Southern's CEO Discusses Q4 2012 Results - Earnings Call Transcript

Seeking Alpha

Southern Company (SO)

Q4 2012 Earnings Call

January 30, 2013 1:00 p.m. ET

Executives

Daniel Tucker - Vice President of Investor Relations and Financial Planning

Thomas Fanning - Chairman, Chief Executive Officer and President

Art Beattie - Chief Financial Officer and Executive Vice President

Analysts

Greg Gordon - ISI Group

Mark Barnett - Morningstar

Michael Lapides - Goldman Sachs

Angie Storozynski - Macquarie Research

Dan Jenkins - State of Wisconsin Investment Board

Paul T. Ridzon – KeyBanc Capital Markets Inc.

Ali Agha – SunTrust Robinson Humphrey, Inc.

Paul Patterson – Glenrock Associates

Brian Chin – Citigroup

Jonathan Arnold – Deutsche Bank

Anthony Crowdell – Jefferies & Company

Ashar Khan – Visium

Presentation

Operator

Good afternoon. My name is Kimita, and I will be your conference operator today. At this time, I would like to welcome everyone to the Southern Company Fourth Quarter 2012 Earnings Call. (Operator Instructions). After the speaker's remarks, there will be a question-and-answer session.

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.

Daniel Tucker

Thank you, Kimita. Welcome to the Southern Company Fourth Quarter 2012 Earnings Call. Joining me this morning are Tom Fanning, Chairman, President and Chief Executive Officer of Southern Company; and Art Beattie, Chief Financial Officer.

Let me remind you that we will make forward-looking statements today, in addition to providing historical information. There are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements, including those discussed in our Form 10-K and subsequent filings.

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 the slides on our Investor Relations website at www.southerncompany.com. In addition, these slides are now available to download or to print.

We plan to cover a lot on today’s call. Tom will provide an update on the Company’s five strategic priorities along with a few highlights of our 2012 operations. Art will then provide an overview of our 2012 financial results, an economic outlook on our 2013 sales forecast, highlights of our latest capital expenditure and financing plans and finally, our earnings guidance and dividend objectives. After closing remarks from Tom, we’ll move to Q&A. As always, our goal will be to engage in a full and open discussion, but we also want to be respectful of your time, therefore based on feedback we’ve received from many of you, we’ll make every effort to end today’s conference call no later than 2:15 p.m.

At this time I'll turn the call over to Tom Fanning.

Thomas Fanning

Good afternoon and thank you for joining us. Overall, 2012 was an outstanding year for Southern Company. As we move into 2013 and beyond, I’d like to provide you with an update of our five strategic priorities. The first priority is excel at the fundamentals. First and foremost, I want to commend our employees for one of our safest years on record. Nothing is more important than the wellbeing of our employees, which requires constant focus and an unwavering commitment that we will return each one of them home to their families in good health at the end of each workday. While we were not perfect in this regard in 2012, I’m very proud of our employee’s commitment to our target zero safety philosophy.

We also recorded another year of outstanding operational results. The peak season equivalent forced outage rate for our fossil hydro generation fleet has been the leader in the industry for six years running and eight of the last nine. We have also continued our superior performance in transmission and distribution reliability and our customers continue to benefit from our trend of improvement over the last decade.

We continued the ongoing transformation in our generation mix, generating more energy from natural gas than coal for the first time in our history, largely as a result of our diverse portfolio and the ability to respond to low gas prices. Our customers benefited from approximately $1 billion in fuel savings as compared with 2011.

Operational performance, along with our strong commitment to service, resulted in top quartile rankings for customer satisfaction for all four of our regulated utilities in 2012. All of these operational accomplishments are evidence of Southern Company excelling at the fundamental. But this priority is a broader objective and indicated by any of these metrics. In fact, each of the other four priorities I’ll discuss is an extension of this first priority.

The second priority is achieving success with our major construction projects, specifically Plant Vogtle Units 3 and 4 and The Kemper Project, both of which are continuing to progress in an outstanding manner. While projects of this scale and magnitude always face unforeseen challenges, we continue to demonstrate our ability to constructively manage those issues and achieve a favorable outcome. Since our receipt of the first ever combined construction and operating licenses from the NRC in February 2012, significant progress has been made on both the units, with construction now approximately one-thirds complete.

Specific accomplishments include a completing of the unit 3 containment vessel bottom head. 40% completion of the unit 3 cooling tower, and 90% completion of the unit 4 containment vessel bottom head. We have also begun [assembly] of the unit four condenser. In addition, on Tuesday, the NRC issued no objection letter in response to our preliminary amendment request. This enables final work to be completed prior to the pouring of basemat concrete. We intend to pour concrete following the expected issuance of the license amendments later this quarter.

We are anticipating the Georgia Public Service Commission response to the seventh Vogtle construction monitoring report on February 19, and expect to file the eighth construction monitoring report in late February. Meanwhile, the Kemper project is now 35% complete and remains on track for its May 2014 commercial operation date. To date approximately $2.5 billion have been spent on the project. The plant is scheduled to begin to start up activities this summer with first fire going to the [CTs] in June, and the first gasifier heat up taking place in December. Reliable SIM gas is expected to began flowing into the CTs in February 2014.

As many of you are aware, Mississippi Power signed an agreement with the Mississippi Public Service Commission last week that includes a procedural schedule and framework for cost recovery for the Kemper project. This settlement demonstrates once again our long standing practice of engaging with regulators to achieve constructive dilution and provides a greater level of transparency on cost recovery for this project. We held a separate analyst call regarding this settlement last Friday. A replay and related documents can be found on our investor relations website.

As an update since that call, Mississippi made its first filing under the settlement agreement this part Friday. The company asked for $172 million in rate relief which represents a 21% increase in customer bills. If approved, we expect those rates to be implemented as early as April 2013. Also, the legislation permitting securitization and multiyear rate stabilization has been sponsored by the chairs of the house of public utilities committee and the senate energy committee. Both bills have been referred and passed out of their respective committees earlier today. We look forward to monitoring their progress over the next few weeks.

Overall, we continue to anticipate that Vogtle units 3 and 4, and the Kemper project will benefit our customers with clean, safe, reliable and affordable energy for decades to come. The third priority involves promoting sensible national energy policy. This is an area that is especially important right now with the fiscal issues the country is facing and the potential for economic recovery on the horizon. We have seen some progress in this area recently with the December passage of a bill that preserved a rational approach for dividend and capital gains taxes. A discussion in which we were particularly active.

This development should help maintain our ability to attract capital for future energy infrastructure investments, but more work remains to be accomplished. And we will continue to have an active voice in those debates. We will continue to argue for a balanced approach to energy resources, an emphasis on energy innovation through proprietary research and development, and the importance of restoring America’s financial integrity. All for the benefit of the customers we serve. The fourth priority is promoting smart energy. As you know, we achieved a major milestone in 2012, the completion of 4.4 million smart meter installations in Georgia, Alabama and Florida. We believe however, that the concept of smart energy involves more than just the building of a smart grid. It’s a much broader concept that also includes generation, transmission, distribution and the beyond the meter uses of electro technologies. In fact, it’s really more than all of that. It’s really about energy innovation in the ways in which we can use technology to help drive better service and reliably for our customers. We will continue to dedicate ourselves towards achieving that outcome.

The fifth priority and it’s really the foundation of our business, is about valuing and developing our people. We will continue to drive performance and accountability in 2013, while also continuing our emphasis on succession planning and cross training. Over the past two years, we have transferred some 700 employees across system lines, improving the breadth and depth of our expertise and sharpening the skill sets of many of our key leaders. We will continue with this approach in 2013 and beyond.

I’ll now turn the call over to Art for a financial and economic review.

Art Beattie

Thanks Tom. As you can see from the materials we released this morning, we had strong 2012 results for both the fourth quarter and the full year. For the fourth quarter of 2012, we earned $0.44 per share compared to $0.30 per share in the fourth quarter of 2011. For the full year 2012, we earned $2.70 per share compared to $2.57 per share in 2011. Our full year 2012 results include a $21 million net benefit or $0.02 per share recorded during the second quarter of 2012 for an insurance recovery associated with the 2009 Mirant bankruptcy settlement. Excluding this item, full year 2012 earnings were $2.68 compared with $2.57 per share for 2011.

As a reminder, our earnings per share guidance for 2012 was $2.58 to $2.70 and our adjusted results were in the top end of that range. Several factors affected our year-over-year results for 2012. Two of the most significant drivers were the weather and our ability to respond to it as reflected in our successful effort to improve operating efficiencies in our business units.

Weather in 2012 for our service territory was milder than normal across most of the year, which had a negative impact of $0.11 per share. Weather in 2011 was quite the opposite, driving a positive $0.09 per share impact. This means that weather had a negative $0.20 per share impact year-over-year. Largely offsetting this impact was reduced nonfuel O&M for our traditional operating companies which drove a positive $0.11 per share contribution for 2012 as compared to 2011.

The other significant driver for 2012 as compared to 2011 was retail revenue effects for our traditional operating companies which contributed a positive $0.22 per share. In our slides, we have provided a summary of all the year-over-year EPS drivers for 2012. We have also included drivers for the fourth quarter in the appendix for your reference.

Turning now to a discussion of our retail sales results for 2012. Total weather normal retail sales for the full year grew 0.4% over 2011 and 1.7% for the fourth quarter. Industrial sales grew at 0.2% for the full year 2012. After a weak third quarter, fourth quarter industrial sales grew 1.2% over the fourth quarter of 2011. During the fourth quarter of 2012, six of our top seven industrial segments reflected energy sales growth over the same period in 2011. Chemicals, our largest segment, grew 2% for the quarter.

Other highlights for the fourth quarter include automotive manufacturing with energy sales growth of 7%, petroleum refining with 6%, and lumber with 9%. This expansion in fourth quarter energy usage was supported by 3% year-over-year growth in manufacturing jobs, twice the national rate, and 1.4% growth in total employment in our geographic footprint. We ended 2012 with 23,000 additional residential customers. This helped drive weather-normal growth of 1.1% in residential sales, our strongest annual growth in that sector since the recession began.

While our fourth quarter numbers reflect the benefit of additional customers, they also reflect the expect reversal of the year-over-year revenue anomalies to which we alluded in our last earnings call. As a reminder we explained that Georgia Power has refined its methodology for calculating unbilled sales using smart meter data. Which provides greater accuracy compared to previous years in which the process required more estimates.

As we peel back the numbers and look across our operating companies, we are very encouraged by what we see in the residential sector with overall growth of 1.1% in 2012, about half of which is accounted by customer growth and the rest of increases in usage, indicative of a strengthening economy. Despite promising trends in industrial residential sales -- in industrial and residential sales, our commercial sales had remained essentially flat on a weather-normal basis. From an economic development standpoint, the potential project pipeline in our service territories remained robust.

The current projection includes more than 300 potential projects represents up to 40,000 jobs and $9 billion in capital investment. The recent announcement of General Motors adding more than 1000 highly skilled IT jobs in Atlanta for its new IT service center is evidence of the type of projects our jurisdictions pursue. This announcement adds to a string of 1000 plus job announcement in 2012 that included major companies like, Airbus, Caterpillar, Ingalls Shipbuilding, and Baxter International. In fact since the fourth quarter of 2010, we have seen a total of ten such announcements, representing nearly $6 billion in capital expenditures.

However, many companies continue to delay final decisions on expansions and relocations until Congress further resolves looming fiscal issues. These conditions which were noted during our last earnings call, continue to persist despite congressional action in December on income, dividend and capital gains taxes. Earlier this month we re-engaged with our economic round table participants. As a reminder, this group consists of several regional economists and executives from a handful of our largest customers. The round table participants help to validate the observations we glean from our fourth quarter sales results and the assumptions we made in our 2013 forecast, which includes forecasted GDP growth of approximately 2%.

Most of the economists believe that most of this growth will be driven by the higher than 2% growth in the second half of 2013, offsetting what is likely to be a slow start for 2013 while Congress contemplates its fiscal issues. Most outlooks include an assumption for an improved global economy in 2013, which could positively affect exports out of our region. Industrial production is seen as improving with an emphasis on business oriented goods. Participants also observed that housing markets in the region are continuing to rebound, with foreclosures decreasing and inventories of developed lots falling towards replacement levels.

These trends along with continued positive migration into the region, bode well for continued residential, customer growth in our markets. Finally, our round table participants were cautious in their outlook for the commercial sector, but do see growth emerging particularly in the private sector. That brings us to a forecast of total retail sales for 2013 which we are projecting at 1%. This forecast is usually the midpoint of a range of potential economic scenarios that result in sales growth of between 0.7% and 1.3%.

Industrial sales growth is projected to be 2% for 2013. This growth rate is reflective of previously announced industrial expansions as well as a continuation of some of the increased activity we saw in the fourth quarter of 2012.

Commercial sales growth is projected to be 0.5% while residential sales are expected to grow at 0.6%. Our residential customer growth assumptions for 2013 are consistent with our 2012 results of 23,000 new customers.

Now I’d like to update you on our latest capital expenditure forecast and our financing plan. Our three year forecast for capital expenditures total $16.5 billion. As in previous years, the largest component of our forecast is maintenance, which totals $4.2 billion for the three year period. Environmental compliance spending, including our capital cost to comply with the MATS rule is also significant at $3.6 billion.

Of the $2.4 billion three year total CapEx for Southern Power, approximately $2 billion is allocated as placeholders for potential acquisitions for new self-built projects that fit Southern Power’s rigid investment criteria, including a requirement for long term contracts with credit-worthy counterparties.

These placeholders contemplate additional solo projects, primarily in the southwestern United States and efficient natural gas generation projects which are a prominent part of Southern Power’s portfolio.

As mentioned in our last earnings call, we are exploring opportunities to apply our low risk business model in other regions of the country where co-ops, municipals and perhaps even other investor owned utilities would benefit from securing long term capacity through bilateral agreements.

Moving now to our financing plans, our forecast assumes long term security issuances of $9 billion for 2013 to 2015. This financing plan does not assume any refunding or refinancing of existing securities, something we have done extensively over the past few years to lower the average cost of our portfolio to 3.8%, while lengthening the average maturity to 15 years.

We continue to target a consolidated equity ratio of approximately 44%. Based on the capital expenditure forecast of our traditional operating companies alone, we do not anticipate any equity needs for the three year period. To the extent Southern Power finds projects that meet its rigorous investment criteria, we could need as much as $300 million in any one year.

Now I’d like to share our earnings guidance for 2013. For 2013 we are establishing an annual guidance range of $2.68 to $2.80, which represents a growth rate of approximately 4% over our 2012 EPS guidance range and encompasses numerous planning scenarios for normal variances in weather, the economy and operating expenses. Our long term earnings growth rate is 4% to 6% represented by a range extrapolated from the top and bottom of our 2013 annual guidance.

This slight revision in our long term growth rate is consistent with the significant reduction we’ve seen in environmental compliance capital which has been further reduced in our latest update to reflect the longer compliance horizon for potential coal ash and water rules and the cumulative effect of slow economic growth over the past few years.

One final note on our earnings outlook. Our first quarter 2013 earnings per share estimate is $0.51. As most Southern Company investors know, our common dividend has been a key component of our value proposition for decades. 2012 marked the 11th year in a row that our dividend was increased, a practice that continued even during the difficult economic times of just a few years ago.

We have always taken the long term view of dividends and recognized that the informational content of our policy around dividends and actions is important. Supported by the earnings growth assumed in our guidance, our financial plan contemplates a growing dividend consistent with the path chartered over the past several years. I will now turn the call back over to Tom for his closing remarks.

Thomas Fanning

Thanks, Art. I am always proud and almost never surprised by our ability to deliver superior results. For more than a decade now, Southern Company has maintained a singular steadfast commitment to a low risk, customer focused business model, that in turn has resulted in an outstanding track record of operational and financial performance.

Our ability to sustainably deliver clean, safe, reliable and affordable electricity continues to be the foundation for our success. We maintain that same focus for Southern Power, remaining committed to a low risk business model that deliver exceptional value to shareholders. As we do with our traditional operating companies, we keep it very simple with Southern Power. In short, we require Southern Power to first sign long-term bilateral contract, second, partner with creditworthy counterparties, primarily co-ops and municipals, and third, take no or minimal fuel or transmission risk.

Sticking to this model has produced solid results for Southern Power since it was formed in 2001, and has kept that business unit poised to deliver continued value and growth going forward. Our ultimate objective is to deliver superior risk adjusted total shareholder return. Over the last decade this has been driven by strong earned returns for our traditional operating companies, steadily growing cash flow and earnings at Southern Power, stable earnings per share growth, and finally, a sustainable, growing dividend.

All of this, while maintaining the best overall financial integrity and credit ratings in the industry. In today's uncertain world, none of in this industry know what challenges may lie ahead. Southern Company has demonstrated a track record of anticipating future challenges and managing them successfully for the benefit of our customers and our investors. We appreciate your interest in Southern Company and we take seriously our obligation to build successfully for the future.

We are now ready to take your questions. So operator, we will now take the first question.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from the line of Greg Gordon with ISI Group. Please proceed with your question.

Greg Gordon - ISI Group

I can't complain. Always looking good on Bloomberg as usual.

Thomas Fanning

That’s enough out of you.

Greg Gordon - ISI Group

So, I guess, when I look at your earnings growth forecast for the next several years as articulated by the growth rate, your growth rate, you know the high end is [plenty lower], you are at 4% to 6% versus what you thought you could do on a multiyear basis, off of last year’s base starting which was 4% to 7%. And I know a lot of stuff moves around in your CapEx forecast, where you are spending money, how you are financing it. But if you could summarize what are the key factors that have caused you to reduce the high-end of the growth rate for us, that would be helpful.

Thomas Fanning

Yeah, it was simple. What we said last year -- I know we got a lot of questions before that, how do you hit 7% growth year-over-year-over-year. And it really dealt with the outcome on the MATS compliance. Remember last year and even the year’s before, we were projecting with the proposed MATS rule, something like 17 bag houses. As a result of the final rule, recall there were like 11 major segments of comments that were filed by the EEI that we were influential in. One of those dealt with schedule, ten of them dealt with some technical issues that were critically important. And as a result of the resolution of it, at least four of those ten, it’s caused us not to build 17 baghouses but 4.

There were other corresponding changes but the net effect is that CapEx over the three year period is less than what we have projected. The other thing that is in our CapEx that you will notice is that we have pushed out CapEx associated with ash and water. So we’ll see how that resolves itself, but in the three year period we’re not showing any CapEx associated with proposed rules there. That’s the difference.

Greg Gordon - ISI Group

Got you. But it doesn’t have to do in any meaningful way with a re-evaluation of what you think your authorized returns will be or whether or not certain assets are going to go fully into rates over time like Vogtle or the way that the Kemper County plant is going to be treated?

Thomas Fanning

It has absolutely nothing to do with those issues.

Operator

Our next question is from the line of Paul Ridzon with KeyBanc. Please proceed with your question.

Paul T. Ridzon – KeyBanc Capital Markets Inc.

Can you just comment your expectations for O&M relative to ’12 and your ’13 guidance? And then secondly, probably five years, six years back you were pretty bullish on the outlook for Southern Power and then you tapered expectations a little bit. It sounds like you’re getting more positive. Is that a fair read of your commentary?

Art Beattie

Paul, let me deal with your O&M question first. If you look over the last three or four years, none of those years was normal in terms of our O&M spend. We were either holding back or spending more because of good weather. So it’s an excellent question. But let’s approach it this way from giving you a baseline to work with. If you take 2012 nonfuel O&M and you add $200 million to $250 million back to that number and then grow that number by 3.5% to 4% we think you’re going to be in the ballpark of what a normal level of nonfuel O&M level would be that we’re expecting. Now the second part of your question relates to Southern Power.

Thomas Fanning

So let me jump on that one. I guess it’s on your slide pack on page 20. We have some charts that show a variety of statistics, including Southern Power net income. You may note that in 2012 we had our best year ever, earning net income at $175 million. We did have one downturn that was in ’10 and that was really associated with the downturn in the economy. So that explains that. Yeah, we are bullish for Southern Power. They have this wonderful I think business model that we’ve replicated to have a risk profile similar to our traditional operating companies whereby we have a long term bilateral contract credit-worthy counterparties, little or no, fewer transmission risks. I think that works wonderfully.

We think frankly we’ve been turning down business kind of outside the Southeast and think that we’re willing to consider some projects outside the southeast, but which meet our rigorous business model. Frankly we think this is a gap that we can help fill in some of the deregulated markets, particularly in the near term Texas and MISO. So let’s just see what happens there. Otherwise we’ve been reasonably active in the renewable space. So you’ve noticed our announcements on solo projects. We’ve done the biomass deal, been immensely successful there in Texas. So I think we can continue that track record and continue to build for the future.

Paul T. Ridzon – KeyBanc Capital Markets Inc.

Then Tom just with your financing plans, you’re not excluding any opportunity to Southern Power. Did I hear you say there’s no equity need? Does that mean no DRIP or new program shares? How should I interpret that?

Art Beattie

We would – in 2012, Paul, we actually bought back some shares with the proceeds from stock options that basically left us at a close to zero point in 2012. We would expect to do the same thing outside of Southern Power’s equation in ’13 through ’15 as well.

Paul T. Ridzon – KeyBanc Capital Markets Inc.

So basically again excluding assumptions around Southern Power, a flattish share count for the next few years?

Art Beattie

Yes.

Operator

Our next question is from the line of Ali Agha with SunTrust. Please proceed with your question.

Ali Agha – SunTrust Robinson Humphrey, Inc.

When I look at your, again going back to your ’13 guidance, if I look at 2012, you reported 268 and then you told us that weather versus normal hurt you by about $0.11. So on a weather-normalized basis you would have been around 279 if my math is right. So your ’13 guidance, 268 to 280, gets at best you are flat and it could be down if you take the midpoint or lower. I know Art talked about O&M, but is there anything else that’s causing, assuming normalized weather, why would you guys be flat at best in ’13 versus ’12?

Art Beattie

Well, Ali, again, we talked a lot in the last call about the uncertainty around the economic outcomes in ’13 and we are still allowing for, I guess, some of that downside effect. Because there is still a lot of unknowns out there. There is still a lot of people on the sidelines waiting for signals to move ahead. And that has nothing to do with, you have added back weather to the number without considering what we would have done with O&M. And that facts are, we cut a drastic amount of O&M in 2012 in order to offset that weather impact. And so you can't make the single assumption that your earnings would have been, if weather had been normal, just adding back that piece. It just doesn’t work that way.

Thomas Fanning

I mean, think about it. We improved earnings by $0.11 an we had headwinds of year-over-year weather of $0.20. So we have kind of been through this before I think. We do manage our O&M based on the strength of the system, based on weather. Also with the advent of weather related revenue, we take advantage too, in essence fix the roof while the sun is out. And actually [add to] our maintenance. The evidence that this all works is borne by the fact that our operational performance in terms of our generation fleet, in terms of our transmission, distribution, in terms of our customer satisfaction numbers, are spectacular.

Ali Agha – SunTrust Robinson Humphrey, Inc.

Okay. And Tom, if I go and take it a little bit further, does in your assumptions you have assumed 1% weather-normalized sales growth, kind of mid-point for ’13. Now, as I recall the old equation, that equates to about $0.08 or $0.09 of earnings incrementally in ’13. So it looks to me that it’s all coming back to the cost side, going back Art you talked quite about the comparisons. Is that fair, I mean because you are getting the weather-normalized sales growth in there and yet, again, you are seeing flattish comparisons. Is it all coming on the cost side?

Thomas Fanning

I hate to say that it’s all coming on one side. I think what we have been able to demonstrate on the cost side is that we have been able to manage our business exceptionally well from an operational and customer standpoint. And respond to changing conditions, be they economic, be they weather, be whatever. This notion of value on, counting Southern as one of the handful of companies they follow, is having an earnings predictability score of 100%. But we can never predict the future. We have been able to provide for earnings per share growth over the years that is regular, predictable, sustainable. And that strategy has enabled us to have a dividend policy that likewise is regular, predictable and sustainable and allows us to have dividend increases even during downturns in the economy when a lot of people pulled back.

I think the strategy we are putting forward here with earnings per share range that we have and forward expectations of 4% to 6% earnings per share growth will enable us to continue in that vain for years to come.

Art Beattie

Ali, I think there is another element there as well. I mean you think about economic growth, we certainly didn’t get the weather-normal sales growth we expected in ’12. So you are starting from a lower base there. And our growth rate around the economy and our sales growth continues to be less than historical levels. So until we get back all of our segments back into the full engagement, it’s going to be difficult to move the range higher than what we have outlined here.

Ali Agha – SunTrust Robinson Humphrey, Inc.

Understood. Tom, one quick one on the contractor dispute at Vogtle. Any updates to share?

Thomas Fanning

Not really. I really don’t have much to say there.

Operator

Our next question is from the line of Dan Eggers with Crédit Suisse. Please proceed with your question.

Kevin Cole - Credit Suisse

This is actually Kevin on the same side. I guess another question on demand growth. So I guess we fully appreciate your comments regarding uncertainty around DC policy and the evaluation that you're telling from cautiously optimistic to just cautious last quarter, but nonetheless it sure seems like the Southeast continues to outpace the rest of the country. So how should we think about the visible industrial recovery working into a residential demand recovery? And what do you think the likelihood is that we're actually receiving the residential recovery today but…?

Thomas Fanning

Dan, I wish you guys could see how we obsessively prepare for these calls and we really work on our language and try – we really struggled with what our language should be about our expectations and I forget what we said, we were optimistically cautious this time. Listen, we are seeing signs of recovery here. While we did he see a flattening in the last half of '12 of industrial sales, when we look at our economic development backlog and we have – think about this, only 0.3% of manufacturing facilities employ 1,000 people or more, but Southeast over the last two years has gotten 10 of those and in fact, we've gotten five recently and some of those could be significant.

Airbus has 1,000 people, direct employees but we think 4,000 indirect. You add on top of that Caterpillar and Baxter and Ingalls and a variety of other things, GM IT workers, and we're starting to see I think in the residential and the customer growth numbers the fact that we are adding jobs in the Southeast. Look, we could be conservative here. I'll admit that. But let me give you one more comment on the fiscal side. When we gave you the comment in October on that call, I have to compliment our economic forecasting guys and the marketing people at Southern that are very close to their customers. I think we were right on the money with what happened in the economy in the Southeast and I feel good kind of about where we are now. I think the issues – remember we talked about uncertainty related to fiscal issues and the fiscal cliff and all that. We did avoid the fiscal cliff in a so-called way but, I would argue what we really did was a tax patch. It was helpful and certainly helpful to our industry and any dividend related investment, but we still have fiscal issues to deal with.

The constructive kind of evolution of that discussion really goes to the notion I think that Congress will not use the national debt ceiling as hostage in these deliberations. Rather, moving to a more constructive approach of proposing solutions for example that are sensible, like requiring the Senate to come up with a budget. So we still have big issues, but I think the issues are being handled in a more constructive manner. And I think, therefore, our kind of color on where we believe the economy is headed is slightly more bullish than we were, say, in the third quarter. We are expecting a backend loaded economic recovery but I feel pretty good about it right now based on what we see.

Kevin Cole - Credit Suisse

Okay. Then your comments on I guess with the – I guess give us – you have visibility into backlog of industrial drops coming to your region and then like to Greg's question, it seems like the growth rate today was lower due to a deferral of CapEx versus an abandonment of CapEx. Should we assume that the growth rate – I guess the legacy growth rate of 5 to 7% could possibly return for the next guidance season or for 2014?

Thomas Fanning

Who knows what will happen in the future? But yeah, the near term – the Greg Gordon answer was exactly the right answer. How we got to 7% before was building a lot of bag houses with 17. It was that kind of CapEx environment, because we were successful in arguing some of the technical issues on HAP MACT for the benefit of our customers. We're not going to spend as much CapEx complying with MATS and therefore, because we're deploying less capital, the growth rate drops on the top side from 7 to 6, but the fundamentals of our business remain strong. Who knows what happens outside the three-year period? And recall, the CapEx associated with ash and with 316B and a variety of those issues, are really out of this three-year period. So the presumption as you're making it are in the next three-year period. We'll only comment on the three year period we see ahead. Look, I think the fundamentals for our business are exceedingly strong. And I think the cards we have, while we all have challenges, I am very bullish on our ability to deal with the challenges of the future and maintain this kind of growth rate. I think our track record speaks for itself.

Operator

Thank you. Our next question is from the line of Kit Konolige with BGC. Please proceed with your question.

Kit Konolige - BGC

With regard to Southern Power, does your interest in other regions now have anything to do with a perception that there is a lower growth rate in the core region?

Thomas Fanning

Not really, but I mean it is a little slower. When you think about kind of our focus is one either renewables and that has been where the renewables are, desert, Southwest largely, a little bit in Texas, otherwise gas-fired generation. When you look at I think some of the flaws of the deregulated markets, the so called organized markets, they have not been able to build within those market structures long-term capacity commitments. We think we have demonstrated success in a business model which permits those kinds of investments to occur. So we see some attractive markets available.

Southern Power has brought some of those deals back to us and we have kind of said, no, we like where we are. The question we have been asking ourselves over the past year or so is, why not. Why shouldn’t we pursue those kinds of opportunities so long as we can still meet the rigorous business model that we have in place. I think we can do that.

Kit Konolige - BGC

And can you give us a little more color on the, kind of a little closer view of what types of projects you would be looking at what regions, I think you mentioned Texas and MISO?

Thomas Fanning

Well, Kit, it would be similar to what we have been doing. Southern Power’s capacity is something like 95% gas-fired. So it’s going to be combined cycles, maybe some CT. And the other thing I would just add to you, when we think about the Southern Power strategy, this is not a significant contributor in the next year or two or three. Rather, our strategy here positions us well a long term. To say it another way, we are going to be able to hit the 4% to 6% growth even without Southern Power adding new projects in any other region.

Operator

Our next question is from the line of Mark Barnett with Morningstar. Please proceed with your question.

Mark Barnett - Morningstar

Just a couple of quick questions. I know this is kind of a ball that’s going to stay up in the air until it doesn’t. But do you have any kind of update on your expectations for those DOE loans for Vogtle. I mean whether around timing or size? I know you can replace them pretty easily but just some general thoughts there?

Art Beattie

Yeah, Mark, this is Art. We continue to negotiate with DOE. We have extended those discussion officially through mid-year. We have had some recent positive movement in those discussions and we still remain helpful that we will be able to come to an agreement. But at the end of the day we are still looking too at the fact that we have been able to finance a lot of Georgia Power’s needs at record levels of interest rates. So we still have to make the judgment about what's in the best interest of our customer. So we continue to move in that direction and hopefully we can come to some agreement with them on the loans this year. But we will be hearing more about that throughout the year.

Mark Barnett - Morningstar

Okay. And I guess maybe a follow-up to some of the other questions about Southern Power. You know you mentioned there is going to be some upside, it’s obviously going to be beyond the three-year window. Does that mean that you are not currently participating in any RFPs, whether in the Southeast or outside.

Thomas Fanning

Really, I don’t want to comment on anything they are doing from a commercial standpoint. I mean, in terms of participating with RFPs and everything else, if you just look at the trajectory of net income in the package that we have given you, I would follow, if I were doing planning assumptions, I would follow that trajectory.

Operator

(Operator Instructions) Our next question is from the line of Paul Patterson with Glenrock Associates. Please proceed with your question.

Paul Patterson – Glenrock Associates

Good morning, guys. I apologize if I missed this but the – I noticed that your growth – I was wondering whether that 0.6% sales growth for GDP was still the case with your 2013 sales growth forecast and if I am – if it is, am I looking at it that you guys are assuming something between – something basically at the top end of about 2.2% and something more likely in the midpoint under 2% for your GDP assumption?

Thomas Fanning

GDP growth assumption is around 2.

Art Beattie

Is around 2, yeah.

Thomas Fanning

And therefore our sales growth assumption is around 1 with a range around that.

Paul Patterson – Glenrock Associates

Okay. So you guys are now using about a 50% -- the 0.6% number is basically what you guys are still using. Is that basically the way to think about it, there's been no change in that?

Thomas Fanning

Yeah. And so you can argue formulation. You know us. We like to be a little conservative.

Paul Patterson – Glenrock Associates

Okay. And then when we look at the…

Thomas Fanning

Paul, let me add one thing. It’s just kind of interesting (inaudible). There's been great interest in net of energy efficiency, are we still seeing consumption growth and in fact, we are. We've done more science on that work that we showed a lot of you all in October or I guess it was November, the financial conference. And in fact, what we're seeing is for the Southeast anyway, energy efficiency has almost no influence on the consumption of our customers. 88% or so of usage can be explained by either the income growth of our customers, the price of our product and weather. If you account for those three things, you're speaking for virtually all of the usage growth.

Paul Patterson – Glenrock Associates

Okay. So you're seeing very little impact from energy efficiency in your service territory so far?

Thomas Fanning

We are seeing energy efficiency, make no mistake. It's just not reducing usage. You may want to think about it as producing in essence a dividend to disposable personal income and therefore people are having money to spend or more stuff.

Paul Patterson – Glenrock Associates

I got you. So what they don't – so what they save with various appliances they're re-spending on other electric consumption? Is that the way to think about that?

Thomas Fanning

Yeah and just think about where the economy is going. We all have these goofy devices. We all have iPads and iPhones and bigger plasma TVs and everything else and when we see the progression that people are moving from small homes to apartments into you now primary housing, we see a growth in square footage per person, if you will. We also have seen associated with a recovering economy growth in personal income. All of these things contribute to usage growth.

Paul Patterson – Glenrock Associates

Okay. Now, with the residential sales growth does seem very strong in the fourth quarter and I'm sorry if I missed this again, why was it so strong in the fourth quarter? Was it because of the employment figures you were talking about? I wasn't clear on that exactly, 5% if that’s right.

Art Beattie

You recall in the third quarter call we talked about a lot of that unbilled issue that we thought was going to rebound in the fourth quarter and that is in fact is what happened. If you look back at the third quarter, for residential sales it was like negative 2.1%. In the fourth quarter, it was positive around 5%, I think.

Thomas Fanning

Yeah, a little over 5.

Art Beattie

So what you saw here is a rebound. Now, the percentages aren't alike, but they shouldn't be because you're moving kilowatt hours out of a very heavy quarter of usage into a quarter of usage which is rather light, so the percentages are going to get skewed.

Paul Patterson – Glenrock Associates

Okay. And just on an annual basis, we don't have really any of that? Is that all evened out for the year pretty much?

Thomas Fanning

Yeah. I think you're more comfortable and more safe looking at the year-to-date number.

Operator

Our next question will come from the line of Brian Chin with Citigroup. Please proceed with your question.

Brian Chin – Citigroup

Good afternoon. More of a federal policy question. There's been a lot of media chatter since the inauguration speech about Obama's conclusion of climate change in that. And Tom, obviously, you're pretty close with a number of the key opinion makers in Congress and on Capitol Hill. With regards to this thought that the executive branch could try to resuscitate carbon regulation on carbon tax, any sort of updated thoughts there that you can give us relative to what you told us at [EGI]?

Thomas Fanning

Yeah. So, I think there's very little chance of anything like that getting through Congress. So, you're right to kind of look at, will EPA be able to put something in place that will advance that cause. So, right now we know that EPA is evaluating or has made a proposal on new sources. Interestingly Southern is the only company still committed to robust proprietary research and development. We have developed our own technology. The Kemper County plant actually meets and exceeds the proposed new standards for carbon for new generation. So, that's kind of interesting. We'll see how that goes. There are lots of comments going in and we'll wait eagerly to see what the final rule looks like.

But it is pretty clear that if the proposed rule is anything like, I mean, the final rule is anything like the proposed rule, conventional coal generation is just not doable. So, they are really making an energy policy statement there. One of the things that I have been pretty vocal about here lately, and that is this energy policy issue. I've been very clear that energy policy is the purview of Congress. Congress has the portfolio, really as we do, in thinking broadly about the ramifications of such policy mechanisms. For example, we say we need clean, safe, reliable, affordable energy. EPA will tend to focus on clean, without taking into account perhaps all the other issues that are so important to balance for our customers' wealth there.

I go back to the families we serve, 48% of which make 40,000 or less, those folks make tough kitchen-table economic decisions every day. Their demand for energy is relatively inelastic, and so anything the EPA does which adds cost to energy tends to slow down our economic recovery and causes them to make choices for things like housing, healthcare, food, and education. These are broad policy areas that are better handled in congress rather than a single regulatory agency. We will be enjoined in this discussion as it evolves in the months ahead.

Brian Chin – Citigroup

Great. And any thoughts on carbon regulation for pre-existing plants being executed by EPA without Congressional (approval)?

Thomas Fanning

We'll see. Nothing to say at this point.

Operator

Our next question is from the line of Michael Lapides with Goldman Sachs Asset Management. Please proceed with your question.

Michael Lapides - Goldman Sachs

Two questions, unrelated to each other. First question, can you talk a bit about Vogtle just in terms of there was testimony in the seventh monitoring report. Regarding just potential delays, especially if the concrete pour didn't occur in the fourth quarter of 2012. Just kind of give a broad update in terms of just where you are versus the schedule and how the schedule may or may not move. And then second, when you think about Southern Power, there are more infrastructure funds and various energy funds out there than there probably are projects, and you have what is a collection of very good assets that many of which are contracted for very a long time. Just curious if you've thought about monetizing that business in terms of, is that a business that's potentially better off in the hands of an entity that might capitalize it with significantly more leverage than a publically traded utility company might use.

Thomas Fanning

Yeah, so I'm going to hit that last one first. We've kind of chatted about that for years. Wait a minute, we are EVA driven here. In other words, we always kind of look at what is the return on invested capital versus our cost of capital and if we can beat our cost of capital we create value for shareholders with every dollar we invest. So, that's kind of how we think about Southern Power, and from time to time there do kind of develop in the market opportunities to monetize those assets. We certainly consider that. You remember one time, it got pretty high. My caution to you there would be that we remain customer focused and many of our customers are co-ops and municipals who had entrusted us with full requirements obligations for long periods of time. We want to honor the relationship we have with those customers. That's why we get the business. And so we're not going to just transact to get the next dollar. We want to be very careful to take a long-term view on developing the customer base and growing as much value in a sensible way as possible. With respect to Vogtle, we've talked a lot about that in the past and I'm going to kind of point here to the VCM 8 that you're very aware of in terms of VCM 7 testimony that you obviously are very aware of and there was a lot of discussion back and forth about that.

And recall that we were reluctant to kind of weigh in, in a very specific way in the VCM-7 discussion it was clear that our contractors were operating on mid-17, mid-18 schedule. There was a schedule that our contractors were following. We had not agreed to that schedule. Recall that the commercial dispute we have with our contractors deals with delays that came from the licensing, from the DCD to the COL and how that may manifest itself in the project. What I would do I think most constructively here is point you to our filing in VCM-8, which will be at the end of February in which we will provide more clarity about our point of view on schedule.

Operator

Our next question is from the line of Jonathan Arnold with Deutsche Bank. Please proceed with your question.

Jonathan Arnold – Deutsche Bank

Good afternoon. Sorry about before, I cut myself off. Tom, one question I have just on the growth story is you described 2013 as being a weak first half and then something of a rebound in the second half and then it nets out to 1%. So what kind of sales growth are you embedding in your 4 to 6 earnings growth assumption beyond '13 and how does the segment pieces look versus what you've shown us on '13 which I guess is a bit weighted to industrial and less residential?

Thomas Fanning

The longer term – I guess the longer – the question will go to Jonathan, make sure I'm answering this right is a longer term GDP expectations and we think that our electricity sales will migrate upwards into say a 1.4, 1.5 kind of range for years beyond this year. Is that helpful?

Jonathan Arnold – Deutsche Bank

So that’s what underpins your 4 to 6 or if we see that could it nudge you back up again or…?

Thomas Fanning

Yeah, yeah, correct. So, I'm sorry, go ahead.

Jonathan Arnold – Deutsche Bank

No, so just to be clear, the 4 to 6 is predicated on 1% or more like 1.5% or am I getting too cute with the numbers?

Thomas Fanning

You're little cute, but it's 1% this year and beyond this year 1.4 going forward. But the bigger indicator I think is watch CapEx. If you look at rate based growth based on the CapEx we're showing roughly $5.5 billion a year, augmented by whatever Southern Power does opportunistically, I feel very confident in our 4 to 6 range.

Jonathan Arnold – Deutsche Bank

Okay. That’s helpful. Thank you, Tom. And then I'd also ask on Vogtle and there have been this press reports about the vessel being stranded in the port and issues with the Rail Corp. Can you give us your version of what's going on with that your story, how big an issue is it, is it not an issue?

Thomas Fanning

I hope I don't offend anybody I think that's been over reported a bit. The vessel never really left the car. We turned the car back up. We put it back in the port and they’re managing it. It provides interesting pictures, but I don't think it's particularly important. We'll be able to manage that little bump in the road, excuse the pun, and we'll continue with our progress in an outstanding way.

Jonathan Arnold – Deutsche Bank

So not something that will influence you one way or the other really?

Thomas Fanning

No sir.

Operator

Our next question is from the line of Anthony Crowdell with Jefferies. Please proceed with your question.

Anthony Crowdell – Jefferies & Company

A question on Kemper. In the press – some of the utility press had a story on Monday about the Supreme Court in Mississippi was questioning the constitutionality of the, I guess, the settlement you entered into last Thursday. Could you provide any color on that?

Art Beattie

Yeah, Anthony, this is Art. There are a couple of issues at Supreme Court, one being the Sierra Club's appeal. There is another issue that is brought by an individual out of Hattiesburg that is challenging the constitutionality of the Baseload Act. Basically that would provide for cash CWIP before the plant was operational.

Thomas Fanning

And then the third one was this issue of actually the company, who is really kind of muted by the company and the commission agreeing to the settlement agreement in front of the Supreme Court. Those folks have basically put that issue in advance. Our expectation is ultimately that piece will be dismissed. So of the three pieces, one has kind of been muted by the settlement agreement, we think it will be dismissed in the future. The second is an individual from Hattiesburg, on the other side is the Attorney General of Mississippi, and then the third is just the Sierra Club appealing the second amended certificate, which we think is fine.

Anthony Crowdell – Jefferies & Company

Is there a time frame when the Supreme Court has to act on this or they actually don't have a window when they have to give a decision on it?

Thomas Fanning

No timeframe that we know of.

Operator

Our next question is from the line of Andrew Wiesel with Macquarie Capital. Please proceed with your question.

Angie Storozynski - Macquarie Research

It's actually Angie Storozynski. Most of my questions have been asked and answered, but I have a question regarding the O&M reduction in the fourth quarter. Could you tell us how much of that was associated with the Hurricane Sandy?

Art Beattie

Yeah, Angie, there was a number of things that influenced the fourth quarter. One of those was -- you hit it right on the head, was our sending, I can't remember the number--

Thomas Fanning

2,400.

Art Beattie

People up north, some were there for up to two weeks. So, that helped offset some O&M that we expected to be spent in our service territory.

Thomas Fanning

That was about $0.01. Little under a $0.01 but you round up to $0.01.

Art Beattie

Some other issues were bad debt expense was way down. It was not only down in the fourth quarter but it was actually down throughout the (inaudible) compared year-over-year. That provided basically another $0.01 benefit.

Thomas Fanning

And that was lower bills. So, you had the benefit of lower fuel expense. You had mild weather. You had personal income growth associated with the economy. So, as essentially disposable income went up, bad debt expense went down.

Art Beattie

Yeah. And then there were a variety of small accounting adjustments that might add to half a penny, maybe a little more. I won't go into that detail but we also had lower O&M than expected. We kind of back ended our activities on O&M to the third and fourth quarter. So, that's why you saw more of it in the fourth. But the facts are that because we ran so much gas generation last year we were able to push a lot of maintenance outages that may have been scheduled on some of our coal units because they just weren't needed as much and we had some room to work there.

Thomas Fanning

In fact, what was it, our eastern coal units had a capacity factor in the high 20. So, they just weren't stressed very much. The other thing is, along with Smart Grid, along with our smart meters, along with a variety of other initiatives that we have in place, the system is just operating more efficiently. We make systematic improvements in our business practices. We create optionality in our expenses and I think our 26,000 employees did a great job.

Angie Storozynski - Macquarie Research

Secondly, the share buyback in the fourth quarter, I might have missed that in previous quarters, have you done that before?

Art Beattie

Well, we were trying to match our equity with what was going on in our construction program. And we target approximately 44% equity ratio. So in order to get there we had talked about, I guess two quarters ago, two calls ago, about buying back some of that equity that was being issued to keep us at a certain target. We ended up the year at a 43.7% equity ratio which is kind of where we like to see it. So, we're right on target with where we expected.

Thomas Fanning

At the same time, we also funded a pension. How much?

Art Beattie

Well, that's true, we put $445 million into our pension this year, the end of 2012. Our PDO funding ratio was 90% for the pension liability and its 84% when you throw in the non-qualified liabilities.

Thomas Fanning

So we're in great shape.

Art Beattie

We're great shape in that perspective.

Thomas Fanning

So, we really take advantage of the good performance. Sorry, go ahead. I’m sorry.

Angie Storozynski - Macquarie Research

My last question is, the load growth assumptions. I heard your views on energy efficiency. When you look at the EIA so the Department of Energy's expectations of load growth, even they expect about 1% or even slightly below 1%. So your 1.4% assumption, is that a function of migration into the Southeast?

Thomas Fanning

Weather. EIA does not account for weather. When you account for weather – in fact, if EIA dials down their national projections for the southeast and then you account for weather, they are right on where we are. That's the difference.

Art Beattie

I think also to point that nationally there's a lot of talk about weather being hotter than normal last year. Actually in the southeast it was very mild. So that's something that's influencing their numbers as well.

Thomas Fanning

That's a point. So if look at a hot weather year and then you go to a normal weather year, the assumption would be from EIA that growth is low. But when we do it, when we strip all the stuff out and we can get very granular, I really believe our numbers.

Angie Storozynski - Macquarie Research

I was actually referring to longer term numbers, but that's fine. Thank you very much.

Thomas Fanning

Yeah. It's the same thing.

Operator

Our next question is from the line of Ashar Khan with Visium. Please proceed with your question.

Ashar Khan – Visium

Good afternoon. Can I just ask you – I might have missed it, I apologize. Southern Power's profile of earnings starting from what you reported in '12, going forward is – what is incorporated in this three year outlook or in the growth rate? I apologize. I might be repeating the question.

Thomas Fanning

I don't think we really specially said anything about that. We're kind of – we're 175 this year. We're looking at 190 – 175, 190. We're looking at some projected growth every year out of those guys. We generally don't comment on anything beyond the current year for that. But you should expect some continued growth trajectory.

Ashar Khan – Visium

Okay. So you're saying this year, between 175 and 190?

Thomas Fanning

Yeah. We're going to hold them accountable in their pay for improving on their performance in 2012.

Ashar Khan – Visium

Okay. Because I was just trying to think right -- you're putting in like nearly 15% of your CapEx dollars into the sub. So there has to be some return coming from that CapEx dollars.

Thomas Fanning

So it depends on what the projects are. So like if you do solar projects which typically are much more near term oriented in terms of their cash flow as a result of tax benefits, you tend to get more of a near-term pop. If you're dealing with the gas combined cycle, those tend to have a longer construction period and longer-term profiles. So it just depends on what kind of projects they do.

Ashar Khan – Visium

Yeah, but let me ask you, wouldn't you be more inclined to like – even my home utility over here in New York has gone into solar. Isn't like solar near term getting that something more on your wish list versus building or getting, acquiring a gas plant?

Thomas Fanning

You know what, we really like long-term results. We are always cautious as a matter of corporate dogma not to invest in tax-advantaged investments as a primary strategy, because that tends to be addictive behavior. In order to provide a long-term growth trajectory you have near-term pops and you've got to double it for the next year and double it for the next year and double it for the next year and they you'll find yourself on the air because of storm activity or a variety of other things in tax carry forward positions. And therefore your tax benefits aren't worth what you thought they might be. I don't like particularly – tax-advantaged investing is a long-term good corporate growth strategy. The other thing is it could disappear into the hands of Congress at any time, right? We know that we're in a revenue-hungry Congress and how long can Congress afford to hand out preferential treatment to the renewables industry? So there will be some tax-advantaged investing in the form of solar investment, I get that, but we really like building long-term books of business that we've done successfully in the past.

Ashar Khan – Visium

Okay. And then can I just – Tom, I guess there was this cooperation that you guys did with Turner, right? Where does that stand in this whole scheme of things?

Thomas Fanning

Turner has been a great partner with us in co-investing. I guess, what is the ratio 90 to 10? So we invest 90%, they invest 10%. And they are great guys.

Ashar Khan – Visium

So how much investment has gone into that joint venture, can I ask?

Thomas Fanning

We don't disclose that. It's not much from their side. I mean, what we do disclose of the projects we've done.

Operator

Our next question will come from the line of Dan Jenkins with State of Wisconsin Investment Board. Please proceed.

Dan Jenkins - State of Wisconsin Investment Board

I was wondering when we think about O&M, you talked a little bit about what's going on but you've also announced a number of plant retirements, particularly small coal plants and so forth. And how should we think about that affecting O&M? Will that just be replaced with some other costs or will those costs go away related to those plants?

Art Beattie

Well, they are factored into our plan. They'll disappear as we move through time but those units probably have capacity factors that are well below the number Tom mentioned a moment ago. So their O&M levels and operation levels aren't very high to begin with. So, they'll be factored into our plan or reflected in our earnings growth range.

Dan Jenkins - State of Wisconsin Investment Board

Okay. And then I was curious. In your last quarter, you included a couple of slides that showed some upcoming construction for both Vogtle and Ratcliffe. And I just wondered if you could give us an update? Are those still the key items that we should be thinking about in the first half of '13 or are there any revisions to those slides?

Art Beattie

Yeah, we are, Dan. Tom already mentioned I think in some of his remarks we'll begin to finish up the rebar under these preliminary amendment requests that we have been approved by the NRC. We plan to pour our first nuclear concrete sometime in March. And after that we can set the cradle which will hold the bottom head and those are expected to be done in the second quarter of the year. So that will move things within the nuclear island along a good bit. So, that's kind of where we expect to go with at least this version of milestones.

Dan Jenkins - State of Wisconsin Investment Board

And given that you had a shipping problem with the vessel, when is that -- is that onsite yet or when will that be onsite?

Art Beattie

I would expect it's going to be onsite within the next few weeks. Sometime within the quarter.

Dan Jenkins - State of Wisconsin Investment Board

When is it critical that it’d be there, just so we could monitor that?

Art Beattie

(Inaudible) It's way down the list.

Dan Jenkins - State of Wisconsin Investment Board

How about with the Ratcliffe, you had a number of items that you listed there.

Art Beattie

Well, I think the pictures that we showed you on some of the slides do more justice than any of the specific descriptions because you can see just by the pictures alone year-over-year that plant has come a long, long way. We've got specific work on the gasifiers going on. That's going to be completed sometime within the next quarter and that is a critical piece of it. We still have piping that is being installed as well. So, those are kind of the critical elements at this point.

Operator

And at this time there are no further questions. Are there any closing remarks?

Thomas Fanning

Yeah. Thanks very much, operator. I just want to thank everybody on the phone and I appreciate everybody's kind of economy in their questions. We love to engage you in a very transparent way. We hope we've done that on this call. Certainly if there is any follow-up, Dan Tucker, Art, myself, Jimmy Stewart, others are glad to engage you on any issues you want to follow up on. Thank you for following our company, we'll do our best to earn your trust in the months ahead. Thanks very much.

Operator

Thank you, sir. Ladies and gentlemen, this does conclude the Southern Company fourth quarter 2012 earnings call. You may now disconnect.

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