may go up, and we believe its either going to be through increased saving, in other words retiring household debt, which is a good thing, it makes the economy more resilient or more consumption.

Our next question comes from the line of Steven Fleishman with Wolfe Research.

Just first quick question, just where did 2014 CapEx come in at?

Hold on a second, Steve, let me get that in front of me. We were very close. I think we've slightly under-spent the totals that we had, but it won't be around in the way of differed.

I guess the reason I ask is it's a bit of the same question, but from what I can tell just going back to last year your 2015 CapEx is up $1.4 billion from a year ago for '15 projection. 2016 looks like it's up a $1 billion, but it's the same growth rate, and if not even a little bit of a lower 2015 base. So again, just to clarify, the bonus depreciation, I guess is a piece of that. Maybe you could quantify how much of that might be impacting the rate base.

And Steve, you're right. The delta there is Southern Power. That's kind of what we're looking at. Remember, what we did in '14 was essentially put almost a three year CapEx allocation into one year. And that was kind of low $1 billion kind of allocation number. We're moving that number up to around $2.5 billion. So that's kind of what we're doing on CapEx. The delta it's mostly with Southern Power.

Yes, Steve, if you look at the traditional operating companies, we were within $20 million in total of what we budgeted for the year. If you throw Southern Power in, we actually spent $310 million more than we had forecast from a CapEx perspective.

And just a separate question on the Vogtle information. I know you disclosed expected monthly owner's cost for delay, but did you get any update from the consortium in terms of what the expected total construction cost of the plant will be?

No.

And is there any way based on the issues that they've mentioned in the saying to kind of estimate that?

Well, just remember, Steve, we are still going through the details of the latest integrated schedule. So we really don't know what's involved and what their assumptions are and everything else. Its 10,000 pages, so we got to go through that. And mean what we really need to know I think it is our belief and we received assertions from the executive management of the contractors throughout 2014. And in fact, the schedule could be short. So we need to understand what their position is. We need to understand what's required. Our contract is very clear, that it is the obligation of the contractor to undertake all methods necessary to meet the schedule requirement in the contract. That means adding new shifts, adding more people, staying overtime. Typical things you would expect to see on any construction undertaking. So I won't know the answer to your question, until we kind of sort through all those issues. We're working as hard as we can to do that right now. You should look to the VCM 12 is probably a more instructive kind of position for us to be in. We'll file that February 27.

Our next question comes from Jonathan Arnold with Deutsche Bank.

So just picking up on Steve's questioning. Just curious, you've said here today that the liquidated damages should help to mitigate the impact of your cost, which I imagine means the $40 million a month number you referenced. So is it a safe assumption that the per-diem amount adds up to a little less than $40 million a month or have you disclosed that at any point?

We had not, but we've gotten a lot of questions about it. And we've informed our partners that we probably needed to disclose what we think the amount is. So here we go. There is a lot of factors that I'm going to give you subject to, but essentially if you evaluate kind of the maximum amount of liquidated damages assuming the full 18 months delays, again subject to a lot of factors, we believe that Georgia Power's share would be about $240 million.

So what about, you say 18 months delay, but does the LDs kick in April of next year, pending your current litigation.

Yes, right, they would kick in as of the guaranteed substantial completion date, which is a term in the contract of April '16 and April '17.

So that $240 million number you've just given for Georgia Power share is that more than 18 months? Is that kind of from April '15 to '17, so it's more like a three year?

That's right. You got it. There is a limit. We aren't anywhere close to it right now, so I just want to give you that. To the extent there is other issues, there could be more liquidated damages.

So what is the math behind that $240 million? Is it a daily amount or is it --

That's what it is. It's a daily amount, and you can back into that if you want to.

And the limit is $240 million?

No, the limit is way in excess.

So there's a longer delay effectively that would come into play.

That's right.

And then just you mentioned a couple of times that you would remain within the 6% to 8% range on customer rate impact.

Yes.

What are you assuming in now that you've faced the incremental cost you've talked about, less this $240 million something like that?

That's right.

And what's the rule of thumb? Is there any rule of thumb you can give us of what would push you above that range?

We think we're still way short of exceeding that range. We've talked a lot about estimates and all. We are more near than middle of the range than we are at the top, let me say it that way. And we think we've got lots of range, to stay within that range that we've been discussing.

And just one final housekeeping thing. There was a big downtick in depreciation in the fourth quarter. It was 424 million and has been 500-ish a quarter. Was there something unusual happened there?

Yes, Jonathan, there was. Alabama Power had been deferring some O&M cost under a previous commission accounting order. And they filed a new depreciation study with the commission last year. And they found out they had available some cost of removal elements of the depreciation that they could offset these other deferred cost with. And so there was an entry made in the fourth quarter of last year at Alabama, which actually increased non-fuel O&M and decreased depreciation. And so it had a nil effect on income, but that's why you see the deltas in those particular line items.

On the subject of non-fuel O&M, as you talk about your 2015 guidance is what's a sensible run rate, given you've had obviously some noise in the numbers this year?

We got back to what I would call a more normal element this year. So I would take the 2014 number and grow it by 3% to 3.5%. About 1% of that will be environmental and the remainder would be just normal company operation.

John, let me just add a little more line up on that. The reason we're able to keep the 6% to 8% range in place is because of all the benefits that we've added on this $2.3 billion. We mentioned in the course I think of the opening comments that we've been very happy with our ability to finance under the DOE loan guarantee. And in fact, we're exceeding where we thought we'd be on our estimates on that. I think we did a drawn in December, $200 million, for about 3%, and the average life was 22 years or something like that. So it's been a terrific vehicle for us and actually performing better than what we thought of. That $2.3 billion looks awfully good.

Does that include the 800 of PTCs, correct?

That's right.

Would you have any recourse against the contractor, if sort of further delay sort of push those off the table?

I don't know, John. And here is my view, I frankly think, my opinion, the contractor has given us, we believe, is an unmitigated schedule. We think there is flexibility to improve the schedule. It doesn't take into accounts. The comparative good progress, the date of our plan, I think we still have a descent amount of room before we're exposed to losing any of the PTCs for Unit 4. Unit 3 we're still very well protected.

But if you did, would you have recourse to that?

I don't know. I don't think so, but that's to be decided by a lawyer I guess. You can claim anything in a lawsuit.

Our next question comes from Paul Ridzon with KeyBanc.

Where are you assuming with regards to stock options in your '15 guidance?

Paul, we got no assumption for additional equity in 2015, 2016 or 2017, to the degree we have stock option exercises. We have plans to put in place a repurchase program that would to the degree we have proceeds to reduce those back down to as close to the zero level as possible.

And I guess, given that you're already $200 million ahead based on last year?

Based on last year, but that's where we're holding it, right. And we'll obviously see some more this year, but that's our plan to address.

And then what have you achieved and what remains to be done or to qualify for the full DOE benefits or tax benefits at Kemper?

We have filed for those -- at Kemper, I'm sorry. I was thinking Vogtle. I'm sorry. You're talking about investment tax credits?

Yes.

You're talking about phase 2 investment tax credits that would relate to our carbon capture percentages. We have to have it in service by April of '16 to qualify for those. So right now, our schedule would meet that requirement. And there would have to be 65% or proof of 65% of carbon capture for all the gas that was produced, the syngas that's produced.

And that is our target.

Yes.

That's the only hurdle?

Yes. It's a deadline and an amount removed.

And then the 200 over, where you're on the options, are you going to use that to buy stock in '15?

At this point, we're just going to see what kind of activity we get. We'll make whatever adjustments we think are necessary. The idea going forward is no new equity issuances.

That's correct. We ended up the year with a common equity ratio of about 43.5%, and so that's still within our marginal planning. We don't plan on going north of that, but again we'll just see what we get and we'll take out as Tom described as much of what we raise as possible.

What was your yearend share count?

I'm sorry.

The yearend share count.

Just over 900 million shares.

The next question comes from Michael Lapides with Goldman Sachs.

I have one or two Vogtle questions and then some housekeeping ones. When you go back and read the Vogtle testimony, some of the interveners, not the public staff, are kind waving the flag of prudency, meaning, or imprudency. Just curious for any comments you have in that regard, whether they really have a leg to stand on by making that type of argument? What is the requirement in Georgia for something to be for a prudency disallowance or prudency review of Vogtle? Can you kind of just go through that from a regulatory construct please?

Yes, sure. We don't think there has been any credible testimony that suggests there is anything imprudent in the project to date. When you think about kind of the brick and mortar cost to the plant, as provided by the contractors, where -- I forgot the last number, I think it was 0.5%. I mean it's right on the money. In terms of our own oversight cost, this is kind of a $10 million per month that we see. It's absolutely prudent for us to have oversight, because we are absolutely committed to providing the highest quality safest project possible. Recall also, part of those cost are tax issues and insurance and some other thing. I just don't see very many legs at all for any imprudence evaluations of that.

And just some housekeeping items. How much bonus depreciation cash flow benefits you expect in 2015? And which of your segments rate bases will that have the greatest impact on?

Mike, let's see, that's $625 million that would impact 2015, and maybe $125 million to $140 million in '15 that would impact '16, and it's mostly in the regulated OpCos, but I don't have a split for you.

We can certainly get back to you later, if you want.

Or just kind of pro rated across the subs based on size and scale somehow?

I mean that would be reasonable.

And Art, the comment, you answered an earlier question about Alabama and what happened to D&A in the fourth quarter. When we think about going forward, is that the new run rate kind of what we saw in the base kind of a lower new base of what we saw in the fourth quarter of '14 or is that more kind of the run rate of what we saw in prior quarters and the fourth quarter '14 was a one-off?

I think the prior quarters would be the better run rate number to go with. But when you think about non-fuel O&M in that regard, most of those deferred cost were deferred in 2014. So I would leave those in the base for non-fuel O&M.

Meaning, grow O&M by 2% a year like you commented, but also ensure the D&A is kind of looking at the first nine months kind of run rate-ish?

Yes, exactly.

Our next question comes from Stephen Byrd with Morgan Stanley.

I just wanted to talk about growth in terms of gas demand and as you think about supplying your customers. As you think about your growth profile are there some moving parts that could cause you to want to be more aggressive in terms of growth in gas infrastructure investment. How are you all thinking about that these days?

Really interesting stuff there. If you dial back to 2014, remember we have switched a lot away from coal to natural gas. And one of the things that we always warn people was that gas was more volatile and there were certain risks around it. It was not a panacea. What we saw in the year 2014 was that we generated about the same amount of energy with coal as we did gas, about 40% each. Why was that? Because we had the fuel flexibility during polar vortex one and two to switch off spiking gas and be able to run our much cheaper coal fleet. In fact, over the year we saved about $125 million of fuel savings, because we had that flexibility. So let's keep in mind what's trying to happen in regulatory space in terms of shutting down coal in America. Now, interestingly in the fourth quarter, we flipped that with very cheap gas prices. We ran the numbers; gas generation went up to about 49%; coal flipped back to about 31%. So going forward, what do we expect? The budget for 2015 would show gas at 44% and coal at 36%. So we'll see. Now, how does that impact kind of our appetite for gas infrastructure? I had mentioned to you all before that we could see ourselves getting involved in gas pipelines now, because gas is much more kind of synergistic with the rest of our business, as opposed to say where we were five, six, seven years ago. One of the things we find is that there are lots of price disparities of gas transportation, say, from the east to west side of our system. We've been able to evaluate a lot of opportunities. We're seeking those out aggressively. And I think the kind of notion would be that we would in fact be an anchor tenant to whatever we invest in. So we are working very hard to make those things come real we'll see.

So it sounds like just given the kind of commodity environment we're in though, that certainly more gas supply and becoming an anchor tenant certainly very high in your list of things you're interested in doing?

Sure it is. And we're going to be disciplined in how we invest. And I'll tell you something else, here again commenting on 111(d) to the extent that we've got to add more gas units in the future, we need more infrastructure. We are pretty well filled up right now in terms of FT, which is how we cover all of our units. So we need a competitive supply of gas, we need more infrastructure and we can participate in that.

And that will be effectively additive to the kind of spending that you all are thinking about currently?

That's correct.

And then just quickly on nuclear. Just curious as you watched the progress in China, especially at the Sanmen project, anything to report there or is it sort of just moving along as planned?

I think it's moving along. They're resolving the valve issue there. So I think it will not have a complete impact on kind of where we are. So when you think about the reactor coolant pumps, there have been some design issues that have manifested themselves in China. We think those are getting dealt with satisfactorily. We don't think that they will impact our critical paths. At another way, we're benefiting from not being the alpha plant here and we're learning from our Chinese experience. So we have people located in China. We follow those very closely. We've learned from them already. We're happy with where we are, at least from our China experience.

Our next question comes from Brian Chin with Bank of America Merrill Lynch.

Springboarding off of Stephen's question on gas infrastructure, we've seen a little bit more color on how alternative capitalization structures trade. Just what are your latest thoughts on if you were to go into that route? Would that be considered more part of your regulated utility operations? Would you consider alternate capitalization structures for those? Just a little bit of updated thoughts there?

So you guys have heard the old saying that -- I believe in the long run view of finance, there's lots of tricks, but there is no magic. If there is a structure that makes sense, then we'll certainly consider it. We've never been of a fan of yieldcos. We think those are short-term positive, long-term troublesome. If it's an MLP, if there's a real tax advantage, we would certainly consider those things. But we believe that keeping a simple balance sheet and providing long-term value is really the right course of action for us, but we'll consider anything.

And then one last question from me. Could you just remind us again of the dividend policy and dividend outlook, given the revised change in CapEx spending and guidance?

Sure. Of course everything I say about dividends is subject to Board approval, that's their deal. But we've been on a $0.07 trajectory for sometime now. And we feel that having a regular, predictable, sustainable flow of earning per share that permits for a regular predictable and sustainable dividend policy is how you maximize value. If you look at our TSR over any kind of longest timeframe, you will see that the vast majority of TSR for us is driven by our dividend policy. So that remains foremost in our thinking about how to grow value for shareholders. So of course, I got to be subject to everything, but most importantly subject to final Board authority. But we feel very confident in our ability to deliver sustainable dividend policy as we have in the past into the future.

Our next question comes from Ali Agha with SunTrust.

Tom or Art, just wanted to clarify the 3% to 4% growth rate in EPS that you showed us off this new 2015 base, was that specifically referring to 2016 over 2015 or was that a longer term growth rate?

Long term. It's kind of both, but it's long-term. What we see in our projections is that we're able to stay within that envelope pretty comfortably over a long timeframe. I got to give you all of the admonishments about things that are unknown and everything else, but for what we know right now, we can stay within that envelope for a long time.

And Tom, just correct me if I am wrong, but I thought previously, when you guys had originally given us '14 through '16 earnings guidance and then some longer-term outlook, I thought the plan was given the way the spending was working, the 3% to 4% was '14 through '16, and then you would accelerate beyond that, but I guess that's not the case.

No, no. Here is kind of where we are. We are kind of in the same spot. Let's think about the years ahead here and I don't want to give too much more color other than kind of the commentary we provided in the past, but if you look at kind of '15 to '16, things look pretty normal there. '16 to '17, you have the expiration for 30% investment tax credit, that could have some impact on your ability to impact earnings per share through investment tax credit investments associated with Solar. So that could have a shaping impact. And then beyond that we've always talked about really environmental CapEx and the start-up of new-generation CapEx, all of that remains the same, and that really shifts the nature of your curve. So what we said was when you consider the impact of 111(d), which depending on how the final rule looks could have a dramatic effect of the backend CapEx curve as well as Coal Ash and 316(b) and a variety of other things. We'll just have to see how those turn out, that's all what I have been talking about.

So think of this really '15 through '18 or that time period, and then in the late in the decade things change?

Well, certainly as we know more we'll adjust it. What you should take comfort in, as for what we know, we think this is a very comfortable envelope.

Separate question. Art, if I did my math right, it looked to me that your effective tax rate in '14 came in lower than previously thought. What was driving that? And how should we think of an effective tax rate for '15 and beyond?

Ali, are you talking about the cash tax rate or are you talking about the accounting book effective affected tax rate?

I'm talking about the book tax rate, Art, adjusting from Kemper charges and all of that. If you exclude all of that the book rate looked a little lower to me.

Well, I'm looking at over the last few years in total though. You could have had some effects from Southern Power and their investment tax credits, which was booked in the fourth quarter of this year. And then, you've got higher AFUDC as well, which is not taxable.

But your book tax rate doesn't change very much, your cash tax rate changes a lot, right. And for 2014, it looks like a little over 8% there.

Yes.

And then, Tom, as far as Kemper is concerned, I mean you had a position now with the latest round of charges to kind of say, hey, if the confidence is much higher then, hey, I think we've got it all now under control cost-wise or still too early to make that statement?

Yes, Ali, I've been burned in the past, haven't I? Look, we've got Chip Troxclair in place here and we've had very good conversations. In fact, I had the whole management council of Southern Company at Kemper about a week ago. And I think the team is working hard. And so yes, we've got a lot of confidence, especially in the schedule. We're doing I think a better job at managing kind of the want tos in terms of CapEx as opposed to the must haves in terms of CapEx as we finish start up. The one caveat I just have to throw out to you all that I have been consistent about from day one are the unknown, unknown. If you start the thing up something may happen that nobody thought about. We've added more inventory to insulate ourselves against risk for machines that don't work the way they're supposed to or just defective workmanship. The good news is, when I evaluate kind of the work we've done in pressurizing [ph] trains A and B, steam blows, welding inspection other things, we've done pretty well. We had some hiccups here recently in some of the pulverizers and some of the lignite drying equipment, but we've already provided for fixing those issues. We're working hard to stay within the estimates we've given you. So I'm as confident as I can be, there are things that could cause us trouble in the future. But I feel as good as I have been.

And my last question, Tom, when I look at the weather-normalized sales that you provide us and I looked at the four quarters of '14, this fourth quarter was the slowest over the 2014 period. Was there anything particularly that was causing this slowdown and which you don't thing will continue in '15? Or how would you explain that?

I don't get excited about quarter evaluation whenever I look at this stuff, because especially on weather normal adjustment, there's all sorts of variability. I tend to look at kind of longer-term, longer trends and see what's going on. The biggest issue I think facing kind of residential and commercial sales growth is this issue of, and its curses and blessings, industrial strength, during the downturn recall that a lot of our industrial customers retooled, put in technology, and in fact, we've been able to grow, but the efficiency of output has been terrific. Well, the good news is that's given us strength even against the weakening dollar, right. The bad news is we haven't added jobs as much as we thought we would, and therefore wages haven't grown. We think that we were starting to kind of take up that slack, and we're starting to see the signals as the things, Art, went through that in fact jobs will return, wages will increase and therefore spending will increase. Those are the longer-term trends we see. And don't just hang it on wages. Remember the information Art gave you about the household income statement and how the expense item largely for energy, thank goodness, are going down, people have more money in their pockets to spend.

Our next question comes from Mark Barnett with Morningstar.

So you talked a lot about kind of the bigger projects and what not, and I appreciate the new details. That's really helpful for us. Just wondering more maybe on the O&M trajectory that you've seen so far this year, would you say that I mean if the fourth quarter haven't seen the segment breakout yet. So would you say that you're seeing more of that in one particular OpCo or another? I mean for example, as a lot of that being driven out of Alabama?

Real quick. Here, again, as I was talking earlier about don't go off on one quarter about consumption. Don't go off in one quarter about O&M. Because we have this flexible O&M system we had in place for years now, which helps kind of attenuate our ultimate financial results.

But there is something, Mark, and I addressed it on an earlier question, was related to the Alabama entries that roughly bumped up non-fuel O&M by $100 million or so, more than what we expected in the year, but that occurred in the fourth quarter. So Alabama, if any of them, and as I said earlier, most of those were 2014 deferrals anyway, so they would have occurred throughout the year, had we not deferred them and then cleared them up in the year.

So what kind of a long-term O&M growth rate '14 to '15?

3% to 3.5%.

3% to 3.5%, that's a good trend.

I know there can be some quarterly noise. I just wanted to clarify, because it sounded like it was probably related to those regulatory things. Just a second question, I guess, maybe another way of looking at some of the comments you've made already about the clean power plan. What kind of conversations have you started, particularly in Alabama and Georgia, about kind of handling compliance and handling the plans that would be necessary, should it survive in this current state or how to I guess approach proposals?

Look, Mark, thanks for kind of raising that. We haven't really talked about that. You know that we work in a real-time fashion with the folks in our states. We have a common purpose and that is to serve the customers and communities with clean, safer, liable, affordable power. And I know that certain initiatives out of EPA or elsewhere get high focus on certain issues, particularly 111(d) would be carbon. We have to balance those results. For the benefit of this, I don't think there can be more privilege to serve. When I think about where EPA is 111(d), we know and I think they know that they have a flawed proposed rule. And they've received, now I forget what the number is, over 4 million comments or something, it's unbelievable. But they're going to have to I think deal with some of the low hanging fruit, if you will, in the final rule. I am guessing, we do get a final rule some time in the summer time maybe call it August. And I think they will deal with some resolution on this kind of cliff 2020 date. I think they will also fix things like nuclear and particularly nuclear under construction. So look I think it's almost premature to comment kind of where we think they'll end up. We've had lots of opportunities to talk to them, so has everybody else, 32 states have come after them in terms of comments, attorney general, governors, public service commissions. I think there is a lot of ground to cover before we have a final rule. Let's see what the final rule looks like, and then the ball will be in the court of the states in order to implement their state implementation plan.

Our next question comes from Michael Weinstein with UBS.

Well, it's Julien here. So I wanted to follow back up here quickly on Southern Power, going rewinding back to the start of the call there. The $180 million midpoint you talked about I think for '15, how much of the ITC benefit is baked in there? And by the way the kind of the second part of that question is really, you talked about the '16 to 17' exploration, what kind of an impact do you think that is in terms of a headwind, if you kind of lose those benefits for new projects? I know, it's a little detailed.

I'm going to guess that kind of the benefits from ITC, and don't get too precise on the $180 million, that planning estimate, it's very lumpy. But the specific question was, what's the assumption in the midpoint? It's $180 million. The contribution from ITC is probably over $40 million. So that's what you should think of.

But then it probably falls off pretty materially in '16. So the roll off by '17 is --

So '16 is probably okay. It will probably be a similar number, perhaps even more depending -- so you have a project that comes in, you think it's going to come in at December of '15, slides into '16. So it really is lumpy and dependent upon when you close these deals and when they go in service. So '17 you should kind of estimate that, as ITC drops from 30% to a 10% kind of number under current tax law then you should shave off some percentage. So let's say two-thirds of $40 million to $50 million number just in rough math, right. So that's the kind of math I would use, if I were you. That would be the earnings per share headwinds. And I'm talking specifically about solar right now. To the extent we invest in wind, it has a different profile. To the extent some of our CapEx is associated with gas pipeline that has a different profile. So I'm attaching all of that on solar.

I was going to ask you, I mean, more holistically, what do you think about solar spend in general? I mean, the Southeast has seen a lot of projects, but we haven't heard much on you guys from Florida or Alabama. I mean, is there a potential there, I mean either via the utility themselves or via Southern Power? I mean is this something you could see more spend in '16 or is it tricky to see that happen, just given the timeline and the 30% ITC or et cetera?

I frankly would expect to see more of the solar outside the Southeast. There may be more opportunities. But when we originally got into solar, we really started looking at where the solar resources were the best, right. The Southeast tend to be kind of cloudy. It has high humidity. It's not the best area for solar, even though there has been a lot of movement in the state of Georgia. Recall, Georgia Power was voted the Investor-Owned Utility of the Year last year by the solar industry. So we're going to continue to look wherever I think the resources are best, where the contracts are the best. A particular area of emphasis for us also has been with the DoD, the Department of Defense. We've announced several base solar deals in Georgia and I think we've announced one in Gulf, and then we'll see about other bases elsewhere in the Southeast. So look for that.

Now, let me turn my attention just a little differently here. The gas infrastructure that you alluded to earlier is that under Southern Power as well? And when we find out details about that, I mean I imagined that's probably tied to your talk earlier about carbon rules and finalization, and ultimately what kind of coal to gas switching we really are going to see in the Southeast, is that kind of a good way to think about it?

Julien, whatever you did to Michael is kind of what I'll have to say about gas pipelines. I don't want to reveal the nature of discussions on any gas pipelines at this point. But the specific question you asked about kind of would it be under Southern Power, I wouldn't be surprised that we put it in another sub besides Southern Power. That's really kind of a governance question.

And then lastly, let's turn it back to Kemper quickly. You kind of alluded to potentially hashing out of deal in the state again. And I know you don't want to touch it too much, but what's the timeline there? Because I know we've talked about before having a deal and then it seems like that slid a little bit, just given the timeline of the project it slid. When could we see something come to resolution there, if you will, and what is it relate to specifically? Is this the first half prudency review that you guys are going to try to hash out? And again, I don't mean the pry too much.

Julien, what we've talked about in the past is kind of a grand settlement, where we've ramped to get all of the kind of issues that relate to Mississippi Power. And for host of reasons, I know you understand, we don't want to say too much about that. We would like to see those issues resolved sooner rather than later. So let's just leave it there, if we could. I appreciate your indulgence. And one other comment I just want to make, we talked about other subs, other subs could be OpCos for gas infrastructure.

The utility OpCos?

Yes. Just depending on opportunity.

Our next question comes from Paul Patterson with Glenrock Associates.

I want to follow-up on a comment you made regarding the consortium and potential conflicts among the contractors, as to who is suppose to cover what. And I was wondering if you could just elaborate a little bit more on that?

What I would prefer that you do is go to their own statement. CBI has been reasonably public about these things. These are my words, not theirs. With respect to the contract, they have essentially, I call it, intercreditor agreement, but it's an agreement to share the cost and benefits of the contract among and between ourselves. And I think there are some financial disputes between the two of them. And we believe anyway that those disputes have some bearing on this unmitigated schedule we got.

That actually leads me to my sort of second question, which is if one of the contractors, I know this is kind of little extreme, but let's say one of the contractors is unable to fulfill the obligations. Are the other contractors obligated? Is there a surety bond? Is there any protection, I guess?

Yes. The major mechanism you should look for in contract is the guarantee, the corporate guarantee of Toshiba for the financial integrity of the obligations of the participants as contractor.

And then finally, with respect to the sales growth. Just to sort of follow-up on Dan's question, the numbers have been coming in a lot less than what you guys have expected in the past. And you do mentioned sort of some of the things, the oil prices and what have you in some of the developments that are happening there that you think will be -- that will improve the situation, I guess going forward. I know you guys analyze this very closely. Have you guys reappraised what you think long-term customer usage will be, efficiency deployment what have you? Is there any, because the numbers do seem to have come in just historically a lot lower. And I am just wondering if you guys have any sort of new ideas or any differing ideas as to what you've had in the past about what's going on with --

Let me just kind of pick at that a little. Our plan was set last year at 0.7% sales growth and we actually had 0.9%. The difference was the fact that industrial was a blockbuster year at 3.3%, relative to weather normal flat elsewhere.

Paul, it's a long-term sales growth number. Total retail sales are going to be in the 1.2 percentage range. Now, whether that's a reassessment or not that's kind of our current look long-term. I don't know that it would be termed a reassessment of that, but it's probably lower than it was five, seven years ago. But a couple of other things you need to think about is in-migration into the states, we continue to see that. And to give you a little more land gap around that, if we look at things like United Van Lines has ranks their top 10 states for inbound moves; Georgia and Florida are number eight and number two respectively. We've seen most of our customer growth in those particular regions, 1.1% customer growth in both Gulf and Georgia over the last year.

And if you recall during the recession, in-migration grows up.

That's correct.

But we think that was our housing related. Now, that housing is freeing up, we're seeing the migration again.

So say reflection of, yes, is it a turning point? We certainly hope so, but it's based on the evidence, not just a bunch of drawn lines and hopes and wishes. The other thing that I think I would point to is the information that we have been traveling under is kind of similar to what the Fed has been traveling under. The Fed has called for some higher GDPs and actually show up and where the softness is and their projection has been in household wealth creation, just as we talked about. So as we improve that I think our overall picture will improve.

Our next question comes from Dan Jenkins with State of Wisconsin Investment Board.

So I just had a couple of clarifications related to the construction projects. First on Kemper, I think you had mentioned on your slide that the next set of milestones are the gasifier first fire, and I think case of that's going to be in March. But I was wondering on the gasifier airflow testing, what the timing is of that milestone?

Yes. We are currently in the process of that, but we still look at three main milestones here: first, fire to the gasifier, is it going to be this frame; the first syngas production, which is the second milestone I would point to is sometime this summer; and then in the late summer and fall, we expect to have reliable syngas to each combustion turbine. Those are the three milestones that we would rather point to than the micro milestones of, what you mentioned the, airflows. Those are sub-processes to the major milestone that I am pointing to.

And in fact, Dan, what we've been doing so far, and that's what I'm trying to gratified with, the tests that we've done so far, they have gone reasonably well, have been testing the financial integrity of the construction and it's gone very well.

And what did you say again was the timeline for the production of the turbine?

Reliable syngas, it was, for one turbine its late summer and for the second its fall this year.

And then looking at your Slides 5 and 6, I just want to make sure I am understanding this right. I think you mentioned in your opening remarks that for Unit 3, the CA01 set is going to be in the spring. That's not in the picture, I don't think on Slide 6.

Yes. That one is not in the picture.

But then that is a near-term thing in the spring pretty much as that CA01 set?

Yes. So the spring could go, I mean theoretically, it's April, May, June. That's kind of what we are looking for on CA01.

And then in your third quarter slide you had some talk on core on horizon the CA20, which I think, if I am not mistaken that's what the green one is on Unit 3, right, in the picture?

Yes, that's correct.

So when is that supposed to be set for Unit 4 the CA20?

Dan, if I could, here instead of getting specifics here, if I could ask you on, we just got this new integrated project schedule and there maybe some impacts for the longer term issue. That's why we stuck with near-term here and kind of very near-term. The longer term issues could be impacted by the resolution of the schedule. And so we're going to have to be a little -- I don't know, a little vague until we probably get the VCM 12. VCM 12 that we filed later this month and then will kind of discuss throughout the spring. We'll have much more detail there for you. I think we'll be in a much better position to estimate those kinds of issues.

I guess what you're saying you want to retain some flexibility around that based on --

That's right. Thank you for that.

And then just you talked about the fact that there's this unmitigated proposal by the contractors, but what do you as some of the potential mitigation efforts that they have I guess look forward so far that you think would give us some confidence that the schedule could be shorter than these 18 months?

Dan, here again, I got to ask your patience. Let us go through what they've given us. We've received assurances by executive management of the contractors in 2014. We have our own ability to adjust. We have our own scheduled progress to date. There is a host of issues here that cause the foundation for our belief to be that there is something we could do, and that the contractors aren't exercising. All of their obligations is required under the contract. But let us get to the end of this discussion with contractors before I open up what the number may be.

Our final question comes from Ashar Khan with Visium.

I guess most of my questions are answered, but Tom, I guess I keep asking the strategy question. Because when you were the CFO, the risk adjusted was kind of the corner stone. And so as you in the board look into investing in Solar, what it has induced is now a higher range on the earnings availability, which further adds to the volatility of kind of a risk-free investment as there used to be. And I am just trying to understand why that is happening?

I got you absolutely. There is kind of a glib answer and there is kind of a deeper answer. The deeper answer is you know having known me for, gosh, over 10 years or whatever it is, a long time that I have been a deep proponent of the notion that value as a function of risk and return. And when we think about our business model, we always seek to achieve the best risk adjusted returns. When you look at the value driven by our franchise, which is the overwhelming delivery of value to Southern, the franchise is as good as it's ever been. And I feel terrific about the state of the franchise. When I go to the opportunity that is in front of us, with particularly Solar that opportunity is driven by kind of the initiatives that we have seen. When we originally dabbled our foot in water on Solar, we thought it might be applicable in the Southeast. Sure enough it was and so we started slow and gained some momentum and in fact Georgia has turned out to be a big participant in the solar market. Along the way, particularly last year, we were surprised by the fact that a lot of people were really looking to Southern, because we had scale. We had a tax appetite. We are a great partner. We understand technology. And I had mentioned before First Solar is kind of in that realm. The only risk that we seek that adds to kind of our corporate data, if you will, is just the lumpiness of the investment, not the technology of the investment. And we think the degree of investing is achievable, so while you may see some spread over time, we think we'll be able to hit the numbers that we put out there. The final comment, you all know that I've never been enormous fan of tax advantage investing. Certainly, the ITC profile is something that's attractive. We think we had tax appetite to be able to consume those tax benefits in a timely manner. And remember too, that one of the coincident benefits of that kind of investing has been the very strong cash flow compared to our EBITDA in the long run. So as we see ourselves moving through time where we're slowing down our CapEx from a corporate standpoint, particularly the operating companies, we're finishing up a construction cycle, the fact that these opportunities avail themselves, the fact that they help earnings, the fact that they improve cash flow, the fact that long-term we believe there is very low technology risk, and we're dealing with very credible partners, we think maintains this very attractive risk adjusted profile. Recall too, at the end of the day, the foundation of our investment is based on our ability to deliver long-term dividend growth. I think we finished our in 2014 with a payout ratio around 74%. We've been able to perform. The other thing that we said, I think in October and I always get my calls confused, but we're one of I think two companies in the industry that over the last 10 years somewhere in there has been able to produce within our earnings range every year 100% at the time. For all my purposes, I can't guarantee that going forward, but at least our track record is exemplary. And I think when you think about management teams around the system around the industry, when you think about business models around the industry, I think Southern Company is a company that's going to continue to deliver that performance in my opinion for a long time.

I totally agree with your later points, but it just creates, Thomas, we used to write, there used to be I forget what those terms used to be called, the synfuel tax credit earnings, which Congress used to have and everything. These are now ITC earnings now coming into utilities of things, I think there is a differentiation of quality of earnings going down?

Yes. But Ashar I would really differentiate, and we should take this offline just for the benefit of everybody else on the call, but we should really differentiate synfuel from ITC. There is an enormous industry for solar. It's pretty clear that not only the administration, but Congress is in favor of promoting tax code that helps renewables. That's very different than synfuel. And I feel very confident about the ability to sustain these tax credits and how they will improve our cash flow and really helps Southern and therefore our shareholders for years to come. I really would think about those differently.

And at this time there are no further questions. Sir, are there any closing remarks? End of Q&A

Yes. Thank you. Once again, thank you all for joining us. We really enjoy these times together. I am really delighted with the results that we've been able to show in '14. When I was just talking with Ashar about the value of the franchise, when you look at the foundation that is Southern Company, it is as good today as it has ever been in my memory. And I think we can continue to produce the kind of results that have tremendous value to our customers and our shareholders. We are taking advantage of other opportunities in the market, in solar and other areas, and we're seeking to add to that platform of value creation. So thank you for your time today. We will continue relentlessly to meet the challenges and provide the best opportunity available as an investment to you all. Thank you very much.

Thank you. Ladies and gentlemen, this does conclude the Southern Company's fourth quarter 2014 earnings call. You may now disconnect.